Description
The documentation describes financial appraisal of cotton yarn company.
Project on Financial Appraisal – COTTON YARN
Project on Financial Appraisal – COTTON YARN
ACKNOWLEDGEMENT
At the successful completion of our project, we would like to express our sincere gratitude to all the people without whose support this project would not be completed.
At the onset, we would like to thank our institute “FORE School Of Management” for giving us the opportunity to undergo this project.
We would like to acknowledge the constant help and encouragement of our guide Dr. Ambrish Gupta, who has given his valuable suggestions and expert guidance and support.
We would also like to thank all those who have directly or indirectly helped us in the preparation of this report.
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Project on Financial Appraisal – COTTON YARN
TABLE OF CONTENTS
1. COMPANY BACKGROUND ......................................................................................... 4 1.1 ABOUT THE COMPANY .......................................................................................... 4 1.2 ORGANIZATION .................................................................................................... 5 2. PROMOTER’S BACKGROUND ..................................................................................... 7 3. DETAILS OF THE PROPOSAL PROJECT ........................................................................ 9 3.1 COST OF PROJECT ................................................................................................. 9 3.2 MEANS OF FINANCE ............................................................................................ 11 4. KEY FINANCIALS ..................................................................................................... 13 4.1 PROJECTED PROFITABILITY ESTIMATES (WORKING RESULTS) ................................. 13 4.2 BALANCE SHEETS ................................................................................................ 16 4.3 CASH FLOW STATEMENTS.................................................................................... 18 5. ASSUMPTIONS ........................................................................................................ 20 6. PROJECT VIABILITY ................................................................................................. 21 6.1 IRR ..................................................................................................................... 21 6.2 TERMINAL CASH FLOWS ...................................................................................... 22 2
Project on Financial Appraisal – COTTON YARN
6.3 WACC ................................................................................................................. 22 6.4 COMMERCIAL BREAK EVEN POINT ........................................................................ 23 6.5 CASH BREAK EVEN POINT .................................................................................... 23 6.6 DEBT SERVICE COVERAGE RATIO ......................................................................... 25 6.7 SUMMARY OF EVALUATION ................................................................................. 25 6.8 RATIO ANALYSIS ................................................................................................. 26 7. SENSITIVITY ANALYSIS ............................................................................................ 28 7.1 SENSITIVITY SUMMARY ........................................................................................ 28 8. CRDM .................................................................................................................... 29 8.1 TOTAL OUTSTANDING LOAN/TOTAL NETWORTH ................................................. 29 8.2 CREDIT RISK DETERMINATION MODEL (TERM LOAN) ............................................ 30 9. NOTE ON VIABILITY ................................................................................................ 32 10. APPENDIX ............................................................................................................ 33
10.1 PROJECTIONS OF PROFITABILITY ........................................................................ 33 10.2 WORKINGS OF SENSITIVITY ............................................................................ 41
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Project on Financial Appraisal – COTTON YARN
1. COMPANY BACKGROUND
1.1 ABOUT THE COMPANY
KANHA Spinners is a new organization in the trade of cotton and its related products. A prime manufacturer and supplier of Cotton Blended Yarn, White Cotton Yarn, Organic Cotton Yarn and Pure Cotton Yarn. The organization will be synonymous with quality, consistency and excellent business ethics. Aims at being India’s famous company to have a branded presence in the entire spinning industry. Our yarn is specially designed for the manufacturing of Terry towel, bed sheets, canvas house etc. Company aims at becoming widely well reckoned as the distinguished Cotton Yarn Manufacturer and amidst the leading Suppliers from India. It has built a huge list of reputed clients spread all over India viz. New Delhi, Ludhiana, Meerut, Kanpur, Sholapur, Panipat, Calcutta, Bihar etc. Due to the impeccable quality of its yarns, they have gained maximum orders and indirectly with Welspun India & Arvind Denims (I) Ltd. Last but not the least; the main motive is to create reliance and credibility among our esteemed clients. It is incepted in the year 2011. It is established by Mr. Madhusudan Partani (CEO) and Ms. Shivi Aggarwal. The founders of the company have vast experience and knowledge in this domain. Due to the diligent efforts of the founders, it has been able to stand in the midst of overriding Cotton Acrylic Yarn Suppliers from India. Mr. Manish Sharma and Ms. Radhika Gupta are the driving force and are like sheet anchors in the smooth running of the mill. They have vast knowledge in the fields of education, construction and real estate. Mr. Manish is the financial head of the company whereas Ms. Radhika holds the position of a managing director. The company will achieve a distinct edge in the manufacturing of natural cotton yarn, Organic Natural Cotton, Cotton Knitting Yarn, Wholesale Cotton Yarn etc. Apart from this the marketing efforts of Mr. Akhil Gupta will help the company in increasing its customer base. He is presently the marketing head of the company.
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Project on Financial Appraisal – COTTON YARN
Team Work The Company has a strong technical and highly qualified team of experts, who earnestly handle specific delicate arena of spinning. The production, sales and HR employees have an immense experience of their field. They are very dedicated towards their work and always keep themselves abreast with the changing market needs. It conducts various training programs at regular intervals, so that the team update themselves with the latest trend of the industry. Quality The strength of the company lies in the quality of their cotton yarn and raw cotton. They have one of the best quality control systems and plants from Germany and use stringent quality checks to ensure the quality before dispatching cotton yarn to the esteemed clients. The company always assures its clients to cater the qualitative and natural cotton yarn. Our Mission The main motive is to offer unparalleled quality, highly efficient and pure cotton so that it can define the company. It continuously endeavors to increase the production capacity and quality of yarns, so that it can contribute in cotton yarn industry up to a large extent.
1.2 ORGANIZATION
Name of CEO Managing Director Chief Financial Officer Chief Marketing Officer Chief Operating Officer Establishment Year Primary Business Type No. of Employees Market Cover Mr. Madhusudan Partani Ms. Radhika Gupta Mr. Manish Sharma Mr. Akhil Gupta Ms. Shivi Aggarwal 2011 Manufacturer 100 New Delhi, Ludhiana, Kanpur, Meerut, Sholapur, Icchalkaranji, Panipat, Kishangarh, Beawar,
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Project on Financial Appraisal – COTTON YARN
Burhanpur, Calcutta & Bihar. Registered Office Corporate Office 123, Jatti Wada, Meerut City - 250001 12A, Arjun Marg, DLF City Phase I, Gurgaon, Haryana 122002
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Project on Financial Appraisal – COTTON YARN
2. PROMOTER’S BACKGROUND
Mr. Madhusudan Partani After finishing his Bachelors in Commerce and MBA, he has worked in various sectors but has a vast knowledge in the field of manufacturing of cotton yarn. He initially worked as a Management Trainee in Visvesaraya Cotton Industries for a period of 3 years during which he learned a lot about exporting. Then he worked with his father who had the similar business of manufacturing. During his stint of 5 years with his father they successfully turnaround the company and initiated a lot of projects. Ms. Shivi Aggarwal One of founders of this company she has done her Bachelors in the field of Biotechnology and MBA in the field of operations and finance. This gives her ample knowledge of this field. Her initial work was with an export house of Arvind Mills. Then she shifted to Visvesaraya Cotton Industries where she applied her knowledge of the operations management and of an export house and became a Senior Manager in a period of 5 years. Mr. Manish Sharma A software engineer who started his career with serving the IT industry but with a focus over finance sector and t after completing his majors in Finance during MBA he started a company with his friend Akhil Gupta. It was a polyester manufacturing company which was able to reap profits only in the second year of its operations. After successfully running the company for a period of 7 years they sold it to Reliance. This gave him a lot of knowledge regarding the manufacturing and export industry. Ms. Radhika Gupta The Managing Director of the company and a close friend of both Mr. Madhusudan and Ms. Shivi, She did her Bachelors in Commerce and MBA in finance and marketing. She has served companies like Arvind Mills and Dinesh Cotton Yarn and has served as a Vice President of Anila Cotton Yarn. With a vast experience of 12 years her presence is beneficial to the company Mr. Akhil Gupta The marketing head and the face of the company, he is specialist in marketing. His earlier venture in the polyester manufacturing saw his skills with orders coming from 7
Project on Financial Appraisal – COTTON YARN
various parts of the world. And now also even before starting he has been able to rope in orders from some major customers.
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Project on Financial Appraisal – COTTON YARN
3. DETAILS OF THE PROPOSAL PROJECT
Company will be indulged in high quality supplies of Superior quality cotton yarns. Our product contains knitting yarn, cotton yarn, combed knitting yarn, organic cotton yarn. These products have domestic as well as international marketplace. Neat spinning, durability, color fastness, requisite elasticity, etc., are some of the features that will be offered by us to the consumers. Meeting the stringent application requirements of varied industries, these combed knitting yarns comply with the requisite industrial standards. Our products will be available in multiple packaging options to cater specific needs of textile, garment, weaving and many other industries. All Counts of Yarn are available ranging from 20/1, 24/1, 30/1, 40/1 and other counts.
3.1 COST OF PROJECT
The following table shows the break- up of the cost of the project ITEM Land and site development Building Plant and Machinery Miscellaneous Fixed Assets Preliminary and Public Issue Expenses Pre-operative expenses Contingency margin 9 15.58 11.10 AMOUNT (Rs. In Lacs) 10.08 52.16 308.63 25.00 30.00
Project on Financial Appraisal – COTTON YARN
Working Capital Margin TOTAL
35.48 488.75
Land & Site Development
.
Rs
10.08 lacs
The project is going to be set up at plot no 10, Katla Market, Gurgaon. The land has been bought at the price of 10.08 lakh by Haryana Urban Development Authority.
Building
Rs 52.16 lacs
The construction cost for building 1000 square meter office at a rate of 5216 per sq meter .Outlays on buildings to be constructed are considered reasonable
Plant and Machinery
Rs 308.63 lacs
All the items of the plant and machinery are proposed to be procured indigenously .All the costs related to plant and machinery are considered reasonable.
Miscellaneous Fixed Assets
Rs
25.00 lacs
Miscellaneous Fixed Assets consist of furniture 5 lacs, computers 5 lacs vehicle 10 lacs and other items 5 lacs.
Preliminary and Public Issue Expenses
10
Rs
30.00 lacs
Project on Financial Appraisal – COTTON YARN
Preliminary and capital issue expenses consist of underwriting and brokerage fee – Rs 15 lacs, Adverting fees – 5 lacs, Issue Management fees – 5 lacs and expenses on prining, registrar, banker and postage – Rs 5 lacs. All the expenses are considered adequate and reasonable.
Pre-operative expenses
Rs
15.58 lacs
Pre operative expenses consist of mainly of establishment expenses and travelling expenses- Rs 5 lacs, interest during construction – 5.58 lacs and appraisal fee – Rs 5 lacs. All the expenses are considered reasonable
Contingency margin
Rs 11.10lacs
Provision for contingencies arising out of physical contingencies and delays have been provided for 11.10 lacs and are considered adequate.
Margin Money for Working Capital
Rs
35.48 lacs
Item (in lacs) Raw Material Stock in Progress Finished Goods Book Debts Total Current Assets (-) Margin Money CA-Margin Bank Finance Increase in Bank Finance
1 69.78 2.53 17.71 51.89 141.91 35.48 106.43 106.43 106.43
2 79.09 2.86 20.04 59.99 161.98 40.49 121.48 121.48 15.05
3 88.39 3.20 22.38 67.07 181.03 45.26 135.77 135.77 14.29
3.2 MEANS OF FINANCE
The total project cost of Rs. 488.75 lacs is proposed to be financed as under: 11
Project on Financial Appraisal – COTTON YARN
SOURCE Promoter’s contribution- Share capital Term Loans-SFC TOTAL
AMOUNT (IN RS Lacs) 338.75 150.00
488.75
Promoter’s Contribution
Rs 338.75 Lacs
Out of total of proposed promoter’s contribution of Rs 338.75 lacs, Rs 100 lacs have already been brought in as share application money. All of the promoter’s contribution would be brought in as equity capital with a face value of Rs 10/- per share at par
Term Loans – SFC
Rs 150 Lacs
Company proposes to raise an amount of Rs 150 lacs as term loans from commercial bank for the project. For the calculation purposes, the loan is assumed to be at an interest rate 12%, payable in 14 half yearly equal installment. Initial moratorium is one and half years.
