ASTUDY ON FINANCIAL MODELING Veritas Finance Private Limited Submitted to THE UNIVERSITY OF MADRAS in partial fulfillment of the requirement of Post Graduate Degree in Master of Business Administration by D. KARTHIKEYAN Register No:712100475 2021-2023 Under the Guidance of Smt. Shakila B.Com, M.A, M.Phil Assistant Director of Cooperative Audit/Lecturer Shri. G. Suresh M.C.A.,MBA.,DCBM.,FDPM(IIMA) Director Natesan institute of cooperative management An Institution of National Council for Cooperative Training (NCCT), New Dethi an Autonomous Society promoted by Ministry of Agriculture & Farmers’ Welfare, Govt. of India (Accredited By C-PEC (BIRD -LUCKNOW) 2377-A,1V Avenue,AnnaNagar,Chennai-600040.VIVA-VOCE CERTIFICATE This is to certify that D, KARTHIKEYAN is the student of Natesan Institute of Cooperative Management, Chennai, the project work entitled __FINANCIAL, MODELING for the award of the degree of Master of Business Administration by the University of Madras and submitted to the External Examiner for the Viva-voce held on Place: Chennai Date: INTERNAL EXAMINER EXTERNAL EXAMINER THE DIRECTOR NICMGUIDE DESK Smt. Shakila B.Com, M.A, M.Phil Assistant Director of Cooperative Audit/Lecturer The Project work report “A STUDY ON FINANCIAL MODELING AT Veritas Finance Private Limited is carried out under my direct supervision and guidance by D. KARTHIKEYAN Register no: 712100475 for the award of degree master of business administration and the report is purely original work at Veritas Finance Private Limited. Place: Chennai Date: Signature of the Guide. iiiDECLARATION BY THE CANDIDATE 1D, KARTHIKEYAN hereby declare that the Project work report “A STUDY ON FINANCIAL MODELING AT Veritas Finance Private Limited” is based on an original study conducted by me under the guidance and supervision of an internal guide Smt. Shakila (B.com, M.A, M.Phil).That has submitted for the award of, the degree of MASTER OF BUSINESS ADMINISTRATION for the UNIVERSITY OF MADRAS, Chennai and this report has not been previously submitted for the award of any other degree, diploma, fellowship and any other similar titles. Signature of the Candidate Place : Chennai DateACKNOWLEDGEMENT Thave great pleasure to study at the Department of Management Studies in Natesan Institute of Cooperative Management, Govt. of India, and Chennai, which is having national network in the country. During my academic period, the institute shaped me as a complete intellectual candidate to work in the competitive world. Therefore, I would like to express my sincere regard and gratitude to our beloved Director Shri G SURESH M.C.A., MBA, DCBM. FDPM-II MA for giving me an opportunity to conduct a study and take part in this Project Work Study. I put forward my sincere thanks to MBA Programme Coordinator Shri. P. Raja Balachandran, MBA., PGDCBM., UGC NET (Mgmt), for all the support provided related to the Project Work Study. Lacknowledge my heartfelt thanks to my summer internship guide Smt. B. SHAKILA B.Com, M.A, M.Phil Assistant Director of Cooperative Audit/Lecturer for her valuable guidance, suggestions and encouragement from time to time throughout the Project Work Study. I thank all the Faculty Members of the Institute for all the support provided related to the Project Work Study. I convey my thanks to MR. HITHAYA JOTHI VP for all the support and information provided related to the Project Work Study. Lalso like to record with gratitude to the Office staff members, staff members of Department of Management studies and the Librarian for their timely assista vyCHAPTER CONTEN’ PAGE NO. NO I Industry profile 1 1.1_General Introduction 2 1.2. Industrial Background 3 I Research Design 7 2.1 Review of literature 8 2.2 Statement of the problem ul 2.3 Objectives of the study ii 2.4 Sources of data 12 2.4(a)Primary data 12 2.4(b)Secondary data 13 2.5 Components of the study 13 2.6 Sampling plan 13 2.7 Data collection instruments 13 2.7(a) Tools and Techniques of 4 Data Collection 2.7 (b) Statistical Tools for 14 analyses 2.8Data processing and analysis plan 4 2.9Limitations of the study 14 il Organization Profile 1s Iv Analysis & Interpretation of the Data 26 Vv Summary of Findings, Recommendations 34 and Conclusion. ‘Annexure 38 Bibliography 37 viLIST OF CHARTS Table Serial No Content Page No 41 Calculation of Income 28 Statement 4.2 Calculation of Working 29 Capital Schedule 4.3 Calculation of Debt 30 Schedule 44 Calculation of Fixed Asset 31 Schedule 45 Calculation of Discount 32 Rate 4.6 Discounted Cash Flow 33 ModelviiiCHAPTER -1 INDUSTRY PROFILE1.1 NON-BANKING FINANCIAL INSTITUTION (NBFC) NBFCs started humbly in India in the 1960s as an alternative for savers and investors whose financial needs were not sufficiently met by the existing banking system. The NBFCs initially operated on a limited scale without making much impact on the financial industry. They invited fixed deposits from investors and worked out leasing deals for big industrial firms, In the first stages of development, the Companies Act regulated financing. However, the unique and complex nature of operations and with financial companies acting as financial intermediaries, there was a call for a separate regulatory mechanism. Hence, Chapter IIT B was included in the Reserve Bank of India Act, 1934, which assigned the Bank with limited authorities to regulate deposit-taking companies. Since then the RBI has initiated measures to regulate the NBFC sector. The RBI accepted and implemented that hire purchase and leasing companies could accept deposits to the extent of their net owned funds, as per the key recommendations of James S. Raj Study Group formed in 1975. The Companies were also required to maintain liquid assets in the form of unencumbered approved government securities. Between the 1980s and 1990s, NBFCs, with their customer-friendly reputation, began to attract a huge number of investors. The number of NBFCs rose swiftly from a mere 7000 in 1981 to around 30000 in 1992, which made the RBI feel the need to regulate the industry. In 1992, the RBI formed a Committee headed by the former Chairman of Bank of Baroda, Mr. A. C. Shah, to suggest