Conclusion of Performance Appraisal Project

							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.     Indian SME Overview.
II.    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
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Welcome to 3.5m Indian SMEs!




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SMEs achieve Rs 8000 billion Sales




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SMEs have Rs 1000 billion
      Investment




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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
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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
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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
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      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.

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      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.
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       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.


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               Vision
• Songwon, Korea:
  – ‘Better Colour for A More Beautiful Life’.
• Asahi, India:
    – “To be a global leader in its field of
      Pigments by supplying quality and
        environment friendly products
            to MNCs worldwide.”
• Can you analyse both Visions?
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        Corporate Analysis
•   Past Performance
•   Corporate Emergence
•   Promoters Team – Most Important
•   SWOT Analysis




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       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!

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   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’
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     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
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       Technical Feasibility
•   Technology source and cost
•   Manpower Requirements & Costs
•   Pollution Control Measures
•   ISO Certification: 9000 / 14000




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        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!


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Sources: Financial Re-structuring
                             Rs Crore
 •   Term Loan SBI (FCNR/Rs) 13.82
 •   Equity Share Capital      43.84
 •   Unsecured Loan            07.98
 •   Reserves & Surplus        11.25
 •   Deferred Tax Liability    00.66
 •   TOTAL Sources of Finance 77.55
 •   Add: Working Capital Loan       24.00
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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
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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.

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          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.
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                       Questions?


                Dr Rajesh Khajuria, Director
TEAMPro Limited                                              www.TeamPro.org
dr.khajuria@gmail.com M: 94260 75402
   Data and Image Courtesy: SSI Annual Report 2003, Ministry of Small Scale Industries, Government of India
                             Dr R Khajuria @ TEAM                                                             31