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Project on Financial Appraisal – COTTON YARN
4. KEY FINANCIALS
4.1 PROJECTED PROFITABILITY ESTIMATES (WORKING RESULTS)
1 Capacity Utilization Quantity Sold (TPA) A. Sales Realization 2 3 4 5 6 7 8
75%
85%
95%
95%
95%
95%
95%
95%
2306
2666
2981
2988
2988
2988
2988
2988
1245.42 1439.78 1609.61 1613.39 1613.39 1613.39 1613.39 1613.39
B. Production Cost of Goods Sold: Raw Materials Consumed Power & Fuel Wages & factory salaries Factory Overheads Total
818.77 38.13
946.54 1058.19 1060.68 1060.68 1060.68 1060.68 1060.68 44.08 49.28 49.40 49.40 49.40 49.40 49.40
26.65
29.91
32.91
36.28
39.91
43.90
48.29
53.12
6.84
7.33
7.70
8.10
8.51
8.93
9.38
9.85
890.40 1027.87 1148.09 1154.46 1158.49 1162.91 1167.75 1173.05
C. Administration & Selling Expenses: Office Salaries Administration Expenses Selling Expenses Total D. Gross profit
21.76 4.50 37.36 63.62 291.40
23.94 4.95 43.19 72.08 339.83
26.33 5.45 48.29 80.06 381.46
28.96 5.99 48.40 83.35 375.57
31.86 6.59 48.40 86.85 368.04
35.04 7.25 48.40 90.69 359.78
38.55 7.97 48.40 94.92 350.71
42.40 8.77 48.40 99.57 340.76
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Project on Financial Appraisal – COTTON YARN
before interest E. Total financial expenses Interest on Term Loan Interest on Bank borrowing F. Depreciation G. Operating Profit H. Preliminary expenses w/o I. Profit/loss before tax J. Provision for tax K. Provision after tax L. Less: Dividend (inclusive of dividend tax) M. Retained profit N. Add: Depreciation Preliminary expenses w/o O.Net cash accruals (in lacs)
17.36 13.84 55.10
14.79 15.79 47.65
12.21 17.65 41.22
9.64 17.67 35.66
7.07 17.68 30.86
4.50 17.69 26.71
1.93 17.70 23.12
0.00 17.71 20.02
205.11 6
261.61 6
310.38 6
312.59 6
312.43 6
310.88 0
307.96 0
303.03 0
199.11
255.61
304.38
306.59
306.43
310.88
307.96
303.03
58.57
75.85
90.75
91.62
91.73
93.18
92.39
90.98
140.54
179.75
213.63
214.97
214.70
217.70
215.57
212.05
0.00 140.54
46.75 133.00
46.75 166.88
54.54 160.44
54.54 160.16
62.33 155.37
62.33 153.24
70.12 141.93
55.10
47.65
41.22
35.66
30.86
26.71
23.12
20.02
6
6
6
6
6
0
0
0
201.64
186.66
214.10
202.10
197.02
182.08
176.36
161.95
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Project on Financial Appraisal – COTTON YARN
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Project on Financial Appraisal – COTTON YARN
4.2 BALANCE SHEETS
At the end of Construction Period 1 2 3 4 5 6 7
bilities
are Capital
338.75
338.75 338.75 140.54 273.54
338.75 440.43 85.71
338.75 600.86 64.29
338.75 761.03 42.86
338.75
338.75
338.
serves &
plus
916.40 1069.63 1211. 21.43 0.00
cured Loans:
rm Loan Working
150.00
128.57 107.14
0.
nk Finance
pital
106.43 121.48 0 0 0
135.77 0
135.95 0
136.02 0
136.09 0
136.17 0
136.
secured
ans
rrent
bilities and
ovisions:
ade Credit
0 488.75
0
0
0
0
0
0
0
tal
714.29 840.92 1000.66 1139.85 1278.65 1412.66 1544.55 1686.
sets
ed Assets:
oss Block
423.27
423.27 423.27
423.27
423.27
423.27
423.27
423.27
423.
ss:
cumulated
preciation
0 423.27 0 0 0 0 0
55.10 102.75 368.17 320.52 0 69.78 2.53 17.71 51.89 0 79.09 2.86 20.04 59.99
143.97 279.30 0 88.39 3.20 22.38 67.07
179.63 243.64 0 88.39 3.21 22.45 67.22
210.49 212.78 0 88.39 3.22 22.53 67.22
237.20 186.07 0 88.39 3.23 22.61 67.22
260.32 162.95 0 88.39 3.24 22.71 67.22
280.
t Block
142.
estments
rrent Assets, Loans & Advances:
w Materials
88.
ck-in-
ocess
3.
ished Goods
22.
ok Debts
67.
sh & Bank
ances
35.48 180.21 340.42
16
528.33
708.94
884.51 1045.13 1200.04 1361.
Project on Financial Appraisal – COTTON YARN
sc. Expenditure & Losses
liminary
penses
30.00 488.75
24.00
18.00
12.00
6.00
0.00 -
-
-
tal
714.29 840.92 1000.66 1139.85 1278.65 1412.66 1544.55 1686.
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Project on Financial Appraisal – COTTON YARN
4.3 CASH FLOW STATEMENTS
At the end of Construct ion Period Sources of Cash Share Issue PBT with interest added back Depreciation Preliminary expenses w/o Increase in term loans Increase in bank finance for WC Total (A) Capital expenditure for the project Increase in WC Preliminary expenses Decrease in term loan Interest on term loan Interest on bank finance for WC Tax Dividend (inclusive of dividend tax) 1 2 3 4 5 6 7 8
338.75
0
0 286.1
0 334.2 4 41.22 6
0 333.9 1 35.66 6
0 331.1 8 30.86 6
0
0
0
0 0 0 150.00
230.30 55.10 6
8 47.65 6
333.07 26.71 0
327.59 23.12 0
320.74 20.02 0
0 488.75
106.43 397.83
15.05 354.8 9
14.29 395.7 5
0.18 375.7 5
0.07 368.1 1
0.07 359.85
0.08 350.79
0.09 340.85
Disposition of Cash
423.27 0 30.00 0 0
0 141.91 0 21.43 17.36
0 20.07 0 21.43 14.79
0 19.05 0 21.43 12.21
0 0.24 0 21.43 9.64
0 0.09 0 21.43 7.07
0 0.10 0 21.43 4.50
0 0.11 0 21.43 1.93
0 0.12 0 0.00 0.00
0 0
13.84 58.57
15.79 75.85
17.65 90.75
17.67 91.62
17.68 91.73
17.69 93.18
17.70 92.39
17.71 90.98
0
0.00
46.75
46.75
54.54
54.54
62.33
62.33
70.12
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Project on Financial Appraisal – COTTON YARN
194.6
Total (B) Opening balance of cash in hand & at bank Net surplus/deficit (A-B) Closing balance of cash in hand & at bank
207.8 4
195.1 4
192.5 4 199.23 195.89 178.93
453.27
253.10
8
180.2 0 35.48 1 160.2 35.48 144.73 1
340.4 2 187.9 1
528.3 3 180.6 1
708.9 4 175.5 7 160.62 884.51
1045.1 3
1200.0 4
154.90
161.92
340.4 35.48 180.21 2
528.3 3
708.9 4
884.5 1
1045.1 3
1200.0 4
1361.9 6
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Project on Financial Appraisal – COTTON YARN
5. ASSUMPTIONS
The profitability and other projections have been prepared on the basis of the following assumptions: 1. Project Life 8 years. The construction period will last for 6 months. 2. The installed capacity works out be 3145 MT on the basis of single shift working. 3. The expected capacity utilisation will be 75% in the first year, 85% in the second year and, 95% for the third year and beyond. 4. The selling price of cotton yarn is Rs. 54 per Kg. 5. The raw materials (cotton) required at 100% capacity utilisation is 3850 MT. The cost is Rs. 29 per Kg. 6. The cost of power and fuel is Rs. 39 lacs at 75% capacity. 7. Wages and factory salaries are expected to be Rs. 27.26 lacs in the first year. Thereafter, they would rise at the rate of 10% per year. 8. Factory overhead expenses will be Rs. 7 lacs for the first year. They will increase at the rate of 5% per year subsequently. 9. Administrative expenses will be Rs. 4.50 lacs per year. Thereafter they would rise at the rate of 10% per year. 10. 11. 12. Office salaries are expected to be Rs. 21.76 lacs in the first year. Thereafter they Selling expenses will 3% of sales. The term loan will be repaid in 14 equal half-yearly instalments, with the first would rise at the rate of 10% per year.
instalment falling due at the end of the first half of first operating year. The interest rate on the outstanding term loan will be 12%. 13. The current asset requirement are Raw Materials Work in Process Finished Goods Debtors 14. 20 Margin money for working capital is 50% of total current assets. 1 month 1 day 1 week 15 days
Project on Financial Appraisal – COTTON YARN
15. 16. The bank finance for working capital will cost 13%. Depreciation rate under the written down value method are taken as Company Law Building and Civil Works Plant and Machinery Misc. Fixed Assets 17. 18. 19. 13.91% 13.91% 15% 15% 10% Income Tax 10%
The preliminary and public expenses may be written off in 5 equal instalments. The income tax rate applicable is 30%. Minimum alternate tax (MAT) rate is 18%. The company plans to pay dividend from the second year. The dividend rate is
Ignore surcharge and education cess. proposed to be 12 per cent for the second year. Thereafter, it would be enhanced by 2 per cent every alternate year. Dividend tax 15%. Ignore surcharge and education cess.
