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.

II.

Indian SME Overview.

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 Dr R Khajuria @ TEAM 5

Welcome to 3.5m Indian SMEs!

Dr R Khajuria @ TEAM 6

SMEs achieve Rs 8000 billion Sales Dr R Khajuria @ TEAM 7

SMEs have Rs 1000 billion Investment Dr R Khajuria @ TEAM 8

SMEs Export Rs 800 billion G & S Dr R Khajuria @ TEAM 9

SMEs provide 20 million Employment Dr R Khajuria @ TEAM 10

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.

Dr R Khajuria @ TEAM 17

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.

Dr R Khajuria @ TEAM 18

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 Pigments by supplying in its field of quality and environment friendly products to MNCs worldwide .” • Can you analyse both Visions?

Dr R Khajuria @ TEAM 20

Corporate Analysis • Past Performance • Corporate Emergence • Promoters Team – Most Important • SWOT Analysis Dr R Khajuria @ TEAM 21

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!

Dr R Khajuria @ TEAM 22

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’ Dr R Khajuria @ TEAM 23

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 Dr R Khajuria @ TEAM 24

Technical Feasibility • Technology source and cost • Manpower Requirements & Costs • Pollution Control Measures • ISO Certification: 9000 / 14000 Dr R Khajuria @ TEAM 25

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!

Dr R Khajuria @ TEAM 26

Sources: Financial Re-structuring Rs Crore • Term Loan SBI (FCNR/Rs) 13.82

• Equity Share Capital • Unsecured Loan • Add: Working Capital Loan 43.84

07.98

• Reserves & Surplus • Deferred Tax Liability 11.25

00.66

• TOTAL Sources of Finance 77.55

24.00

Dr R Khajuria @ TEAM 27

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 Dr R Khajuria @ TEAM 28

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

[email protected] M: 94260 75402 Data and Image Courtesy : SSI Annual Report 2003, Ministry of Small Scale Industries, Government of India Dr R Khajuria @ TEAM 31