measures for effective regulation of the industry. The Shah Committee's recommendations included most things from compulsory registration to prude norms In January 1997 there were huge changes in the RBI Act, 1934, especially the Chapters III-B, IIL-C, and V of the Act seeking to put in place a complete regulatory and supervisory structure, which would protect the interests and also ensure the smooth functioning of NBFCs After the amendment of the Act in 1997, the NBFCs have grown significantly in terms of operations, range of instruments and market products, technological advancement, among others. In the last 20 years, the NBFCs have gained prominence and added depth to the financial sector. In August 2016, the union cabinet gave the go-ahead for foreign direct investment (FDI) under the automatic route in regulated NBFCs.1.2 PRESENT STATUS OF THE INDUSTRY ‘The Global Financial Crisis was primarily attributed to feather-touch regulatory approach, ignoring of the liquidity risks by financial intermediaries and unabated financial innovation. Abundant Liquidity, light touch regulation and financial innovation has also aided the growth of the NBFCs. The financial system today is significantly different from what it was at the outset of the financial crisis more than a decade ago. Regulatory reforms implemented in response to that crisis in India and globally, changes in technology and, more importantly, the growth of NBFCs have contributed to this dynamic landscape. The NBFC sector has become extremely diverse. The business model, customer profile and nature of financial products vary substantially depending on the category of the NBFC. The uniqueness of this sector lies in the inherent diversity of activities carried out by different NBFCs and thus, there can be no ‘one- size-fits-all” prescription in the regulatory approach for NBFCs. Perhaps a calibrated and graded regulatory framework, proportionate to the systemic significance of entities concerned is the way forward.Growth & Development of the Industry There is a view that any regulatory framework would ideally be designed according to the principle of proportionality. By extension, the spill-over of risks from a systematically important NBFC capable of transmitting perceptible impact on financial stability, must be dealt with in a proportionate manner. So, NBFCs with significant externalities and which contribute substantially to systemic risks must be identified and subjected to a higher degree of regulation. One can also argue that the design of prudential regulatory framework for such NBFCs can be comparable with banks so that beyond a point of criticality to systemic risks, such NBFC should have incentives either to convert into a commercial bank or scale down their network externalities within the financial system. This would make the financial sector sound and resilient while allowing a majority of NBFCs to continue under the regulation-light structure, Future Of NBFCs In India In the Indian economy, NBFC is playing a phenomenal role by providing excellent sources of funding. NBFC has gone through extraordinary progress over the past few years. In India, micro, small and me 1m enterprises. NBFCs are often used by the borrower as compares to the banks as they are quite efficient in meeting financial requirements. In the article, we will discuss the Future of NBFCs in India, how technologies are uplifting the growth of NBFCs, and how the Government is taking measures to uplift the growth of NBFCs.Challenges Faced By NBFCs Due To External Circumstances 1. Lignidity: As many states have already implemented the lockdown due to that many borrowers of NBFCs lost their significant revenue for a long time.as result of that there will be increase in defaults which ultimately cause the issue in liquidity and capital adequacy. 2. Increase in NPA: As large amount of borrower could not make payment on time it will resulted in increase in NPA. surge in NPA will have direct impact on recognition of revenue & business growth. For NBFCs having higher NPA could not be able to meet the covenants of bank credit lines which will ultimately impact on cash flows and their growth, 3. Increase in Credit Cost: Credit cost significantly increases for NBFCs as delinquencies required the recognition of higher ECL which will ultimately impact the profitability of NBFC. 4. Compound Interest Reversal: As supreme court is already ordered to NBFCs to reverse the compound interest charged to customer during the moratorium period it resulted in reversal of compound interest charged during the moratorium period which impacted the profitability of many NBFCs. 5. MIM losses on Investment: Given the sizeable portion of NBFCs’ investment portfolio may be classified at fair value profit & loss (FVTPL), the MTM losses could potentially increase as the covid-19 has significantly increased the market volatility and valuation which will resulted in wipe out a significant amount of profit of NBFCs and may further require capital to continue its trading operations.Higher Borrowing cost: Majority of NBFC are either borrow the fund from banks or from other NBFC. As Covid-19 has increase the significant amount of credit risk due to that cost of acquiring the fund is also significantly increased higher borrowing cost ultimately impacted the net earnings of companies. 7. Increase in technological investment: Many NBFC’s requires capital investment in technology as well. In recent scenario physical interaction with customer is very less, NBFCs need to adopt business and operational models powered by technologies that seamlessly facilitate the design, launch, implementation and execution of tailored products and services. Investing in new technologies and strategic partnerships with incumbent financial institutions and FinTech’s will allows NBFCs to lower their costs when it comes to increasing their customer base, lowering customer acquisition costs, servicing existing customers or de- risking the portfolio while trying to overcome the increasing formal credit penetration in a growing economy. 