6. PROJECT VIABILITY
6.1 IRR
At the end of Construct ion Period Capital Cost of Project 1 2 3 4 5 6 7 8
-453.27 232.8 263.9 8 20.07 290.7 1 19.05 -0.24 -0.09 -0.10 -0.11 -0.12 283.9 5 276.3 2 266.6 0 258.32 249.7 8 3 141.9
PBIDAT Deployment in Net Current Asset
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Project on Financial Appraisal – COTTON YARN
1
Terminal Cash Inflows Net Cash Flows IRR
213.8 0 243.9 -453.27 44.38% 90.92 1 271.6 6 283.7 1 276.2 3 266.5 0 258.21 463.4 6
6.2 TERMINAL CASH FLOWS
Residual Value of Land at cost Residual Value of other fixed assets (5%) at cost Recovery of Net current Assets at par Terminal Cash Inflows 11.53 20.59 181.68 213.80
6.3 WACC
Capital Equity Term Loan Bank Borrowing for Working Capital WACC Amount 338.75 150.00 136.26 625.01 12.14% Rate 15% 8.42% 9.12% Cost 50.81 12.62 12.42 75.86
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Project on Financial Appraisal – COTTON YARN
6.4 COMMERCIAL BREAK EVEN POINT
Sales Variable Cost RM Power Selling Expenses Interest on Bank Borrowing for WC Contribution Fixed Cost Wages Factory Overhead Office salary Administrative Expenses Interest on term loan Depreciation Preliminary expenses W/O PBT 36.28 8.10 28.96 5.99 9.64 35.66 6 130.64 306.59 1060.68 49.40 48.40 17.67 1176.15 437.23 1613.39
COMMERCIAL BEP IN TERMS OF:
Capacity Utilisation Quantity Sold(TPA) Amount of Sales(Rs million) 28.39% 892.72 482.07
6.5 CASH BREAK EVEN POINT
Sales Variable Cost RM Power Selling Expenses Interest on Bank Borrowing for WC 1060.68 49.40 48.40 17.67 1176.15 1613.39
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Project on Financial Appraisal – COTTON YARN
Contribution Fixed Cost Wages Factory Overhead Office salary Administrative Expenses Interest on term loan PBT 36.28 8.10 28.96 5.99 9.64 88.98 348.25 437.23
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Project on Financial Appraisal – COTTON YARN
CASH BEP IN TERMS OF:
Capacity Utilisation Quantity Sold(TPA) Amount of Sales(Rs million) 19.33% 608.04 328.34
6.6 DEBT SERVICE COVERAGE RATIO
1 Cash Accruals
140.5 179.7 5 47.65 213.6 3 41.22 214.9 7 35.66 214.7 0 30.86 217.7 0 26.71 215.5 7 23.12 212.05 20.02
2
3
4
5
6
7
8
PAT Depreciation Preliminary expenses W/O Interest on Term Loan TOTAL Debt Service Interest on Term Loan Principal Instalment TOTAL DSCR Average DSCR
4 55.10
6.00
6.00
6.00
6.00
6.00
0.00
0.00
0.00
17.36 218.9 9
14.79 248.1 9
12.21 273.0 6
9.64 266.2 8
7.07 258.6 3
4.50 248.9 1
1.93 240.6 2
0.00 232.07
17.36
14.79
12.21
9.64
7.07
4.50
1.93
0
21.43 38.79 5.65
21.43 36.21 6.85
21.43 33.64 8.12
21.43 31.07 8.57
21.43 28.50 9.07 8.31
21.43 25.93 9.60
21.43 23.36 10.30
0 0
6.7 SUMMARY OF EVALUATION
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Project on Financial Appraisal – COTTON YARN
Parameters IRR WACC Spread Commercial BEP Capacity Utilisation Quantity Sold(TPA) Amount of Sales(Rs million) Cash BEP Capacity Utilisation Quantity Sold(TPA) Amount of Sales(Rs million) DSCR High Low Average 10.30 5.65 8.31 Accept 19.33% 608.04 328.34 Accept 28.39% 892.72 482.07 Accept Result 44.38% 12.14% 32.24% Accept Evaluation
6.8 RATIO ANALYSIS
Profitability Projections ( At maximum capacity utilisation, 4th year) Gross Profit Ratio Operating Profit Ratio Net profit Ratio Return on Equity Earnings Per Share Balance sheet Projections Promoters' contribution to Project cost Current Ratio 26 69.31% NA 25%-30% Accept 23.28% 19.37% 13.32% 27.59% 6.35 Project Institutional Industry Norm Norm Evaluation
Project on Financial Appraisal – COTTON YARN
Fixed Asset Coverage Ratio Debt Equity Ratio 2.82 0.44 1.4:1 1.5:1 Accept Accept
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Project on Financial Appraisal – COTTON YARN
7. SENSITIVITY ANALYSIS
7.1 SENSITIVITY SUMMARY
Fall in Capacity Utilisation by 5% IRR WACC Spread Commercial BEP Capacity Utilisation Quantity Sold (TPA) Sales ( Rs. Million) Cash BEP Capacity Utilisation Quantity Sold (TPA) Sales ( Rs. Million) DSCR High Low Average 7.85 4.20 6.42 10.30 5.65 8.31 8.70 4.90 7.11 19.33% 576.74 328.34 19.33% 608.04 328.34 19.33% 608.04 328.34 34.91% 1041.42 562.37 28.39% 892.72 482.07 32.35% 1017.39 549.39 33.21% 12.15% 21.05% 44.38% 12.14% 32.24% 37.46% 12.12% 25.34% Normal Capacity Raise in RM Prices by 5%
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Project on Financial Appraisal – COTTON YARN
8. CRDM
Ratios Project Debt/Equity TOL/TNW Gross Average DSCR Promoters Contribution( as % of Project Cost) Repayment Period Security Cover 7 Years 2.8218 Times Value 0.443 0.516165759 8.31 69.31%
8.1 TOTAL OUTSTANDING LOAN/TOTAL NETWORTH
Computation of TOL/TNW 1 128.5 Term Loan Bank Finance 7 106.4 3 2 107.1 4 121.4 8 85.71 135.7 7 64.29 135.9 5 136.02 136.09 136.17 136.26 42.86 21.43 0.00 0.00 3 4 5 6 7 8
TOL
Share Capital Reserves (Preliminary Expenses)
235.0 0
338.7 5 140.5 4 24.00
228.6 3
338.7 5 273.5 4 18.00
221.4 9
338.7 5 440.4 3 12.00
200.2 4
338.7 5 600.8 6 6.00
178.88
338.75 761.03 0.00
157.52
338.75 916.40
136.17
338.75 1069.6 3
136.26
338.75 1211.5 6
TNW
TOL/TNW Maximum
455.2 9
0.52
594.2 9
0.38
767.1 8
0.29
933.6 1
0.21
1099.7 7
0.16
1255.1 4
0.13
1408.3 8
0.10
1550.3 1
0.09
0.52
29
Project on Financial Appraisal – COTTON YARN
8.2 CREDIT RISK DETERMINATION MODEL (TERM LOAN)
Risk Value Project Risk Projected D/E TOL/TNW( maximum) Gross Average DSCR Promoters Contribution Repayment Period Security Cover 7 Years 2.8218 Times Lowest 5 27 0.443 : 1 0.517 : 1 Lowest Lowest 5 5 5 5 2 Level Aggregate Score Score
8.31 Lowest 69% Lowest High
Aggregate Project Risk Score ( Out of 30)
Industry Risk Parameters Competition and Market Risk Cyclicality Regulatory Risk Technology Level User Profile M L M M L 2 3 2 2 3 12
Total ( Out of 20) Aggregate Industry Risk Score( Normalized Out of 40)
Management Risk Parameters Integrity Expertise Total ( out of 8) M L
24
2 3
5
18.75
Aggregate Management Risk Score( Normalized Out of 30)
Overall Risk Level( Aggregate Score of parameters out of 100) Risk Rating
69.75 IBT-B1
30
Project on Financial Appraisal – COTTON YARN
Interest Rate BR+2
31
Project on Financial Appraisal – COTTON YARN
9. NOTE ON VIABILITY
The proposed project is financially very attractive and also feasible. Despite of Huge capital outlay of Rs. 488.75 Lacs, It is able to break even at very first year of operation. At the base condition with assumed conditions the IRR is as high as 44.38% with spread of 32.24%. Even the Break even is achieved at its capacity utilization of just 19.33%. For the proposed loan of Rs. 150 lacs, the project is able to promise an average DSCR of 8.31 times. Also the FACR is as high as 2.82 times. Promoter’s contribution is at 69.31% of Total project cost. The operating excellence is visible from the projected Gross profit ratio of 23.28% and net Profit ratio of 13.32%. With this the project will earn Returns on Capital Employed of 27.59%. Even at the rise in Raw material prices by 5% than the assumed level, the spread is as high as 37% and on sensitivity of Fall in capacity utilization by 5% than the projected, the spread is still at 21%. Apart from the financial aspects, also the management team is very strong. All the members have a very profound knowledge of the business and have worked in industry for about 10 years. Every member is expert in his own field, thus making the project much more attractive. Also the Industry outlook is very encouraging and constructive. But there is bit of competition risk and technology risk as the technology keeps on changing. We have opted for the latest and most advanced technology available for the purpose. Thus it can be concluded that the project is highly viable and we assure you that the value in return will exceed your expectation.
32
Project on Financial Appraisal – COTTON YARN
10.
APPENDIX
10.1 PROJECTIONS OF PROFITABILITY
1. CAPACITY UTILIZATION & SALES REALIZATION 1 Installed Capacity Capacity utilization Production (TPA) (+) Opening Inventory Stock-in-progress Finished Goods 0 0 2358.7 5 (-) Closing Inventory Stock-in-progress (In days) Finished Goods (In days) Quantity Sold (TPA) Selling Price Sales Realization (in lacs) 2. RAW MATERIALS 1 Capacity Utilization RM Consumed RM unit cost RM Cost (in lacs) 3. POWER AND FUEL 1 2 3 4 5 6 7 8 75% 2888 29000 837.3 8 2 85% 3273 29000 949.0 3 3 95% 3658 29000 1060.6 8 4 95% 3658 29000 1060.6 8 5 95% 3658 29000 1060.6 8 6 95% 3658 29000 1060.6 8 7 95% 3658 29000 1060.6 8 8 95% 3658 29000 1060.6 8 46 2306 54000 1245.4 2 52 2666 54000 1439.7 8 58 2981 54000 1609.6 1 58 2988 54000 1613.3 9 58 2988 54000 1613.3 9 58 2988 54000 1613.3 9 58 2988 54000 1613.3 9 58 2988 54000 1613.3 9 7 7 8 8 8 8 8 8 2726 3047 3054 3054 3054 3054 3054 7 46 7 52 8 58 8 58 8 58 8 58 8 58 3145 75% 2359 2 3145 85% 2673 3 3145 95% 2988 4 3145 95% 2988 5 3145 95% 2988 6 3145 95% 2988 7 3145 95% 2988 8 3145 95% 2988
33
Project on Financial Appraisal – COTTON YARN
Capacity Utilization Power Consumed (in lacs) 4. WAGES AND FACTORY SALARIES 1 27.2 W & F Salaries (in lacs) 5. FACTORY OVERHEAD EXPENSE 1 Factory Overhead Expenses (in lacs) 7.00 7.35 7.72 8.10 8.51 8.93 9.38 9.85 2 3 4 5 6 7 8 6 2 29.9 9 3 32.9 8 4 36.2 8 5 39.9 1 6 43.9 0 7 48.2 9 8 53.1 2 75% 39 85% 44.2 95% 49.4 95% 49.4 95% 49.4 95% 49.4 95% 49.4 95% 49.4
6. COST OF TOTAL PRODUCTION 1 RM Cost Power Consumed (in millions) W & F Salaries Factory Overhead Expenses Total Cost (in lacs) 39 27.26 7.00 44.2 29.99 7.35 49.4 32.98 7.72 49.4 36.28 8.10 49.4 39.91 8.51 49.4 43.90 8.93 49.4 48.29 9.38 49.4 53.12 9.85 837.38 2 3 4 5 6 7 8
949.03 1060.68 1060.68 1060.68 1060.68 1060.68 1060.68
910.64 1030.56 1150.78 1154.46 1158.49 1162.91 1167.75 1173.05
7. INVENTORY OF RAW MATERIALS 1 RM Cost Average Holding Period Inventory Amount (in lacs) 69.78 79.09 88.39 88.39 88.39 88.39 88.39 88.39 30 2 30 3 30 4 30 5 30 6 30 7 30 8 30
837.38 949.03 1060.68 1060.68 1060.68 1060.68 1060.68 1060.68
8. INVENTORY OF STOCK IN PROGRESS 1 Total Cost Average Holding Period Inventory Amount (in 1 2.53 2 1 2.86 3 1 3.20 4 1 3.21 5 1 3.22 6 1 3.23 7 1 3.24 8 1 3.26
910.64 1030.56 1150.78 1154.46 1158.49 1162.91 1167.75 1173.05
34
Project on Financial Appraisal – COTTON YARN
lacs) 9. INVENTORY OF FINISHED GOODS 1 Total Cost Average Holding Period Inventory Amount (in lacs) 10. BOOK DEBTS 1 Sales Realization Average Credit Period Book Debts (in lacs) 11. WC REQUIREMENTS 1 RM (in lacs) SIP (in lacs) FG (in lacs) BD (in lacs) Total CA (in lacs) (-) Margin Money (in lacs) CA-Margin Bank Finance (in lacs) Increase in Bank Finance (in lacs) 106.43 15.05 14.29 0.18 0.07 0.07 0.08 0.09 69.78 2.53 17.71 51.89 35.48 2 79.09 2.86 20.04 59.99 40.49 3 88.39 3.20 22.38 67.07 45.26 4 88.39 3.21 22.45 67.22 45.32 5 88.39 3.22 22.53 67.22 45.34 6 88.39 3.23 22.61 67.22 45.36 7 88.39 3.24 22.71 67.22 45.39 8 88.39 3.26 22.81 67.22 45.42 15 51.89 2 15 59.99 3 15 67.07 4 15 67.22 5 15 67.22 6 15 67.22 7 15 67.22 8 15 67.22 17.71 20.04 22.38 22.45 22.53 22.61 22.71 22.81 7 2 7 3 7 4 7 5 7 6 7 7 7 8 7
910.64 1030.56 1150.78 1154.46 1158.49 1162.91 1167.75 1173.05
1245.42 1439.78 1609.61 1613.39 1613.39 1613.39 1613.39 1613.39
141.91 161.98 181.03 181.27 181.36 181.46 181.56 181.68 106.43 121.48 135.77 135.95 136.02 136.09 136.17 136.26 106.43 121.48 135.77 135.95 136.02 136.09 136.17 136.26
12. a) FINAL COST OF PROJECT ITEM Land & Site Development Building & Civil Works Plant & Machinery Miscellaneous Fixed Assets Preliminary & Public Issue Expenses Pre-operative Expenses AMOUNT 10.80 52.16 308.63 25.00 30.00 15.58
35
Project on Financial Appraisal – COTTON YARN
Contingency Margin Working Capital Margin Total Cost (in lacs) 12. b) MEANS OF FINANCE SOURCE Promoter's Contribution- Share Capital Term Loans-SFC Total 13. PRODUCATION COST OF GOODS SOLD 1 Production (TPA) RM Cost Power Consumed (in millions) W & F Salaries Factory Overhead Expenses Total Cost of Production Quantity Sold RM Cost Power Consumed (in millions) W & F Salaries Factory Overhead Expenses Production COGS 14. OFFICE SALARIES 1 OS 15. ADMIN EXPENSES 1 Admin Exp 16. SELLING EXPENSES 4.50 2 4.95 3 5.45 4 5.99 5 6.59 6 7.25 7 7.97 8 8.77 21.76 2 23.94 3 26.33 4 28.96 5 31.86 6 35.04 7 8 38.13 26.65 6.84 44.08 29.91 7.33 49.28 32.91 7.70 49.40 36.28 8.10 49.40 39.91 8.51 49.40 43.90 8.93 49.40 48.29 9.38 49.40 53.12 9.85 39.00 27.26 7.00 2306 818.77 44.20 29.99 7.35 2666 49.40 32.98 7.72 2981 49.40 36.28 8.10 2988 49.40 39.91 8.51 2988 49.40 43.90 8.93 2988 49.40 48.29 9.38 2988 49.40 53.12 9.85 2988 2359 837.38 2 2673 3 2988 4 2988 5 2988 6 2988 7 2988 8 2988 AMOUNT 338.75 150.00 488.75 11.10 35.48 488.75
949.03 1060.68 1060.68 1060.68 1060.68 1060.68 1060.68
910.64 1030.56 1150.78 1154.46 1158.49 1162.91 1167.75 1173.05 946.54 1058.19 1060.68 1060.68 1060.68 1060.68 1060.68
890.40 1027.87 1148.09 1154.46 1158.49 1162.91 1167.75 1173.05
38.55 42.40
36
Project on Financial Appraisal – COTTON YARN
1 2 3 4 5 6 7
8
Sales Realization (in 37.36 43.19 48.29 48.40 48.40 48.40 48.40
millions)
1245.42 1439.78 1609.61 1613.39 1613.39 1613.39 1613.39 1613.39
Selling Expenses
48.40
17. REPAYMENT OF TERM LOAN & INTERESE THEREON 1 Term Loan O/S at the Beginning Repayment at the end of 1st half year Term Loan O/S at the end of 1st half year Repayment at the end of 2nd half year Term Loan O/S at the end of 2nd half year Total Repayment during the year Interest for the 1st half year (6%) Interest for the 2nd half year (6%) Total Interest during the year (12%) 128.57 107.14 21.43 9.00 8.36 17.36 21.43 7.71 7.07 14.79 85.71 64.29 42.86 21.43 6.43 5.79 12.21 5.14 4.50 9.64 3.86 3.21 7.07 2.57 1.93 4.50 0.00 0.00 1.29 0.00 0.64 0.00 1.93 0.00 21.43 21.43 21.43 21.43 21.43 0.00 139.29 117.86 10.71 10.71 96.43 75.00 53.57 32.14 10.71 0.00 10.71 10.71 10.71 10.71 10.71 0.00 10.71 2 10.71 3 4 5 6 7 8
150.00 128.57 107.14 85.71 64.29 42.86 21.43 0.00 10.71 10.71 10.71 10.71 10.71 0.00
18. INTEREST ON BANK FINANCE FOR WORKING CAPITAL (@13%) 1 Bank Finance (in lacs) Interest amount (in lacs) 106.43 13.84 2 121.48 15.79 3 135.77 17.65 4 135.95 17.67 5 136.02 17.68 6 136.09 17.69 7 136.17 17.70 8 136.26 17.71
19. FIXED ASSET VALUATION FOR DEPRICIATION PURPOSE Basic Fixed Assets Land and Site Development Building P&M Misc FA Total (in lacs) 10.80 52.16 308.63 25.00 396.59 0.42 2.05 12.12 0.98 15.58 0.30 1.46 8.64 0.70 11.10 11.53 55.67 329.39 26.68 423.27 Cost Pre-operative Expenses Contingency Margin Gross Block
20. GROSS BLOCK, DEPRECIATION (CO’S LAW) & NET BLOCK 1 Gross Block 2 3 4 5 6 7 8
37
Project on Financial Appraisal – COTTON YARN
Land and Site Development Building P&M Misc FA Total Depreciation Building (@10%) P&M (@13.91%) Misc FA (@13.91%) Total Depreciation Accumulated Depreciation Net Block Land and Site Development Building P&M Misc FA Total 11.53 50.10 22.97 11.53 45.09 19.78 11.53 40.58 17.02 11.53 36.52 14.66 11.53 32.87 12.62 11.53 29.58 10.86 11.53 26.63 9.35 11.53 23.96 99.39 8.05 5.57 45.82 3.71 55.10 5.01 39.45 3.20 47.65 4.51 33.96 2.75 41.22 4.06 29.23 2.37 35.66 3.65 25.17 2.04 30.86 3.29 21.67 1.76 26.71 2.96 18.65 1.51 23.12 2.66 16.06 1.30 20.02 11.53 55.67 26.68 11.53 55.67 26.68 11.53 55.67 26.68 11.53 55.67 26.68 11.53 55.67 26.68 11.53 55.67 26.68 11.53 55.67 26.68 11.53 55.67 26.68
329.39 329.39 329.39 329.39 329.39 329.39 329.39 329.39 423.27 423.27 423.27 423.27 423.27 423.27 423.27 423.27
55.10 102.75 143.97 179.63 210.49 237.20 260.32 280.34
283.57 244.13 210.17 180.94 155.77 134.10 115.45
368.17 320.52 279.30 243.64 212.78 186.07 162.95 142.93
21. DEPRECIATION AS PER IT ACT (WDV) 1 Total Cost Building P&M Misc FA Depreciation Building (@10%) P&M (@15%) Misc FA (@15%) Total 5.57 49.41 4.00 58.98 5.01 42.00 3.40 50.41 4.51 35.70 2.89 43.10 4.06 30.34 2.46 36.86 3.65 25.79 2.09 31.53 3.29 21.92 1.78 26.99 2.96 18.63 1.51 23.10 2.66 15.84 1.28 19.79 55.67 329.39 26.68 WDV 50.10 279.98 22.68 WDV 45.09 237.99 19.28 WDV 40.58 202.29 16.39 WDV 36.52 171.95 13.93 WDV 32.87 146.15 11.84 WDV 29.58 124.23 10.06 WDV 26.63 105.60 8.55 2 3 4 5 6 7 8
22. PRELIMINARY EXPENSES 1 Preliminary Exp Preliminary Exp w/o Accumulated Preliminary Exp w/o Preliminary Exp c/f 30.00 6 6 24 2 30.00 6 12 18 3 30.00 6 18 12 4 30.00 6 24 6 5 6 7 8 -
30.00 6 30 0 -
38
Project on Financial Appraisal – COTTON YARN
23. INCOME TAX PROVISION a) Minimum Alternate Tax on Book Profits 1 0 2 0 3 0 4 0 5 0 6 0 7 0
8
Profit/Loss before Tax
199.11 255.61 304.38 306.59 306.43 310.88 307.96 303.03
Less: Rebate u/s 10AA
0
199.11 255.61 304.38 306.59 306.43 310.88 307.96 303.03 0 0 35.84 0 0 46.01 0 0 54.79 0 0 55.19 0 0 55.16 0 0 55.96 0 0 55.43
Less: Unabsorbed depreciation/loss
of earlier years
0
199.11 255.61 304.38 306.59 306.43 310.88 307.96 303.03
Less: Deduction u/s 80-IAB
0
Book Profits
199.11 255.61 304.38 306.59 306.43 310.88 307.96 303.03
MAT @ 18%
54.54
b) Income Tax as per Normal Provisions 1 199.1 Profit/Loss before Tax Less: Rebate u/s 10AA 1 0 199.1 1 Add: Depreciation as per profitability estimates 55.10 254.2 1 Less: Depreciation for tax purposes 58.98 195.2 3 Less: Unabsorbed depreciation/loss of earlier years Gross Total Income Less: Deduction u/s 80 (various sub-sections) 0 0 0 0 0 0 0 0 0 195.2 3 0 252.8 5 0 302.5 0 0 305.3 9 0 305.7 5 0 310.6 0 0 307.9 8 0 303.2 6 50.41 252.8 5 43.10 302.5 0 36.86 305.3 9 31.53 305.7 5 26.99 310.6 0 23.10 307.9 8 19.79 303.2 6 47.65 303.2 6 41.22 345.6 0 35.66 342.2 5 30.86 337.2 9 26.71 337.5 9 23.12 331.0 8 20.02 323.0 5 2 255.6 1 0 255.6 1 3 304.3 8 0 304.3 8 4 306.5 9 0 306.5 9 5 306.4 3 0 306.4 3 6 310.8 8 0 310.8 8 7 307.9 6 0 307.9 6 8 303.0 3 0 303.0 3
39
Project on Financial Appraisal – COTTON YARN
195.2 Total Income Income Tax @ 30% Final Tax Provision: higher of both the taxes 58.57 75.85 90.75 91.62 91.73 93.18 92.39 90.98 3 58.57 252.8 5 75.85 302.5 0 90.75 305.3 9 91.62 305.7 5 91.73 310.6 0 93.18 307.9 8 92.39 303.2 6 90.98
24. DIVIDEND (INCLUSIVE OF DIVIDEND TAX) 1 0% 0 15% 0 0 2 12% 40.65 15% 6.10 46.75 3 12% 40.65 15% 6.10 46.75 4 14% 47.42 15% 7.11 54.54 5 14% 47.42 15% 7.11 54.54 6 16% 54.20 15% 8.13 62.33 7 16% 54.20 15% 8.13 62.33
8
Promoter's Contribution- Share Capital 338.75 338.75 338.75 338.75 338.75 338.75 338.75 338.75
Dividend Rate
18%
Dividend Amount
60.97
Dividend Tax Rate
15%
Dividend Tax Amount
9.15
Dividend Amount (Inclusive of
Dividend Tax)
70.12
25. RESERVE & SURPLUS (RETAINED PROFIT) AS A SOURCE OF CASH 1 Retained Profit 2 3 4 5 6 7 8
140.54 133.00 166.88 160.44 160.16 155.37 153.24 141.93 Expanded into source & disposition of cash: Source of Cash:
PBT Interest: Interest on Term Loan Interest on Bank Borrowing PBT with Interest added back: Total (A) Interest on Term Loan Interest on Bank Borrowing Tax Dividend (inclusive of dividend tax) Total (B) A-B = Retained Profit. Reconciled.