8. Increase in Employee turnover: Covid-19 has increased fear in employees that there will be no growth/lesser growth in NBFCs sector due to that many employees are moving to other industries which is resulted into igher employee retention/acquisition cost.CHAPTER - 2 RESEARCH DESIGN2.1 REVIEW OF LITERATURE Review of literature refers to the collection of the results of the various researchers relating to the present study. It takes into consideration the research of the previous researchers W are related to the present research in any way. Here are the review of the previous researches related with the present study. « Financial Modeling by( Simon Benniga) According to the readers of the Book, this is the only Book you need to read cover to cover if you want to learn Financial Modeling. This is particularly useful for people who don’t know financial Modeling and want to understand Financial Modeling as demand for their profession. Other than beginners, even people who know VBA, Advanced Excels, and complex financial Modeling should read this Book as a refresher Financial Analysis and Modeling Using Excel and VBA By (Chandan gupta) Many readers mentioned that this Book is one of the most comprehensive books for novice students. It explains every concept in detail. It is more than 700 pages, and within the pages, you will learn excel and VBA. But don’t expect too much from this book if you're an advanced professional. It’s written for beginners and would act as a great reference book for novice learners of Financial Modeling. Financial Modelling in Practice By (Michael Rees) This book is well balanced. You won't find a book on Financial Modeling, which has included both concepts and applications in the proper ratio. Moreover, the examples used in the book are invaluable for professionals in the field. This book will take youto the next level. If you already have fundamental training in financial Modeling, then you should pick this Book up to go beyond your comfort zone. If you're a beginner, It’s advised not to read this Book before reading something more basi + Financial Modeling and Valuation By (Paul Pignataro) This beginner’s Book on Financial Modeling is written so that even dummies in finance can understand. So it's not precisely aimed at advanced or intermediate students. If you are a beginner, this is the perfect place to start. Moreover, you will also learn to excel while learning the concepts. However, you may feel bored if you have some knowledge of Financial Modeling because this Book doesn’t skip any step. So if you want to learn financial Modeling and valuation and don’t want to spend a lot, t s the perfect go-to-guide for you. Financial Modeling for Business Owners and Entrepreneurs By (Tom Y. Sawyer) Significantly few books have come from the place of linking business thinking with Financial Modeling. Financial Modeling is a technical sl for sure, but entrepreneurs who are new in the field don’t know anything about the technicality of business. This Book has bridged the gap for new entrepreneurs. You will not only learn to develop excel models to raise capital increase your profits and revenues; you will also learn valuable project management skills from this Book. Financial Modeling By (Stephane Crepey) Until you lear the basics, it’s better not to pick up this Book. Backward Stochastic Differential Equations (BSDEs) provide information on how you can solve pricing andrisk management issues. You need to understand mathematics and statisties to be able to appreciate the value of the Book. * The Mathematics of Financial Modeling and Investment Management By (Sergio M. Focardi & Frank J. Fabozzi) ‘This Book is strictly not for beginners. The reason behind this is it’s written for people who already have some experience and fundamental knowledge in financial Modeling and especially in using the mathematical framework. This Book can be a great refresher for someone who wants to go back to the quants section of finance and revise the concepts. However, this Book will hold your hands and walk you through every possible concept you need to learn in quantitative finance. « The Oxford Guide to Financial Modeling By (Thomas S. Y. Ho & Sang Bin Lee) If you ever think of a book that will first teach you how to develop financial models and then it will show you in which cases you need to apply these models, this is it This is the book you should pick up to learn financial Modeling comprehensively. This Book will not only cover the models; it will also add how these models are relevant in present business cases. 10Statement of the problem In Veritas Finance Private Limited the statement of problems are as follows. s expansion purpose. © Notusing the Revenue for i accurately project a company’s future finaneial performance. © Can still more increase there products and services. re created and used by businesses to make important Financial model financial decisions that “should” result in positive outcomes, such as growth in sales, revenues, and profits. Financial models are created and used by businesses to make important financial decisions that “should” result in positive outcomes, such as growth in sales, revenues, and profits. 2. f th The major objectives of the study are to know about the Financial Strength and Weakness of VERITAS FINANCE through FINANCIAL MODELING. * Profitability Planning: The most obvious use of financial modeling is to optimize the day to day operations of a firm. Liquidity Planning: Companies around the world take on a lot of debt. This, is done to enable them to expand faster. However, with higher debt, the risk of Iso increased, default is * Credit Planning: Business is mostly conducted on credit. Companies need to extend credit if they want to increase sales. rt* Valuation of Companies: Investment banks and private equity firms also use complex financial models to arrive at a valuation for entire companies. Valuation of Financial Instruments: Lastly, there are financial models created for the valuation of complex financial instruments such as futures, options, and bonds. 