199.11 255.61 304.38 306.59 306.43 310.88 307.96 303.03 17.36 13.84 14.79 15.79 12.21 17.65 9.64 17.67 7.07 17.68 4.50 17.69 1.93 17.70 0.00 17.71
230.30 286.18 334.24 333.91 331.18 333.07 327.59 320.74 Disposition of Cash: 17.36 13.84 58.57 0.00 14.79 15.79 75.85 46.75 12.21 17.65 90.75 46.75 9.64 17.67 91.62 54.54 7.07 17.68 91.73 54.54 4.50 17.69 93.18 62.33 1.93 17.70 92.39 62.33 0.00 17.71 90.98 70.12
89.76 153.18 167.36 173.47 171.02 177.70 174.35 178.81 140.54 133.00 166.88 160.44 160.16 155.37 153.24 141.93
26. INCREASE IN WORKING CAPITAL (OTHER THAN CASH & BANK BALANCE) FOR THE PURPOSE OF CASH FLOW STATEMENTS
40
Project on Financial Appraisal – COTTON YARN
1 69.78 2.53 17.71 51.89 2 79.09 2.86 20.04 59.99 3 88.39 3.20 22.38 67.07 4 88.39 3.21 22.45 67.22 5 88.39 3.22 22.53 67.22 6 88.39 3.23 22.61 67.22 7 88.39 3.24 22.71 67.22
8
Current Assets:
Raw Material
88.39
Stock-in-process
3.26
Finished Goods
22.81
Book Debts
67.22
Working Capital…….Total (A)
141.91 161.98 181.03 181.27 181.36 181.46 181.56 181.68 141.91 20.07 19.05 0.24 0.09 0.10 0.11
Increase in Working Capital (other
than cash & bank balance)
0.12
10.2 WORKINGS OF SENSITIVITY
SITUATION 1: DECREASE IN CAPACITY UTILIZATION BY 5% 1. IRR Construction Period -453.27 138.45 -453.27 -20.07 -19.05 -0.24 -0.09 -0.10 -0.11 1 2 3 4 5 6 7
8
Capital Cost of Project
BIDAT
176.35 206.62 233.35 226.48 218.84 209.12 200.83 192.29
Deployment in Net
Current Asset
-0.12
Terminal Cash Inflows 33.21% 2. TERMINAL CASH INFLOWS Residual Value of Land at cost Residual Value of other fixed assets (5%) at cost Recovery of Net current Assets at par Terminal Cash Inflows 3. WACC Capital Equity Term Loan Bank Borrowing for Working Capital Amount 338.75 150 133.67 Rate 0.15 0.08 0.09 Cost
210.34
Net Cash Flows
37.90 186.55 214.29 226.24 218.75 209.02 200.73 402.51
RR
11.53 20.59 178.22 210.34
50.81 12.63 12.2
41
Project on Financial Appraisal – COTTON YARN
TOTAL WACC 4. EFFECTIVE TAX RATE Total Tax Provision over 10 years Total PBT over 10 years Actual Tax rate 5. COMMERCIAL BREAKEVEN POINT Sales Variable Cost RM Power Selling Expenses Interest on Bank Borrowing for WC Contribution Fixed Cost Wages Factory Overhead Office salary Administrative Expenses Interest on term loan Depreciation Preliminary expenses W/O PBT 6. COMMERCIAL BEP IN TERMS OF: Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) 7. CASH BREAKEVEN POINT Sales Variable Cost RM Power 1060.68 49.4 1613.39 0.35 1041.42 562.37 36.33 8.12 28.97 5.99 9.65 35.67 6 130.70 224.97 1061.99 49.46 45.91 17.34 1174.70 355.66 1530.36 489.68 1642.67 0.30 622.41 0.12 75.64
42
Project on Financial Appraisal – COTTON YARN
Selling Expenses Interest on Bank Borrowing for WC Contribution Fixed Cost Wages Factory Overhead Office salary Administrative Expenses Interest on term loan PBT 8. CASH BEP IN TERMS OF: Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) 9. DEBT SERVICE COVERAGE RATIO 1 Cash Accruals PAT Depreciation Preliminary expenses W/O Interest on Term Loan TOTAL Debt Service Interest on Term Loan Principal Installment TOTAL DSCR Average DSCR 10. SUMMARY OF EVALUATION Parameters IRR WACC Spread Commercial BEP Capacity Utilization 0.35 Result 0.33 0.12 0.21 Accept Accept Evaluation 17.36 21.43 38.79 4.20 14.79 21.43 36.21 5.28 12.21 21.43 33.64 6.42 9.64 21.43 31.07 6.73 6.42 7.07 21.43 28.50 7.07 4.50 21.43 25.93 7.40 1.93 21.43 23.36 7.85 0.00 0.00 0.00 84.40 122.73 156.60 157.84 157.56 160.55 158.42 154.89 55.10 6.00 17.36 47.65 6.00 14.79 41.22 6.00 12.21 35.66 6.00 9.64 30.86 6.00 7.07 26.71 0.00 4.50 23.12 0.00 1.93 20.02 0.00 0.00 2 3 4 5 6 7 8 0.19 576.74 328.33 36.28 8.11 28.96 5.98 9.64 88.98 348.25 48.40 17.67 1176.15 437.23
162.85 191.16 216.03 209.14 201.49 191.76 183.47 174.92
43
Project on Financial Appraisal – COTTON YARN
Quantity Sold(TPA) Amount of Sales(Rs million) Cash BEP Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) DSCR High Low Average 7.85 4.20 6.42 Accept 0.19 576.74 328.34 Accept 1041.42 562.37
SITUATION 2: INCREASE IN RAW MATERIAL PRICES BY 5% 1. IRR Construction Period -453.27 146.33 -453.27 -20.66 -19.64 -0.24 -0.09 -0.10 -0.11 1 2 3 4 5 6 7
8
Capital Cost of Project
BIDAT
204.30 231.00 253.84 246.99 239.36 229.64 221.36 212.82
Deployment in Net
Current Asset
-0.12
Terminal Cash Inflows 37.46% 2. TERMINAL CASH FLOWS Residual Value of Land at cost Residual Value of other fixed assets (5%) at cost Recovery of Net current Assets at par Terminal Cash Inflows 3. WACC Capital Equity Term Loan Amount 338.75 150.00 Rate 15% 8.42% Cost 50.81 12.63 11.53 20.59 187.28 219.39
219.39
Net Cash Flows
57.97 210.34 234.20 246.75 239.27 229.54 221.25 432.10
RR
44
Project on Financial Appraisal – COTTON YARN
Bank Borrowing for Working Capital TOTAL WACC 4. EFFECTIVE TAX RATE Total Tax Provision over 10 years Total PBT over 10 years Actual Tax rate 5. COMMERCIAL BREAKEVEN POINT Sales Variable Cost RM Power Selling Expenses Interest on Bank Borrowing for WC Contribution Fixed Cost Wages Factory Overhead Office salary Administrative Expenses Interest on term loan Depreciation Preliminary expenses W/O PBT 6. COMMERCIAL BEP IN TERMS OF: Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) 7. CASH BREAKEVEN POINT Sales Variable Cost RM 1060.68 1613.39 32.35% 1017.39 549.39 36.28 8.10 28.96 5.99 9.64 35.66 6 130.64 253.01 1113.71 49.40 48.40 18.22 1229.73 383.66 1613.39 561.91 1883.44 29.83% 140.46 629.21 12.12% 9.12% 12.81 76.25
45
Project on Financial Appraisal – COTTON YARN
Power Selling Expenses Interest on Bank Borrowing for WC Contribution Fixed Cost Wages Factory Overhead Office salary Administrative Expenses Interest on term loan PBT 8. CASH BEP IN TERMS OF: Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) 9. DEBT SERVICE COVERAGE RATIO 1 Cash Accruals PAT Depreciation Preliminary expenses W/O Interest on Term Loan TOTAL Debt Service Interest on Term Loan Principal Installment TOTAL DSCR Average DSCR 10. SUMMARY OF EVALUATION Parameters IRR WACC Spread Result 37.46% 12.12% 25.34% Accept Evaluation 17.36 21.43 38.79 4.90 14.79 21.43 36.21 5.93 12.21 21.43 33.64 7.00 9.64 21.43 31.07 7.36 7.11 7.07 21.43 28.50 7.76 4.50 21.43 25.93 8.15 1.93 21.43 23.36 8.70 0.00 0.00 0.00 111.58 146.28 176.21 177.47 177.20 180.19 178.06 174.54 55.10 6 17.36 47.65 6 14.79 41.22 6 12.21 35.66 6 9.64 30.86 6 7.07 26.71 0 4.50 23.12 0 1.93 20.02 0 0.00 2 3 4 5 6 7 8 19.33% 608.04 328.34 36.28 8.10 28.96 5.99 9.64 88.98 348.25 49.40 48.40 17.67 1176.15 437.23
190.04 214.72 235.64 228.77 221.13 211.40 203.11 194.56
46
Project on Financial Appraisal – COTTON YARN
Commercial BEP Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) Cash BEP Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) DSCR 19.33% 608.04 328.34 Accept 32.35% 1017.39 549.39 Accept
High Low Average
8.70 4.90 7.11
Accept
47
doc_360165587.docx
The documentation describes financial appraisal of cotton yarn company.
Project on Financial Appraisal – COTTON YARN
Project on Financial Appraisal – COTTON YARN
ACKNOWLEDGEMENT
At the successful completion of our project, we would like to express our sincere gratitude to all the people without whose support this project would not be completed.
At the onset, we would like to thank our institute “FORE School Of Management” for giving us the opportunity to undergo this project.
We would like to acknowledge the constant help and encouragement of our guide Dr. Ambrish Gupta, who has given his valuable suggestions and expert guidance and support.
We would also like to thank all those who have directly or indirectly helped us in the preparation of this report.
1
Project on Financial Appraisal – COTTON YARN
TABLE OF CONTENTS
1. COMPANY BACKGROUND ......................................................................................... 4 1.1 ABOUT THE COMPANY .......................................................................................... 4 1.2 ORGANIZATION .................................................................................................... 5 2. PROMOTER’S BACKGROUND ..................................................................................... 7 3. DETAILS OF THE PROPOSAL PROJECT ........................................................................ 9 3.1 COST OF PROJECT ................................................................................................. 9 3.2 MEANS OF FINANCE ............................................................................................ 11 4. KEY FINANCIALS ..................................................................................................... 13 4.1 PROJECTED PROFITABILITY ESTIMATES (WORKING RESULTS) ................................. 13 4.2 BALANCE SHEETS ................................................................................................ 16 4.3 CASH FLOW STATEMENTS.................................................................................... 18 5. ASSUMPTIONS ........................................................................................................ 20 6. PROJECT VIABILITY ................................................................................................. 21 6.1 IRR ..................................................................................................................... 21 6.2 TERMINAL CASH FLOWS ...................................................................................... 22 2
Project on Financial Appraisal – COTTON YARN
6.3 WACC ................................................................................................................. 22 6.4 COMMERCIAL BREAK EVEN POINT ........................................................................ 23 6.5 CASH BREAK EVEN POINT .................................................................................... 23 6.6 DEBT SERVICE COVERAGE RATIO ......................................................................... 25 6.7 SUMMARY OF EVALUATION ................................................................................. 25 6.8 RATIO ANALYSIS ................................................................................................. 26 7. SENSITIVITY ANALYSIS ............................................................................................ 28 7.1 SENSITIVITY SUMMARY ........................................................................................ 28 8. CRDM .................................................................................................................... 29 8.1 TOTAL OUTSTANDING LOAN/TOTAL NETWORTH ................................................. 29 8.2 CREDIT RISK DETERMINATION MODEL (TERM LOAN) ............................................ 30 9. NOTE ON VIABILITY ................................................................................................ 32 10. APPENDIX ............................................................................................................ 33
10.1 PROJECTIONS OF PROFITABILITY ........................................................................ 33 10.2 WORKINGS OF SENSITIVITY ............................................................................ 41
3
Project on Financial Appraisal – COTTON YARN
1. COMPANY BACKGROUND
1.1 ABOUT THE COMPANY
KANHA Spinners is a new organization in the trade of cotton and its related products. A prime manufacturer and supplier of Cotton Blended Yarn, White Cotton Yarn, Organic Cotton Yarn and Pure Cotton Yarn. The organization will be synonymous with quality, consistency and excellent business ethics. Aims at being India’s famous company to have a branded presence in the entire spinning industry. Our yarn is specially designed for the manufacturing of Terry towel, bed sheets, canvas house etc. Company aims at becoming widely well reckoned as the distinguished Cotton Yarn Manufacturer and amidst the leading Suppliers from India. It has built a huge list of reputed clients spread all over India viz. New Delhi, Ludhiana, Meerut, Kanpur, Sholapur, Panipat, Calcutta, Bihar etc. Due to the impeccable quality of its yarns, they have gained maximum orders and indirectly with Welspun India & Arvind Denims (I) Ltd. Last but not the least; the main motive is to create reliance and credibility among our esteemed clients. It is incepted in the year 2011. It is established by Mr. Madhusudan Partani (CEO) and Ms. Shivi Aggarwal. The founders of the company have vast experience and knowledge in this domain. Due to the diligent efforts of the founders, it has been able to stand in the midst of overriding Cotton Acrylic Yarn Suppliers from India. Mr. Manish Sharma and Ms. Radhika Gupta are the driving force and are like sheet anchors in the smooth running of the mill. They have vast knowledge in the fields of education, construction and real estate. Mr. Manish is the financial head of the company whereas Ms. Radhika holds the position of a managing director. The company will achieve a distinct edge in the manufacturing of natural cotton yarn, Organic Natural Cotton, Cotton Knitting Yarn, Wholesale Cotton Yarn etc. Apart from this the marketing efforts of Mr. Akhil Gupta will help the company in increasing its customer base. He is presently the marketing head of the company.
4
Project on Financial Appraisal – COTTON YARN
Team Work The Company has a strong technical and highly qualified team of experts, who earnestly handle specific delicate arena of spinning. The production, sales and HR employees have an immense experience of their field. They are very dedicated towards their work and always keep themselves abreast with the changing market needs. It conducts various training programs at regular intervals, so that the team update themselves with the latest trend of the industry. Quality The strength of the company lies in the quality of their cotton yarn and raw cotton. They have one of the best quality control systems and plants from Germany and use stringent quality checks to ensure the quality before dispatching cotton yarn to the esteemed clients. The company always assures its clients to cater the qualitative and natural cotton yarn. Our Mission The main motive is to offer unparalleled quality, highly efficient and pure cotton so that it can define the company. It continuously endeavors to increase the production capacity and quality of yarns, so that it can contribute in cotton yarn industry up to a large extent.
1.2 ORGANIZATION
Name of CEO Managing Director Chief Financial Officer Chief Marketing Officer Chief Operating Officer Establishment Year Primary Business Type No. of Employees Market Cover Mr. Madhusudan Partani Ms. Radhika Gupta Mr. Manish Sharma Mr. Akhil Gupta Ms. Shivi Aggarwal 2011 Manufacturer 100 New Delhi, Ludhiana, Kanpur, Meerut, Sholapur, Icchalkaranji, Panipat, Kishangarh, Beawar,
5
Project on Financial Appraisal – COTTON YARN
Burhanpur, Calcutta & Bihar. Registered Office Corporate Office 123, Jatti Wada, Meerut City - 250001 12A, Arjun Marg, DLF City Phase I, Gurgaon, Haryana 122002
6
Project on Financial Appraisal – COTTON YARN
2. PROMOTER’S BACKGROUND
Mr. Madhusudan Partani After finishing his Bachelors in Commerce and MBA, he has worked in various sectors but has a vast knowledge in the field of manufacturing of cotton yarn. He initially worked as a Management Trainee in Visvesaraya Cotton Industries for a period of 3 years during which he learned a lot about exporting. Then he worked with his father who had the similar business of manufacturing. During his stint of 5 years with his father they successfully turnaround the company and initiated a lot of projects. Ms. Shivi Aggarwal One of founders of this company she has done her Bachelors in the field of Biotechnology and MBA in the field of operations and finance. This gives her ample knowledge of this field. Her initial work was with an export house of Arvind Mills. Then she shifted to Visvesaraya Cotton Industries where she applied her knowledge of the operations management and of an export house and became a Senior Manager in a period of 5 years. Mr. Manish Sharma A software engineer who started his career with serving the IT industry but with a focus over finance sector and t after completing his majors in Finance during MBA he started a company with his friend Akhil Gupta. It was a polyester manufacturing company which was able to reap profits only in the second year of its operations. After successfully running the company for a period of 7 years they sold it to Reliance. This gave him a lot of knowledge regarding the manufacturing and export industry. Ms. Radhika Gupta The Managing Director of the company and a close friend of both Mr. Madhusudan and Ms. Shivi, She did her Bachelors in Commerce and MBA in finance and marketing. She has served companies like Arvind Mills and Dinesh Cotton Yarn and has served as a Vice President of Anila Cotton Yarn. With a vast experience of 12 years her presence is beneficial to the company Mr. Akhil Gupta The marketing head and the face of the company, he is specialist in marketing. His earlier venture in the polyester manufacturing saw his skills with orders coming from 7
Project on Financial Appraisal – COTTON YARN
various parts of the world. And now also even before starting he has been able to rope in orders from some major customers.