2.4 Sources of data The project evaluates the financial performance of the company with the help of the most appropriate tool of financial Modeling like the Discounte Cash Flow, Capital Budgeting and Company Valuation. 2.4(a)Primary data Primary data is the first hand information that is collected during the period of research. Primary data has been collected through discussion held with the staffs in the accounts department, Some types of the information were gathered through General Manager of the Company. 122.4(b) Secondary data * Secondary data studies whole company records and the company’s balance sheet in which the project work has been done. In addition, a number of reference books, journals and reports were also used to formulate the theoretical model for the study. © Some information are also drawn from the websites. Components of the study + Income Statement. + Balance Sheet. + Cash Flow Statement. * Debt Schedule. 2.6 Sampling plan ‘The type of sampling used for this study is Purposive Sampling. A purposive sample is a non profitability sample that is selected based on characteristics of a population and the objectives of the study. Purposive sampling is also known as judgmental, selective or subjective sampling. 2.7 Data collection instruments 2.7(a) Tools and Techniques of Data Collection.OBSERVATION METHOD It is perhaps the technique most related to everyday life. It involves watching and recording the behavior of individuals or groups, or the events that occur in a particular place. One of the advantages of using this approach is one can choose when and where to carry out the observation procedure and so ensure that one will have a good chance of seeing the acti that the person wish to observe. 2.7 (b) Statistical Tools for analyses. The analyst has collected information and analyzed through the following financial tools. * Spreadsheet. © Template-based tools built with Excel. * Discounted Cash Flow. + Capital Budgeting. Data processing and analysis plan Asit is a quantitative report, data have been tabulated, analyzed and interpreted with the help of different financial ratios and statistical tools and most of the calculations were done through Microsoft Excel. 142.9 Limitations of the study Time-Consuming: Firstly, itis important to understand that financial modeling is a time-consuming exercise. This is because creating a financial model is a project which requires several tasks to be done. The data needs to collected, the underlying factors have to be identified, and the model needs to be tested for financial as well as technical irregularities. This model then needs to be made intuitive and user-friendly. Needless to say, all this costs a lot of time and money. Inaccurate: In many cases, financial models have proven to be woefully inadequate. The subprime mortgage crisis of 2008 is widely quoted while trying to explain this point. However, it needs to be understood that inaccuracy is built into the model itself. Nobody has the knowledge required to predict factors such as interest rates, tax rates, and market shares with utmost precision. Soft Factors Not Considered: Lastly, many mergers have failed because of soft factors such as difficulties integrating the culture of the two acquired companies. It is, impossible to build such factors into financial models. On the one hand, models take into account synergies which will be created by reducing expenses as a result of the merger. 15CHAPTER — 3 ORGANIZATIONAL PROFILEORGANIZATIONAL BACKGROUN \ )) VERITAS FINANCE Veritas Finance Private Limited (Veritas) is focused on meeting the financial needs of the micro, small and medium enterprises (MSME) in India, which has remained largely underserved despite several initiatives. A company run by professionals with rich experience in financial services industry, aims to make availing credit easy to this segment and make a positive impact on the lives of millions of Indians engaged in informal activities and who actually build the nation, A Non - Banking Finance Company, registered with Reserve Bank of India, the company has credited loan book of Rs. 3,344 crores, expanded to 286 branches and has 110,898 customers across various regions. Veritas Finance has been promoted with a primary purpose of meeting the working capital and business credit requirements of the small businesses in the MSME sector. 7MSME-Rural loans MSME-Rural Loans are part of a secured loan where the customers use their property as a guarantee and security. It is a multipurpose financial assistance which helps and empowers the borrower to understand the value of the owned property at the time of need. The reason for borrowing could be personal or professional. It is designed to meet the financial needs of a person who already owns a house, which is free from any impediment that is not given as security for any purpose, The eligibility for MSME loans depends upon various factors including the following important ones. * Income of applicant © Credit health of applicant * Property type # Property value MSME-Rural loans MSME-Rural Loans are part of a secured loan where the customers use their property as a guarantee and security. It is a multipurpose financial assistance which helps and empowers the borrower to understand the value of the owned property at the time of need. ‘The reason for borrowing could be personal or professional. It is designed to meet the financial needs of a person who already owns a house, which is free from any impediment that is not given as security for any purpose, 18The eligibility for MSME loans depends upon various factors including the following * Income of applicant © Credit health of applicant * Property type Property value CONSUMER EDUCATIO! ritas Finance Private Limited (“Veritas Finance” or “the Company”), is a Systematically Important Non-Deposit taking Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India. Veritas Finance has been promoted with a primary purpose of meeting the working capital and business credit requirements of the small businesses in the MSME sector. As per regulatory guidelines, to educate customers on the revised non-performing assets (NPA) norms and to sensitize them on the importance of due dates and other related aspects, this consumer education informa ion is being made available on the website of the Company. ‘The Company as per the process laid out typically intimates the borrower regarding the loan amount, annualized rate of interest, insurance premium, processing fees at the time of meeting a potential customer, who then fills out the loan application form having satisfied with the information provided as part of the direct sourcing process. Post sanction of the loan, the sanction letter issued by the Company clearly communicates the terms of the loan including penal interest for delayed payment, charges for bounce of payment instrument, tenure of the loan and the complete repayment schedule including instalment amount, split of principal and interest etc.; and more detailed information are given in the loan agreement. 19Cee HighPrme-Urban | SORPSO? | ACH | ‘Monthy LamCansucion | soRm/soc | ACH | Monthy Unsecured Cash | DaiyWesy Rs 10-30 lacs Rs 5-15 lacs Rs 0.50-2lacs MiniPrime land ACH | Monty | Rstdlas | 35yeas | 262% Prime sonpiso@ ACH | Monthly | Rstlacs | 36 yeas | hE PrimePis | SORPSO@? | ACH | ‘Monthy «| Rs3Tlcs | 36yeas | 224K fighprmeual | sORe/SocP | ACH | Monty, «| Rs7Slacs | STyeas | 821% MO yeas 5.10yeas months year 162% 18-21% 831% Secured Land/SORP/SOCP | Cash Daily Weekly Rs 2-10 lacs 25 yeas 26% 20INVESTORS OF VERITAS FINANCE «a SN British caspian = International "Ee Investment " evoivence | MaDAGATYAN India L. NORWEST s2iss LOK CAPITAL PARTNERS Joint Venture IDFC FIRST =F lal 21Vision To be recognized by our faimess, responsible approach, and service quality as the most admired company in the inclusive financing space by all stakeholders. Mission Make a difference and create pos of million informal customers of five impact in the lives micro, small and medium enterprises in India through sustainable financing solutions. Valu Veritas in Latin means “Truth”. As an organization, striving to make a true difference in the lives of millions of small businesses, Veritas Finance would always maintain high standards of ethies, transparency in all its dealings. The following Core Values of the organization build the Veritas Way of doing business. We strive to be organization which is: + Value-Driven in its approach * Ethical in all our dealings + Responsible in its engagement with people, focused on offering, + Inclusive and sustainable finance + Transparent and Fair practices * Accessible to the underserved segment to make a meaningful contribution + Self employed, Small Business segment of the society. 22Committees of the Board Audit Committee: + Members: + Mr.M. + Mr. Abhijit Sen, Independent Director araman (Chairman), Independent Director + Mr. N, Mohanraj, Independent Director «Mr. Gaurav Malhotra, Nominee Director - British International Investment Group Plc. Nomination & Remuneration Committee: + Members + Mr. Abhijit Sen (Chairman), Independent Director + Mr. N. Mohanraj, Independent Director + Ms, Priyamvada Ramkumar, Nominee Director - Lok Capital Growth Fund + Mr. Parin Mehta, Nominee Director - Kedaara Capital Fund I LLP Risk Management Committee: + Members: + Mr. Abhijit Sen (Chairman), Independent Director + Mr. D. Arulmany, Managing Director & CEO + Mr. Parin Mehta, Nominee Director - Kedaara Capital Fund II LLP + Ms. Priyamvada Ramkumar, Nominee Director - Lok Capital Growth Fund + Mr. Gauray Malhotra, Nominee Director - British International Investment Group Plc. Corporate Social Responsibility Committee: + Members: + Mr.N. Mohanraj (Chairman), Independent Director + Mr. M. Sivaraman, Independent Director + Mr. D, Arulmany, Managing Director & CEOStakeholders Relationship Committee: +» Members + Mr. M, Sivaraman (Chairman), Independent Director + Mr.N, Mohanraj, Independent Director + Mr. D. Arulmany, Managing Director & CEO Resources and Business Committee: + Members: + Mr. N. Mohanraj (Chairman), Independent Director + Mr. D. Arulmany, Managing Director & CEO + Ms. Priyamvada Ramkumar, Nominee Director - Lok Capital Growth Fund + Mr. Gauray Malhotra, Nominee Director - British International Investment Group Ple. IT Strategy Committee: + Members: + Abhijit Sen (Chairman), Independent Director + Mr. D. Arulmany, Managing Director & CEO + Mr. Parin Mehta, Nominee Director - Kedaara Capital Fund I! LLP + Mr. J. Prakash Rayen, Executive Director & COO & CISO + Mr. S. Parthiban, Chief Technology Officer Business Impact Committee: + Members: + Mr. D, Arulmany, Managing Director & CEO inee Director - British International Investment Group Ple. + Mr. Gaurav Malhotra, Non + E&S Managers: + Mr. Kumareshan Sivam, Senior Vice President - HR 24Asset Liability Committee: + Members: + Mr.D, Arulmany (Chairman), Managing Director & CEO + Mr. V.GSuchindran, Executive Director & CFO + Mr. J, Prakash Rayen, Executive Director & COO + Mr.M, Mahesh, Vice President - Treasury + Mr.R. Vijay, Executive Vice President Credit - MSME Rural & Urban + Ms. S. V. Laxmi, Senior Assistant Vice President ~ Analytics. 25CHAPTER- 4 Analysis & Interpretation of the Data 26ANALYSIS AND INTERPRETATION OF THE DATA In this chapter an attempt has been made to analysis how the Firm will perform in i up coming. uncertain future. Financial tools such as Income Statement, Working Capital Schedule, Debt Schedule, Fixed Asset Schedule, Discount Rates and Discounted Cash Flow Model have been used for the purpose of forecasting. The financial statement involves recording classifying and summarizing of various business transactions. It is prepared for the purpose of presenting a periodical review or report of the progress made by the concern and deals with the state of investment, in the business and ‘result achieved’ during the accounting period, Financial Statement, income statement and position statement are the outcome of accounting process. ‘The discounted cash flow (DCF) analysis is a finance method to value a security, project, company, or asset using the time value of money. Discounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management, and. patent valuation, investment Discounted cash flow or DCF is the method for estimating the current value of at by taking into