8
Project on Financial Appraisal – COTTON YARN
3. DETAILS OF THE PROPOSAL PROJECT
Company will be indulged in high quality supplies of Superior quality cotton yarns. Our product contains knitting yarn, cotton yarn, combed knitting yarn, organic cotton yarn. These products have domestic as well as international marketplace. Neat spinning, durability, color fastness, requisite elasticity, etc., are some of the features that will be offered by us to the consumers. Meeting the stringent application requirements of varied industries, these combed knitting yarns comply with the requisite industrial standards. Our products will be available in multiple packaging options to cater specific needs of textile, garment, weaving and many other industries. All Counts of Yarn are available ranging from 20/1, 24/1, 30/1, 40/1 and other counts.
3.1 COST OF PROJECT
The following table shows the break- up of the cost of the project ITEM Land and site development Building Plant and Machinery Miscellaneous Fixed Assets Preliminary and Public Issue Expenses Pre-operative expenses Contingency margin 9 15.58 11.10 AMOUNT (Rs. In Lacs) 10.08 52.16 308.63 25.00 30.00
Project on Financial Appraisal – COTTON YARN
Working Capital Margin TOTAL
35.48 488.75
Land & Site Development
.
Rs
10.08 lacs
The project is going to be set up at plot no 10, Katla Market, Gurgaon. The land has been bought at the price of 10.08 lakh by Haryana Urban Development Authority.
Building
Rs 52.16 lacs
The construction cost for building 1000 square meter office at a rate of 5216 per sq meter .Outlays on buildings to be constructed are considered reasonable
Plant and Machinery
Rs 308.63 lacs
All the items of the plant and machinery are proposed to be procured indigenously .All the costs related to plant and machinery are considered reasonable.
Miscellaneous Fixed Assets
Rs
25.00 lacs
Miscellaneous Fixed Assets consist of furniture 5 lacs, computers 5 lacs vehicle 10 lacs and other items 5 lacs.
Preliminary and Public Issue Expenses
10
Rs
30.00 lacs
Project on Financial Appraisal – COTTON YARN
Preliminary and capital issue expenses consist of underwriting and brokerage fee – Rs 15 lacs, Adverting fees – 5 lacs, Issue Management fees – 5 lacs and expenses on prining, registrar, banker and postage – Rs 5 lacs. All the expenses are considered adequate and reasonable.
Pre-operative expenses
Rs
15.58 lacs
Pre operative expenses consist of mainly of establishment expenses and travelling expenses- Rs 5 lacs, interest during construction – 5.58 lacs and appraisal fee – Rs 5 lacs. All the expenses are considered reasonable
Contingency margin
Rs 11.10lacs
Provision for contingencies arising out of physical contingencies and delays have been provided for 11.10 lacs and are considered adequate.
Margin Money for Working Capital
Rs
35.48 lacs
Item (in lacs) Raw Material Stock in Progress Finished Goods Book Debts Total Current Assets (-) Margin Money CA-Margin Bank Finance Increase in Bank Finance
1 69.78 2.53 17.71 51.89 141.91 35.48 106.43 106.43 106.43
2 79.09 2.86 20.04 59.99 161.98 40.49 121.48 121.48 15.05
3 88.39 3.20 22.38 67.07 181.03 45.26 135.77 135.77 14.29
3.2 MEANS OF FINANCE
The total project cost of Rs. 488.75 lacs is proposed to be financed as under: 11
Project on Financial Appraisal – COTTON YARN
SOURCE Promoter’s contribution- Share capital Term Loans-SFC TOTAL
AMOUNT (IN RS Lacs) 338.75 150.00
488.75
Promoter’s Contribution
Rs 338.75 Lacs
Out of total of proposed promoter’s contribution of Rs 338.75 lacs, Rs 100 lacs have already been brought in as share application money. All of the promoter’s contribution would be brought in as equity capital with a face value of Rs 10/- per share at par
Term Loans – SFC
Rs 150 Lacs
Company proposes to raise an amount of Rs 150 lacs as term loans from commercial bank for the project. For the calculation purposes, the loan is assumed to be at an interest rate 12%, payable in 14 half yearly equal installment. Initial moratorium is one and half years.
12
Project on Financial Appraisal – COTTON YARN
4. KEY FINANCIALS
4.1 PROJECTED PROFITABILITY ESTIMATES (WORKING RESULTS)
1 Capacity Utilization Quantity Sold (TPA) A. Sales Realization 2 3 4 5 6 7 8
75%
85%
95%
95%
95%
95%
95%
95%
2306
2666
2981
2988
2988
2988
2988
2988
1245.42 1439.78 1609.61 1613.39 1613.39 1613.39 1613.39 1613.39
B. Production Cost of Goods Sold: Raw Materials Consumed Power & Fuel Wages & factory salaries Factory Overheads Total
818.77 38.13
946.54 1058.19 1060.68 1060.68 1060.68 1060.68 1060.68 44.08 49.28 49.40 49.40 49.40 49.40 49.40
26.65
29.91
32.91
36.28
39.91
43.90
48.29
53.12
6.84
7.33
7.70
8.10
8.51
8.93
9.38
9.85
890.40 1027.87 1148.09 1154.46 1158.49 1162.91 1167.75 1173.05
C. Administration & Selling Expenses: Office Salaries Administration Expenses Selling Expenses Total D. Gross profit
21.76 4.50 37.36 63.62 291.40
23.94 4.95 43.19 72.08 339.83
26.33 5.45 48.29 80.06 381.46
28.96 5.99 48.40 83.35 375.57
31.86 6.59 48.40 86.85 368.04
35.04 7.25 48.40 90.69 359.78
38.55 7.97 48.40 94.92 350.71
42.40 8.77 48.40 99.57 340.76
13
Project on Financial Appraisal – COTTON YARN
before interest E. Total financial expenses Interest on Term Loan Interest on Bank borrowing F. Depreciation G. Operating Profit H. Preliminary expenses w/o I. Profit/loss before tax J. Provision for tax K. Provision after tax L. Less: Dividend (inclusive of dividend tax) M. Retained profit N. Add: Depreciation Preliminary expenses w/o O.Net cash accruals (in lacs)
17.36 13.84 55.10
14.79 15.79 47.65
12.21 17.65 41.22
9.64 17.67 35.66
7.07 17.68 30.86
4.50 17.69 26.71
1.93 17.70 23.12
0.00 17.71 20.02
205.11 6
261.61 6
310.38 6
312.59 6
312.43 6
310.88 0
307.96 0
303.03 0
199.11
255.61
304.38
306.59
306.43
310.88
307.96
303.03
58.57
75.85
90.75
91.62
91.73
93.18
92.39
90.98
140.54
179.75
213.63
214.97
214.70
217.70
215.57
212.05
0.00 140.54
46.75 133.00
46.75 166.88
54.54 160.44
54.54 160.16
62.33 155.37
62.33 153.24
70.12 141.93
55.10
47.65
41.22
35.66
30.86
26.71
23.12
20.02
6
6
6
6
6
0
0
0
201.64
186.66
214.10
202.10
197.02
182.08
176.36
161.95
14
Project on Financial Appraisal – COTTON YARN
15
Project on Financial Appraisal – COTTON YARN
4.2 BALANCE SHEETS
At the end of Construction Period 1 2 3 4 5 6 7
bilities
are Capital
338.75
338.75 338.75 140.54 273.54
338.75 440.43 85.71
338.75 600.86 64.29
338.75 761.03 42.86
338.75
338.75
338.
serves &
plus
916.40 1069.63 1211. 21.43 0.00
cured Loans:
rm Loan Working
150.00
128.57 107.14
0.
nk Finance
pital
106.43 121.48 0 0 0
135.77 0
135.95 0
136.02 0
136.09 0
136.17 0
136.
secured
ans
rrent
bilities and
ovisions:
ade Credit
0 488.75
0
0
0
0
0
0
0
tal
714.29 840.92 1000.66 1139.85 1278.65 1412.66 1544.55 1686.
sets
ed Assets:
oss Block
423.27
423.27 423.27
423.27
423.27
423.27
423.27
423.27
423.
ss:
cumulated
preciation
0 423.27 0 0 0 0 0
55.10 102.75 368.17 320.52 0 69.78 2.53 17.71 51.89 0 79.09 2.86 20.04 59.99
143.97 279.30 0 88.39 3.20 22.38 67.07
179.63 243.64 0 88.39 3.21 22.45 67.22
210.49 212.78 0 88.39 3.22 22.53 67.22
237.20 186.07 0 88.39 3.23 22.61 67.22
260.32 162.95 0 88.39 3.24 22.71 67.22
280.
t Block
142.
estments
rrent Assets, Loans & Advances:
w Materials
88.
ck-in-
ocess
3.
ished Goods
22.
ok Debts
67.
sh & Bank
ances
35.48 180.21 340.42
16
528.33
708.94
884.51 1045.13 1200.04 1361.
Project on Financial Appraisal – COTTON YARN
sc. Expenditure & Losses
liminary
penses
30.00 488.75
24.00
18.00
12.00
6.00
0.00 -
-
-
tal
714.29 840.92 1000.66 1139.85 1278.65 1412.66 1544.55 1686.
17
Project on Financial Appraisal – COTTON YARN
4.3 CASH FLOW STATEMENTS
At the end of Construct ion Period Sources of Cash Share Issue PBT with interest added back Depreciation Preliminary expenses w/o Increase in term loans Increase in bank finance for WC Total (A) Capital expenditure for the project Increase in WC Preliminary expenses Decrease in term loan Interest on term loan Interest on bank finance for WC Tax Dividend (inclusive of dividend tax) 1 2 3 4 5 6 7 8
338.75
0
0 286.1
0 334.2 4 41.22 6
0 333.9 1 35.66 6
0 331.1 8 30.86 6
0
0
0
0 0 0 150.00
230.30 55.10 6
8 47.65 6
333.07 26.71 0
327.59 23.12 0
320.74 20.02 0
0 488.75
106.43 397.83
15.05 354.8 9
14.29 395.7 5
0.18 375.7 5
0.07 368.1 1
0.07 359.85
0.08 350.79
0.09 340.85
Disposition of Cash
423.27 0 30.00 0 0
0 141.91 0 21.43 17.36
0 20.07 0 21.43 14.79
0 19.05 0 21.43 12.21
0 0.24 0 21.43 9.64
0 0.09 0 21.43 7.07
0 0.10 0 21.43 4.50
0 0.11 0 21.43 1.93
0 0.12 0 0.00 0.00
0 0
13.84 58.57
15.79 75.85
17.65 90.75
17.67 91.62
17.68 91.73
17.69 93.18
17.70 92.39
17.71 90.98
0
0.00
46.75
46.75
54.54
54.54
62.33
62.33
70.12
18
Project on Financial Appraisal – COTTON YARN
194.6
Total (B) Opening balance of cash in hand & at bank Net surplus/deficit (A-B) Closing balance of cash in hand & at bank
207.8 4
195.1 4
192.5 4 199.23 195.89 178.93
453.27
253.10
8
180.2 0 35.48 1 160.2 35.48 144.73 1
340.4 2 187.9 1
528.3 3 180.6 1
708.9 4 175.5 7 160.62 884.51
1045.1 3
1200.0 4
154.90
161.92
340.4 35.48 180.21 2
528.3 3
708.9 4
884.5 1
1045.1 3
1200.0 4
1361.9 6
19
Project on Financial Appraisal – COTTON YARN
5. ASSUMPTIONS
The profitability and other projections have been prepared on the basis of the following assumptions: 1. Project Life 8 years. The construction period will last for 6 months. 2. The installed capacity works out be 3145 MT on the basis of single shift working. 3. The expected capacity utilisation will be 75% in the first year, 85% in the second year and, 95% for the third year and beyond. 4. The selling price of cotton yarn is Rs. 54 per Kg. 5. The raw materials (cotton) required at 100% capacity utilisation is 3850 MT. The cost is Rs. 29 per Kg. 6. The cost of power and fuel is Rs. 39 lacs at 75% capacity. 7. Wages and factory salaries are expected to be Rs. 27.26 lacs in the first year. Thereafter, they would rise at the rate of 10% per year. 8. Factory overhead expenses will be Rs. 7 lacs for the first year. They will increase at the rate of 5% per year subsequently. 9. Administrative expenses will be Rs. 4.50 lacs per year. Thereafter they would rise at the rate of 10% per year. 10. 11. 12. Office salaries are expected to be Rs. 21.76 lacs in the first year. Thereafter they Selling expenses will 3% of sales. The term loan will be repaid in 14 equal half-yearly instalments, with the first would rise at the rate of 10% per year.
instalment falling due at the end of the first half of first operating year. The interest rate on the outstanding term loan will be 12%. 13. The current asset requirement are Raw Materials Work in Process Finished Goods Debtors 14. 20 Margin money for working capital is 50% of total current assets. 1 month 1 day 1 week 15 days
Project on Financial Appraisal – COTTON YARN
15. 16. The bank finance for working capital will cost 13%. Depreciation rate under the written down value method are taken as Company Law Building and Civil Works Plant and Machinery Misc. Fixed Assets 17. 18. 19. 13.91% 13.91% 15% 15% 10% Income Tax 10%
The preliminary and public expenses may be written off in 5 equal instalments. The income tax rate applicable is 30%. Minimum alternate tax (MAT) rate is 18%. The company plans to pay dividend from the second year. The dividend rate is
Ignore surcharge and education cess. proposed to be 12 per cent for the second year. Thereafter, it would be enhanced by 2 per cent every alternate year. Dividend tax 15%. Ignore surcharge and education cess.
6. PROJECT VIABILITY
6.1 IRR
At the end of Construct ion Period Capital Cost of Project 1 2 3 4 5 6 7 8
-453.27 232.8 263.9 8 20.07 290.7 1 19.05 -0.24 -0.09 -0.10 -0.11 -0.12 283.9 5 276.3 2 266.6 0 258.32 249.7 8 3 141.9
PBIDAT Deployment in Net Current Asset
21
Project on Financial Appraisal – COTTON YARN
1
Terminal Cash Inflows Net Cash Flows IRR
213.8 0 243.9 -453.27 44.38% 90.92 1 271.6 6 283.7 1 276.2 3 266.5 0 258.21 463.4 6
6.2 TERMINAL CASH FLOWS
Residual Value of Land at cost Residual Value of other fixed assets (5%) at cost Recovery of Net current Assets at par Terminal Cash Inflows 11.53 20.59 181.68 213.80
6.3 WACC
Capital Equity Term Loan Bank Borrowing for Working Capital WACC Amount 338.75 150.00 136.26 625.01 12.14% Rate 15% 8.42% 9.12% Cost 50.81 12.62 12.42 75.86
22
Project on Financial Appraisal – COTTON YARN
6.4 COMMERCIAL BREAK EVEN POINT
Sales Variable Cost RM Power Selling Expenses Interest on Bank Borrowing for WC Contribution Fixed Cost Wages Factory Overhead Office salary Administrative Expenses Interest on term loan Depreciation Preliminary expenses W/O PBT 36.28 8.10 28.96 5.99 9.64 35.66 6 130.64 306.59 1060.68 49.40 48.40 17.67 1176.15 437.23 1613.39
COMMERCIAL BEP IN TERMS OF:
Capacity Utilisation Quantity Sold(TPA) Amount of Sales(Rs million) 28.39% 892.72 482.07
6.5 CASH BREAK EVEN POINT
Sales Variable Cost RM Power Selling Expenses Interest on Bank Borrowing for WC 1060.68 49.40 48.40 17.67 1176.15 1613.39
23
Project on Financial Appraisal – COTTON YARN
Contribution Fixed Cost Wages Factory Overhead Office salary Administrative Expenses Interest on term loan PBT 36.28 8.10 28.96 5.99 9.64 88.98 348.25 437.23
24
Project on Financial Appraisal – COTTON YARN
CASH BEP IN TERMS OF:
Capacity Utilisation Quantity Sold(TPA) Amount of Sales(Rs million) 19.33% 608.04 328.34
6.6 DEBT SERVICE COVERAGE RATIO
1 Cash Accruals
140.5 179.7 5 47.65 213.6 3 41.22 214.9 7 35.66 214.7 0 30.86 217.7 0 26.71 215.5 7 23.12 212.05 20.02
2
3
4
5
6
7
8
PAT Depreciation Preliminary expenses W/O Interest on Term Loan TOTAL Debt Service Interest on Term Loan Principal Instalment TOTAL DSCR Average DSCR
4 55.10
6.00
6.00
6.00
6.00
6.00
0.00
0.00
0.00
17.36 218.9 9
14.79 248.1 9
12.21 273.0 6
9.64 266.2 8
7.07 258.6 3
4.50 248.9 1
1.93 240.6 2
0.00 232.07
17.36
14.79
12.21
9.64
7.07
4.50
1.93
0
21.43 38.79 5.65
21.43 36.21 6.85
21.43 33.64 8.12
21.43 31.07 8.57
21.43 28.50 9.07 8.31
21.43 25.93 9.60
21.43 23.36 10.30
0 0
6.7 SUMMARY OF EVALUATION
25
Project on Financial Appraisal – COTTON YARN
Parameters IRR WACC Spread Commercial BEP Capacity Utilisation Quantity Sold(TPA) Amount of Sales(Rs million) Cash BEP Capacity Utilisation Quantity Sold(TPA) Amount of Sales(Rs million) DSCR High Low Average 10.30 5.65 8.31 Accept 19.33% 608.04 328.34 Accept 28.39% 892.72 482.07 Accept Result 44.38% 12.14% 32.24% Accept Evaluation
6.8 RATIO ANALYSIS
Profitability Projections ( At maximum capacity utilisation, 4th year) Gross Profit Ratio Operating Profit Ratio Net profit Ratio Return on Equity Earnings Per Share Balance sheet Projections Promoters' contribution to Project cost Current Ratio 26 69.31% NA 25%-30% Accept 23.28% 19.37% 13.32% 27.59% 6.35 Project Institutional Industry Norm Norm Evaluation
Project on Financial Appraisal – COTTON YARN
Fixed Asset Coverage Ratio Debt Equity Ratio 2.82 0.44 1.4:1 1.5:1 Accept Accept
27
Project on Financial Appraisal – COTTON YARN
7. SENSITIVITY ANALYSIS
7.1 SENSITIVITY SUMMARY
Fall in Capacity Utilisation by 5% IRR WACC Spread Commercial BEP Capacity Utilisation Quantity Sold (TPA) Sales ( Rs. Million) Cash BEP Capacity Utilisation Quantity Sold (TPA) Sales ( Rs. Million) DSCR High Low Average 7.85 4.20 6.42 10.30 5.65 8.31 8.70 4.90 7.11 19.33% 576.74 328.34 19.33% 608.04 328.34 19.33% 608.04 328.34 34.91% 1041.42 562.37 28.39% 892.72 482.07 32.35% 1017.39 549.39 33.21% 12.15% 21.05% 44.38% 12.14% 32.24% 37.46% 12.12% 25.34% Normal Capacity Raise in RM Prices by 5%
28
Project on Financial Appraisal – COTTON YARN
8. CRDM
Ratios Project Debt/Equity TOL/TNW Gross Average DSCR Promoters Contribution( as % of Project Cost) Repayment Period Security Cover 7 Years 2.8218 Times Value 0.443 0.516165759 8.31 69.31%
8.1 TOTAL OUTSTANDING LOAN/TOTAL NETWORTH
Computation of TOL/TNW 1 128.5 Term Loan Bank Finance 7 106.4 3 2 107.1 4 121.4 8 85.71 135.7 7 64.29 135.9 5 136.02 136.09 136.17 136.26 42.86 21.43 0.00 0.00 3 4 5 6 7 8
TOL
Share Capital Reserves (Preliminary Expenses)
235.0 0
338.7 5 140.5 4 24.00
228.6 3
338.7 5 273.5 4 18.00
221.4 9
338.7 5 440.4 3 12.00
200.2 4
338.7 5 600.8 6 6.00
178.88
338.75 761.03 0.00
157.52
338.75 916.40
136.17
338.75 1069.6 3
136.26
338.75 1211.5 6
TNW
TOL/TNW Maximum
455.2 9
0.52
594.2 9
0.38
767.1 8
0.29
933.6 1
0.21
1099.7 7
0.16
1255.1 4
0.13
1408.3 8
0.10
1550.3 1
0.09
0.52
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Project on Financial Appraisal – COTTON YARN
8.2 CREDIT RISK DETERMINATION MODEL (TERM LOAN)
Risk Value Project Risk Projected D/E TOL/TNW( maximum) Gross Average DSCR Promoters Contribution Repayment Period Security Cover 7 Years 2.8218 Times Lowest 5 27 0.443 : 1 0.517 : 1 Lowest Lowest 5 5 5 5 2 Level Aggregate Score Score
8.31 Lowest 69% Lowest High
Aggregate Project Risk Score ( Out of 30)
Industry Risk Parameters Competition and Market Risk Cyclicality Regulatory Risk Technology Level User Profile M L M M L 2 3 2 2 3 12
Total ( Out of 20) Aggregate Industry Risk Score( Normalized Out of 40)
Management Risk Parameters Integrity Expertise Total ( out of 8) M L
24
2 3
5
18.75
Aggregate Management Risk Score( Normalized Out of 30)
Overall Risk Level( Aggregate Score of parameters out of 100) Risk Rating
69.75 IBT-B1
30
Project on Financial Appraisal – COTTON YARN
Interest Rate BR+2
31
Project on Financial Appraisal – COTTON YARN
9. NOTE ON VIABILITY
The proposed project is financially very attractive and also feasible. Despite of Huge capital outlay of Rs. 488.75 Lacs, It is able to break even at very first year of operation. At the base condition with assumed conditions the IRR is as high as 44.38% with spread of 32.24%. Even the Break even is achieved at its capacity utilization of just 19.33%. For the proposed loan of Rs. 150 lacs, the project is able to promise an average DSCR of 8.31 times. Also the FACR is as high as 2.82 times. Promoter’s contribution is at 69.31% of Total project cost. The operating excellence is visible from the projected Gross profit ratio of 23.28% and net Profit ratio of 13.32%. With this the project will earn Returns on Capital Employed of 27.59%. Even at the rise in Raw material prices by 5% than the assumed level, the spread is as high as 37% and on sensitivity of Fall in capacity utilization by 5% than the projected, the spread is still at 21%. Apart from the financial aspects, also the management team is very strong. All the members have a very profound knowledge of the business and have worked in industry for about 10 years. Every member is expert in his own field, thus making the project much more attractive. Also the Industry outlook is very encouraging and constructive. But there is bit of competition risk and technology risk as the technology keeps on changing. We have opted for the latest and most advanced technology available for the purpose. Thus it can be concluded that the project is highly viable and we assure you that the value in return will exceed your expectation.
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Project on Financial Appraisal – COTTON YARN
10.