account its future cash flows. It can be used to determine the estimated investment required to be made in order to receive predetermined returns 214.1 Calculation of Income Statement TAGURESINS LAKH Hiri Prjedon myn to Sas 1358558 36167 836488 SUI KR S108 Geom, 1038, 031% 039% 053000 00 L700 2400008 3% 2534005, Cast of Saks 0 tne T2164 12898 1SSB62IS IOONLBG TSH THD ISARSS 16509 Gs Pot 950316931 2008 ASAT TORTS SMHS MOTIIST SIMAS S119 Geos Profit Magis TG 614% HAST. BINT LS. LBH, SAIN RODS Othe Operating Espen 4651864 S41 10981535081 HBAS 1367687 1413803 506 Depron and Anorizaton mM GMS MD ABR ND Le 5m7 Inert Exes is) 2 45il2sT 44428 STRRLA BLN 2BMS4 1769 Opering Pro (EBT) 466 4531 1250 DQG LOTS 6TAIP TONG SI541 1853 peng prot 2584 164% BA TON AHH HSIN MISH HRIDN 3K ‘Ta Rates 156% B26 ROW TK HTN BON ISTH BR 129 Dae Tax 3 4 ‘st TxEiperes 3s 3is3 SNOL056 NN oeAL TD SLOW TRS Interpretation The above Excel Sheet shows me that the firms, EBIT has been drastically increasing for the First three years ie from (2023,2024,2025). There is a small in 2026 and 2027 Because the cost of sale is increasing. But its not going to affect the business a more. The increase in EBIT. attracts new investors who are interested in investing in Company. 28FIGURES IN$ LAKH Historical Projection mmm wo mS mT Cuma sets Dios ee WSS 1SS——5 85 093 Ineo MSG GIB AMD 91ND STT27 SMR at 3881 0771 330.705 (ter Cure Aves a a 12155518957 L015 se790 219961 ‘Tol Coat Ass Coe ee TSMR TSAR TALS IDRIS TORS (Cents Crain 0S) TTBS). 16. TN HTL ALTA ‘ond oe Is] SSS S81 ESTA SST “Tol Curt Lites a Ne Wing Capit Change $5108 TY E010 ASIA BIT UID 18644 16S (Chane in Winking Capital BB my No 61S) SQLMBT NSUOSET DBS CNT Das Day decal 1 4 (eae | Ee ee Inet Dy aeseeas 3 is (Ea ter CAs of Reeme 3187428408 0% AWK 3.88 LAOH 43 Crt Days ieee 3 q 4 q 44 cud Inne of oping eens 0% 155) HOH 085% OTH OTH OH Interpretation The above Excel Sheet Shows, that the working capital, has been continuous increase. This is good sign, When there is more inflow and out flow of working capital. It will lead to growth of a business. 294.3 Calculation of Debt Schedule FIGURES IN$ LAKH ical Projection 2019 m0 ae MB 0h MS Debt Schedule Opening Balance 10882 19209 38708 $3075 wo DT 196668827 ‘Add/Les: Debt Taken|Repaid) 8327 19499 14367-28868 080-2500 3000-800 3700 Closing Balance 10882_ 1920938708 2407 nin ear i687 Interest Expenses 1632 2904S 2057, 414.238 3788.142 3360.142 2846542 1476942 Interest Rate 15.00% 17.13% 11.65% 3.88% V72% 17.10% 172% 17.12% 17.12%, Interpretation In this case the company debts have been falling from 2022 to its next consequent years. ‘This shows us a positive sign. When there is less Debt Ratio of a company, there is less Burden to its shoulders. High debt equity ratio means that the company is lending capital from others to finance its growth, 304.4 Calculation of Fixed Asset Schedule FIGURES INS LAKH Hisrica Projection amg 2mm tant 2 203 ems msm Fred Asset Schedule Opening Balance 102 Met OL 1826 2053 BRA zzTeOS 23267 236708 ‘Ad: Net Pcchase wn 1966 10571552 166128 MOD14 155189 158184157201 Total Fed Aset 7337 «3878 3714266 3714286 3528189 3858057 3946.058 Less: Depreciation 822126 13321425 1402163 1496.19 1502954 150L075 1520653 ‘Cosng Balance mast 2201 1826 2053 WB12.168 T2TB 7526228 2367.00. 2423.05 Rate of Depreciation 35.00% 360% 40.00% 40.00% 37.75%" 38.67% 39.25% 38.81% 38.56% Fed Asset Tun Over Ratio S799 ILL B08 BO Be Boe BO B08 ‘Other intangible assert schedule Opening Balance 165 mea mo SS ‘Ad: Net Puchase : sramikiretkrenirate Toalintangible Assets mm [cy cy (Cosng Balance em) aul ice so ea aca cay fate Amortization % Oh Ow a a a Interpretation ‘The above sheet shows us the fixed set of the organization, The asserts have been increasing year after year. This show the profitability and the financial position of your business. create accurate profit and loss reporting. increase goodwill and positive attitudes towards your business. assure shareholders and attract investors. 314.5 Calculation of Discount Rates a fe Re oro12003 7308 eC Ls ACC Calais | Rak ete 12105 ‘AsiCompary penis On Aaa Repos ‘ASiCaumuy bk emi Awa Dahar datet nnd Wd 31H Cost of Debt ie 109% We shox wwace 76% rk ete vaa03 1308 Bea 070% Reno Market Los sak fete oro.205 130% Cost of ity 0% Cakeation of eum of market stat de soo10is 25296148600 Nala te 4203 3473.10 Yew 5 exc 1768 Coleaation of mare wht stare ousting 90281 prc pr share 2123 ‘aes ofthe ey ses hss Nes of ete 207 Cotati of Beta (Fo snr cnpry Dis) Date aj Chose Retrnof Maict— Date adj Close Returof Market hw23 226865 158% ‘ans 5950890 212% Dea? 2510 3566 Deze e840 358% Nowa 34% Now22 608865 36% own 3958 oz case 7% 238 Sep22 1.692 35% a9 fg 2 458707 30% ets ize s7s702s 35% 176165 jun22 s30nas 458% sas May22 5556641 22% ams tor22— sn0k087 asr% 1020 Merz 5856851 4% 139790 Fen 5620728 305% Interpretation ‘The use of discount rate has become an integral part of CBA because a high discount rate tends to give a lower value to benefits which accrue after longer periods and result in giving more attention to the interests of future generations. This is the major part of calculating the DCF Model. This Sheet indicates the Debt and Equity of the firm. 324.6 Calculation of Discounted Cash Flow (DCF) 1 2 3 4 5 42S 20062027 2023 EBIT 16227.54 16778.19 2012663 195054. 18592.7 Less Tes ~3002.0649 4320.38, -6641.79 5022641 3718.54 NOPAT 1322451 12457.81 1MB484 14182.76 1487416 ‘Add: Depreciation and Amortization, 1402.14 1436.19 150293 1501.93 152065, Lesslnvestment in Fined Assets 1611.21, 1402.14. 155193. 1541.84 -157701 ‘AddiLess: Working Capital Changes -1161.52 458.14 29502 284.09 1900.07 FCFF 118548551 12950 1373086 1472694 16717.87 Discount factor 095886553, H I 1 1 Present value of Explicit period 69492.8796 Exitrmiple EVIEBITDA 15 EBITDA 69507.8796 [ENTERPRISES VALUE(Terminal Value) 51585.655 1042618 present valu of terminal value ‘Total Present Value of Operations 121078535 ‘Ad:Non Operating assets inluing cash 385 Value of Firm TASS Less:Debt 24007 Value of Equity 97256566 Shares Seuate 450.281 Interpretation This sheet shows us the present Value of expected future cash flows. According to this sheet the Terminal Value is 51585.65(in lakh), that means assumption of the busines at a set growth rate forever after the forecast period. 33Chapter —5 Summary of Findings, Recommendations and Conclusion 34Summary of Findings, Suggestions, and Conclusion Free Cash Flow Of the Firm(FCFF) 18000 16000 4000 12000 10000 8000 6000 4000 2000 ° mSeriesi mSeries2 Series? mSeriesa mSeriess This chart tells me that the free cash flow of the firm is increasing year after year. More over the Income Statement, Fixed Assets and Debt Schedule have shown a positive sing. Even in the pandemic, the company has not suffered a lot but was able to generate revenue of 16.4% to 39.5% But they have overcome the struggle and used it as an opportunity and earned a profit. Itis the highest profit earned by the company in all five years is 47.6% after the post covid. The operating expenses are more than the year after year, but their firm manages to generate sufficient Revenue to face the expenses. Working capital of the company is increasing and decreasing alternatively. Fixed Assets have been raising which adds benefits to the organization, Which increases the worth of the firm. But the firm has not maintained a reserves. There Cost of goods sales s being is increasing which is not recommended to continue at the same rates. The organization has to look after other expenses as they have a short fall. The estimated cost for other expenses was 89.10 lakh but it crossed to 126.4 lakh. 35SUGGESTIONS 1. Veritas Finance cat \crease their operations even more because there is a positive cash flow of the next forecasted years. 2. They can decrease their interest slab rates, as this will increase their Customers as well ass their revenues, 3. The company can focus on maintain the proportion of current assets and current liability which helps to improve better working capital management. 4, The organization can expand their Business and products, and take further more risk be taken as they have sufficient funds to tackle it CONCLUSION In India, the Non-banking Financial Companies (NBFC’s) acquire a new meaning and shown robust growth in recent years. The NBFC's is such corporations which are not banks, and yet carry lending activities almost at par with banks Veritas Finance is a growing and leading organization in NBFC. As regards to their strategic management, they are in the position to take a competitive advantage. Money is a major factor for living. As long as there is money need there is business for the company. The gross profit ratio, net profit ratio is showing the increasing trends.As they focus on the ongoing trends to adapt and to survive in the market, they should also on financial performance and position. 36BIBLIOGRAPY + Mr. M. Sivaraman (Chairman), Independent Director + Risk Management Committee- Mr. Abhijit Sen + Stakeholders Relationship Committee- Mr. M. Sivaraman + Asset Liability Committee- Mr. D. Arulmany REFERENCES Financial Modeling in Practice: A Concise Guide for Intermediate and Advanced Levels — Michael Rees. hutps://youtu.be/bE7FfmY24ns ‘The WallStreet School @TheWallStreetSchool (Youtube) /course/beginner-to: Xcel. From Udemy. 37ANNEXURE 387 Balance Sheet as at 31 March 2022 {All amounts are in Indian Rupees in lakhs, except share data and as stated otherwise) Particulars ASSETS Financial assets (Cash and cash equivalents 1481097 Bank balances ather than cash and cash equivalents 2761427 Loans 1.521423.49 Investments 17'500.74 Other financial assets 440.91 Non-financial assets Current tx assets (net) 9 Deferred tax assets (et) 29.2 Propety, plant and equipment 10.1 Right of use assets 102 Intangibles assets 103 Intangibles assets under development 104 Other non-financial assets n Total 27,486.17 LIABILITIES AND EQUITY Financial liabilities Trade payables 2 Toa oustanding dues of micro enterprises and smal enterprises Total outstanding dues of creditors other than micro enterprises ‘and small enterprises 291.61 Debt securities 13 53,074.52 Borrowings (ether than debt securtios) “4 72,340.01, Other financial liabiities 15 1,486.47 427,192.61 ‘Non-financiat abilities Provisions 16 390.12 Other non-financial liabilities ” 1101.64 1491.76 Equity Equity share capital 18 10,017.80 Other cauity 9 78,784.00 Total 217,486.17 Significant accounting policies 3 The notes referred to above form an integal part ofthe tinancial statements As per our report of even dat attached for Sundaram & Srinivasan {oc and on behalf ofthe board of tector of Chartered Accountants, Veritas Finance Private Limited Fre fest 0042075 WA Wa Sana Mohan} ©. Avimany Parise Director Managing Decor an Membership No. : 211785 DIN 00181969 Chit Eetve Oc mn 00009981 vhs wel hon yo VG. Suchindran Vanna Che Finan! Ofer Company Skeretary ana Pace Chennal as Gel Compliance Ofcer Date 28 Ap 2022 Face enna aoe Membership No A6OO78 39Statement of Profit and Loss for the year ended 31 March 2022 (All amounts are in Indian Rupees in lakhs, except share data and as otherwise) Particulars SEU Revenue from operations Interest income 20 34,902.17 Fee income 21 ‘492.54 Net gain on fae valve changes 22 615.07 Total revenue from operations Other income 23 Total income 36,167.29 Expenses Finance costs 2a 12,164.59 Impairment on financial instruments 25 4,044.59 Employee benefits expensos 26 8,421.28, Depreciation and amortization 27 1/332.59, Other expenses 28 Total expenses. Profit botore tax 8,208.14 Tax expense Current tax 29 2,853.00 Detorad tax 292 Profit after tax forthe year 6,202.02 Other comprehensive income ems that will not be reclassified to profit or loss. Re-measurements of the defined beneft obligation 302 19.72) come tax relating to ers tat wil ot be reclassified to pot orlass 29.2 30.13 (Other comprehensive income forthe year ‘Total comprehensive income forthe year, net of income tax Earnings per equity share of Rs. 10 each “Basie = Diuted Signicant accounting policies 3 ‘The notes referred to above form an integra part of the financial statements As per our report of even date attached ‘or Sundaram & Srinivasan for and on behalf ofthe board of cirectors of Chartered Accountants Veritas Finance Private Limited Fis Registration No. 0042078, 7 i : yy ¥ Py SUsha IN. Mohanta} . Arulmany Partner Director Managing Director and Membership No, : 211785 DIN 00181969 Chiot Executive Officer DIN ; 00009981 vb. swebtalian 9 A) VG. Suchindran V. Aruna Chiat Financial Oticer Company Secretary and race : Chennai pelea Compliance Officer Date : 28 April 2022 Date | 28 Aenl 2022 ‘Membership No. AGOO78 40Veritas Finance Private Limited Cash flow statement forthe year ended 31 March 2022 (amounts are in Indian Rupees in lakhs, except share data and as stated otherwise) Cash flows from operating activites Prott before tax forthe year 8,204.14 ‘Adjustments for Depreciation and ameotisation 1,332.59 Irmpaiment on financial instruments 4,084.59 Stock based payment to employees 489.02 Change in aie value of iancial assets designed as FVTPL 1493 Interest income on security deposit (24.63) Profit on disposal of leased assets (475) Finance costs 12,164.59 (Gein) / oss on sale of PPE i Interest income on fied deposits (2,106.13) Gain on sale of vestments, net (613.45) Operating cashflow before working capital changes 23,500.80 ‘Changes in working capita Increase in tons (28,535.86) Increase in other nancial assets 2.74) Increase in other non-rancia assets 9.57) Increase in trade payables 87.40 Increase in other financial lisbities 84.21 Increase in provisions 102.49 Increase in other non-fnaeial abilities 182.37 ‘Cash used by operations 700.80) Finance costs paid 11,410.08) Direct taves po (net) (2,770.20) Net cash used by operations w (18,881.06) ‘Cath lows from investing activites Purchase of fed assets (302.08) Increase in bank balances ther than cash and cash equivalents 22,916.29) Interest received on bank balances other than cash and cash equivalents 2,106.13 Purchase of investments (3,07,393.20) Proceods from sale of investments 2,96,805.87 Net cash generated trom / used in) investing activites (1,699.57) 41rr te eine Snoiecr Cash flows from financing activites Proceeds from issue of prefrence shares including securities premium Proceeds from issue of equity shares including securities premium 24.87 Payment of lease bilities 13.01) Payment of share issue expenses Proceeds from debt securities 27,000.00 45,474.97 Proceeds from borrowings (ther than debt securities) Repayment of debt securities Repayment of borrowings (other than debt secures) [Net cash generated from financing activities © (35,240.09) 23,146.74 (27,433.89) 42,248.86, 14,810.97 [Net increase / (decrease) in cash and cash equivalents (A) + (B) +(C)) Cash and cash equivalents atthe beginning ofthe year Cash and cash equivalents atthe end ofthe year 4 42Balance Sheet ‘Vertes Finance Private Limited atace sheet at at 1 March 2020 (Amant ein Indian Rapes ks excep share tad as ate thers) i Non-iaacal ante Corea eee (oe) ° Deford ast) saz Prop. lam and einen ror 1038 8603 Ri of eames 02 Inangbes aes 103 Ian ets ade deepen tos Tout LIABILITIES AND EQUITY, Fanci bates Tiade payables 2 "Tota outtanting dc of micro ctr nd sallenerpmie : : 2 "Toa eating cof eon be an mice trae 20021 so sus eda ener Detain 8 sazo4ss 2939 tos271 Barings tr than bt sec) 4 mn 020.9 rein) rhe racial bie 5 140839 139033, 798 TeRSo1.70 wager waa. oy Coren a abies 6 fi ros Tae sae aT Eauiy uy sae capita » 1000380 aso savas Ont eiy 2 7217806 3574464 S347 waTES S08 16ST ‘Tout Isa i = ‘Sinica scouting policin 3 ‘The oes refed to above frm an inter pat ofthe facia statements Aspereur rept of een date tach for BSR & CLL fer and on itl of the bol of do of ‘Chartered decomiots ‘era Fiance Private Lined — Terawd WA Membership No, 20349 DIN 02085100 IN: omNo581 vhs web clan — Modtnu V.G. Sechindran NA. Madan CietemealOfios © Compeny SonySe Statement of Profit & Loss Veritas Faance Private Lito Statement a pro and ou for the ear ade 1 March 209, (Asmount in dan Raps th hope share ata ted thew) ‘mare nome Pa Net gun fava hanes 2 ‘otal even fram operations Ort nen u 9s ‘Totaincome Ter Expenses npannenton Sac mira, Employes benels xpos Daprecition andweiation Orbe execs A005 assis sat wEseE Pro efor tae asa aaa Tax expeme » ‘Covet isis 1s09 Deford as 4972) 38676 teat oy Prot ater fo the ear aasae 08s ‘omer comprehensive income cm that il tbe recat pra ro Remarc fh del bec obligato Income lng ems that il ate ello proto sar oe Otter comprehensive income forthe year Tea eae nce fer heya of nema —_———ese ee ings Per ogtysharof Re 10 cach 3s Base an 0 Siem scrating potiies a ‘Theater fered above frm an integral pa ofthe Sania wate |Asprour pot often ne tach for BSR &CoLLE foc and on ea fh bo fds of (Chere Acco ‘Vestn Fnac Private ited Fi Region No 10128W/W-100022 - Thee WA Parmer Dieser Manag Deter and Chie Excetve het Membership No: 203491 DIN: c204s100 IN 0009581 veh. sel clan Medes hit Fail Ofer Company Sereay Membership No." ASSATOS Cash Flow Statement evita Fnance Private ined ‘Cash ow statement forthe year ended 31 March 2020, (Aamount tein aan Rapes abs, xp sar dat and ae tere) ‘Change in a aoe fancies eine os FTP, Intra come on vey Spat Prt dips of eae aes co (Gein aso sl of PE Tet eon ed dept (Operating ash Bo bere wertag capital changes Changs a worhng epi reas nether anil sts ‘cen in che eo nce Ines nae psa Incense rovsons| {Cas esd y operations Fee espa Dist no pd nt) Neteash wed ty operations ‘Cah ee from venting cites Parc of fad ct Proceed nae ofl st Ince in ban altos te an at an ath quent ed eh ths clerk aca opinions Parchment ccs fom mle of vcxmens teas gored rm (nein) vet tite ‘Ca os rom Beaning cites ‘recede fom me of prefer ling ean eat ‘Pred mo a hres lng se rem Payment ane aie Payment of shar sic eapeses ‘Pred fndb scares raced fn bowing (ther than det scat) Repusment of ern other han eb cert) ‘et eash generated rom Bnancing ates ‘et increne creme) cm amd ca cquralets(A) + (B)+(€) ‘Caan ah cea a be bagiing oe yur (Cosh and ca cquvalents at he a of the ear 45 Z B 2 s ow » © sonar 1.24620 131027 dase (260 e297 a7 woaar39 ‘oa msn osm rss) 67) i730 ‘aw Tame xsi) 142456) 26) ess) 163.05) 31.98 395 ween. 6.9530) (oH285) ai) ar, cory) 103 2.17035) 6479013) sas ra sass 299810 (ers) (ae345) area -seonsor “aise cee a rn