APPENDIX
10.1 PROJECTIONS OF PROFITABILITY
1. CAPACITY UTILIZATION & SALES REALIZATION 1 Installed Capacity Capacity utilization Production (TPA) (+) Opening Inventory Stock-in-progress Finished Goods 0 0 2358.7 5 (-) Closing Inventory Stock-in-progress (In days) Finished Goods (In days) Quantity Sold (TPA) Selling Price Sales Realization (in lacs) 2. RAW MATERIALS 1 Capacity Utilization RM Consumed RM unit cost RM Cost (in lacs) 3. POWER AND FUEL 1 2 3 4 5 6 7 8 75% 2888 29000 837.3 8 2 85% 3273 29000 949.0 3 3 95% 3658 29000 1060.6 8 4 95% 3658 29000 1060.6 8 5 95% 3658 29000 1060.6 8 6 95% 3658 29000 1060.6 8 7 95% 3658 29000 1060.6 8 8 95% 3658 29000 1060.6 8 46 2306 54000 1245.4 2 52 2666 54000 1439.7 8 58 2981 54000 1609.6 1 58 2988 54000 1613.3 9 58 2988 54000 1613.3 9 58 2988 54000 1613.3 9 58 2988 54000 1613.3 9 58 2988 54000 1613.3 9 7 7 8 8 8 8 8 8 2726 3047 3054 3054 3054 3054 3054 7 46 7 52 8 58 8 58 8 58 8 58 8 58 3145 75% 2359 2 3145 85% 2673 3 3145 95% 2988 4 3145 95% 2988 5 3145 95% 2988 6 3145 95% 2988 7 3145 95% 2988 8 3145 95% 2988
33
Project on Financial Appraisal – COTTON YARN
Capacity Utilization Power Consumed (in lacs) 4. WAGES AND FACTORY SALARIES 1 27.2 W & F Salaries (in lacs) 5. FACTORY OVERHEAD EXPENSE 1 Factory Overhead Expenses (in lacs) 7.00 7.35 7.72 8.10 8.51 8.93 9.38 9.85 2 3 4 5 6 7 8 6 2 29.9 9 3 32.9 8 4 36.2 8 5 39.9 1 6 43.9 0 7 48.2 9 8 53.1 2 75% 39 85% 44.2 95% 49.4 95% 49.4 95% 49.4 95% 49.4 95% 49.4 95% 49.4
6. COST OF TOTAL PRODUCTION 1 RM Cost Power Consumed (in millions) W & F Salaries Factory Overhead Expenses Total Cost (in lacs) 39 27.26 7.00 44.2 29.99 7.35 49.4 32.98 7.72 49.4 36.28 8.10 49.4 39.91 8.51 49.4 43.90 8.93 49.4 48.29 9.38 49.4 53.12 9.85 837.38 2 3 4 5 6 7 8
949.03 1060.68 1060.68 1060.68 1060.68 1060.68 1060.68
910.64 1030.56 1150.78 1154.46 1158.49 1162.91 1167.75 1173.05
7. INVENTORY OF RAW MATERIALS 1 RM Cost Average Holding Period Inventory Amount (in lacs) 69.78 79.09 88.39 88.39 88.39 88.39 88.39 88.39 30 2 30 3 30 4 30 5 30 6 30 7 30 8 30
837.38 949.03 1060.68 1060.68 1060.68 1060.68 1060.68 1060.68
8. INVENTORY OF STOCK IN PROGRESS 1 Total Cost Average Holding Period Inventory Amount (in 1 2.53 2 1 2.86 3 1 3.20 4 1 3.21 5 1 3.22 6 1 3.23 7 1 3.24 8 1 3.26
910.64 1030.56 1150.78 1154.46 1158.49 1162.91 1167.75 1173.05
34
Project on Financial Appraisal – COTTON YARN
lacs) 9. INVENTORY OF FINISHED GOODS 1 Total Cost Average Holding Period Inventory Amount (in lacs) 10. BOOK DEBTS 1 Sales Realization Average Credit Period Book Debts (in lacs) 11. WC REQUIREMENTS 1 RM (in lacs) SIP (in lacs) FG (in lacs) BD (in lacs) Total CA (in lacs) (-) Margin Money (in lacs) CA-Margin Bank Finance (in lacs) Increase in Bank Finance (in lacs) 106.43 15.05 14.29 0.18 0.07 0.07 0.08 0.09 69.78 2.53 17.71 51.89 35.48 2 79.09 2.86 20.04 59.99 40.49 3 88.39 3.20 22.38 67.07 45.26 4 88.39 3.21 22.45 67.22 45.32 5 88.39 3.22 22.53 67.22 45.34 6 88.39 3.23 22.61 67.22 45.36 7 88.39 3.24 22.71 67.22 45.39 8 88.39 3.26 22.81 67.22 45.42 15 51.89 2 15 59.99 3 15 67.07 4 15 67.22 5 15 67.22 6 15 67.22 7 15 67.22 8 15 67.22 17.71 20.04 22.38 22.45 22.53 22.61 22.71 22.81 7 2 7 3 7 4 7 5 7 6 7 7 7 8 7
910.64 1030.56 1150.78 1154.46 1158.49 1162.91 1167.75 1173.05
1245.42 1439.78 1609.61 1613.39 1613.39 1613.39 1613.39 1613.39
141.91 161.98 181.03 181.27 181.36 181.46 181.56 181.68 106.43 121.48 135.77 135.95 136.02 136.09 136.17 136.26 106.43 121.48 135.77 135.95 136.02 136.09 136.17 136.26
12. a) FINAL COST OF PROJECT ITEM Land & Site Development Building & Civil Works Plant & Machinery Miscellaneous Fixed Assets Preliminary & Public Issue Expenses Pre-operative Expenses AMOUNT 10.80 52.16 308.63 25.00 30.00 15.58
35
Project on Financial Appraisal – COTTON YARN
Contingency Margin Working Capital Margin Total Cost (in lacs) 12. b) MEANS OF FINANCE SOURCE Promoter's Contribution- Share Capital Term Loans-SFC Total 13. PRODUCATION COST OF GOODS SOLD 1 Production (TPA) RM Cost Power Consumed (in millions) W & F Salaries Factory Overhead Expenses Total Cost of Production Quantity Sold RM Cost Power Consumed (in millions) W & F Salaries Factory Overhead Expenses Production COGS 14. OFFICE SALARIES 1 OS 15. ADMIN EXPENSES 1 Admin Exp 16. SELLING EXPENSES 4.50 2 4.95 3 5.45 4 5.99 5 6.59 6 7.25 7 7.97 8 8.77 21.76 2 23.94 3 26.33 4 28.96 5 31.86 6 35.04 7 8 38.13 26.65 6.84 44.08 29.91 7.33 49.28 32.91 7.70 49.40 36.28 8.10 49.40 39.91 8.51 49.40 43.90 8.93 49.40 48.29 9.38 49.40 53.12 9.85 39.00 27.26 7.00 2306 818.77 44.20 29.99 7.35 2666 49.40 32.98 7.72 2981 49.40 36.28 8.10 2988 49.40 39.91 8.51 2988 49.40 43.90 8.93 2988 49.40 48.29 9.38 2988 49.40 53.12 9.85 2988 2359 837.38 2 2673 3 2988 4 2988 5 2988 6 2988 7 2988 8 2988 AMOUNT 338.75 150.00 488.75 11.10 35.48 488.75
949.03 1060.68 1060.68 1060.68 1060.68 1060.68 1060.68
910.64 1030.56 1150.78 1154.46 1158.49 1162.91 1167.75 1173.05 946.54 1058.19 1060.68 1060.68 1060.68 1060.68 1060.68
890.40 1027.87 1148.09 1154.46 1158.49 1162.91 1167.75 1173.05
38.55 42.40
36
Project on Financial Appraisal – COTTON YARN
1 2 3 4 5 6 7
8
Sales Realization (in 37.36 43.19 48.29 48.40 48.40 48.40 48.40
millions)
1245.42 1439.78 1609.61 1613.39 1613.39 1613.39 1613.39 1613.39
Selling Expenses
48.40
17. REPAYMENT OF TERM LOAN & INTERESE THEREON 1 Term Loan O/S at the Beginning Repayment at the end of 1st half year Term Loan O/S at the end of 1st half year Repayment at the end of 2nd half year Term Loan O/S at the end of 2nd half year Total Repayment during the year Interest for the 1st half year (6%) Interest for the 2nd half year (6%) Total Interest during the year (12%) 128.57 107.14 21.43 9.00 8.36 17.36 21.43 7.71 7.07 14.79 85.71 64.29 42.86 21.43 6.43 5.79 12.21 5.14 4.50 9.64 3.86 3.21 7.07 2.57 1.93 4.50 0.00 0.00 1.29 0.00 0.64 0.00 1.93 0.00 21.43 21.43 21.43 21.43 21.43 0.00 139.29 117.86 10.71 10.71 96.43 75.00 53.57 32.14 10.71 0.00 10.71 10.71 10.71 10.71 10.71 0.00 10.71 2 10.71 3 4 5 6 7 8
150.00 128.57 107.14 85.71 64.29 42.86 21.43 0.00 10.71 10.71 10.71 10.71 10.71 0.00
18. INTEREST ON BANK FINANCE FOR WORKING CAPITAL (@13%) 1 Bank Finance (in lacs) Interest amount (in lacs) 106.43 13.84 2 121.48 15.79 3 135.77 17.65 4 135.95 17.67 5 136.02 17.68 6 136.09 17.69 7 136.17 17.70 8 136.26 17.71
19. FIXED ASSET VALUATION FOR DEPRICIATION PURPOSE Basic Fixed Assets Land and Site Development Building P&M Misc FA Total (in lacs) 10.80 52.16 308.63 25.00 396.59 0.42 2.05 12.12 0.98 15.58 0.30 1.46 8.64 0.70 11.10 11.53 55.67 329.39 26.68 423.27 Cost Pre-operative Expenses Contingency Margin Gross Block
20. GROSS BLOCK, DEPRECIATION (CO’S LAW) & NET BLOCK 1 Gross Block 2 3 4 5 6 7 8
37
Project on Financial Appraisal – COTTON YARN
Land and Site Development Building P&M Misc FA Total Depreciation Building (@10%) P&M (@13.91%) Misc FA (@13.91%) Total Depreciation Accumulated Depreciation Net Block Land and Site Development Building P&M Misc FA Total 11.53 50.10 22.97 11.53 45.09 19.78 11.53 40.58 17.02 11.53 36.52 14.66 11.53 32.87 12.62 11.53 29.58 10.86 11.53 26.63 9.35 11.53 23.96 99.39 8.05 5.57 45.82 3.71 55.10 5.01 39.45 3.20 47.65 4.51 33.96 2.75 41.22 4.06 29.23 2.37 35.66 3.65 25.17 2.04 30.86 3.29 21.67 1.76 26.71 2.96 18.65 1.51 23.12 2.66 16.06 1.30 20.02 11.53 55.67 26.68 11.53 55.67 26.68 11.53 55.67 26.68 11.53 55.67 26.68 11.53 55.67 26.68 11.53 55.67 26.68 11.53 55.67 26.68 11.53 55.67 26.68
329.39 329.39 329.39 329.39 329.39 329.39 329.39 329.39 423.27 423.27 423.27 423.27 423.27 423.27 423.27 423.27
55.10 102.75 143.97 179.63 210.49 237.20 260.32 280.34
283.57 244.13 210.17 180.94 155.77 134.10 115.45
368.17 320.52 279.30 243.64 212.78 186.07 162.95 142.93
21. DEPRECIATION AS PER IT ACT (WDV) 1 Total Cost Building P&M Misc FA Depreciation Building (@10%) P&M (@15%) Misc FA (@15%) Total 5.57 49.41 4.00 58.98 5.01 42.00 3.40 50.41 4.51 35.70 2.89 43.10 4.06 30.34 2.46 36.86 3.65 25.79 2.09 31.53 3.29 21.92 1.78 26.99 2.96 18.63 1.51 23.10 2.66 15.84 1.28 19.79 55.67 329.39 26.68 WDV 50.10 279.98 22.68 WDV 45.09 237.99 19.28 WDV 40.58 202.29 16.39 WDV 36.52 171.95 13.93 WDV 32.87 146.15 11.84 WDV 29.58 124.23 10.06 WDV 26.63 105.60 8.55 2 3 4 5 6 7 8
22. PRELIMINARY EXPENSES 1 Preliminary Exp Preliminary Exp w/o Accumulated Preliminary Exp w/o Preliminary Exp c/f 30.00 6 6 24 2 30.00 6 12 18 3 30.00 6 18 12 4 30.00 6 24 6 5 6 7 8 -
30.00 6 30 0 -
38
Project on Financial Appraisal – COTTON YARN
23. INCOME TAX PROVISION a) Minimum Alternate Tax on Book Profits 1 0 2 0 3 0 4 0 5 0 6 0 7 0
8
Profit/Loss before Tax
199.11 255.61 304.38 306.59 306.43 310.88 307.96 303.03
Less: Rebate u/s 10AA
0
199.11 255.61 304.38 306.59 306.43 310.88 307.96 303.03 0 0 35.84 0 0 46.01 0 0 54.79 0 0 55.19 0 0 55.16 0 0 55.96 0 0 55.43
Less: Unabsorbed depreciation/loss
of earlier years
0
199.11 255.61 304.38 306.59 306.43 310.88 307.96 303.03
Less: Deduction u/s 80-IAB
0
Book Profits
199.11 255.61 304.38 306.59 306.43 310.88 307.96 303.03
MAT @ 18%
54.54
b) Income Tax as per Normal Provisions 1 199.1 Profit/Loss before Tax Less: Rebate u/s 10AA 1 0 199.1 1 Add: Depreciation as per profitability estimates 55.10 254.2 1 Less: Depreciation for tax purposes 58.98 195.2 3 Less: Unabsorbed depreciation/loss of earlier years Gross Total Income Less: Deduction u/s 80 (various sub-sections) 0 0 0 0 0 0 0 0 0 195.2 3 0 252.8 5 0 302.5 0 0 305.3 9 0 305.7 5 0 310.6 0 0 307.9 8 0 303.2 6 50.41 252.8 5 43.10 302.5 0 36.86 305.3 9 31.53 305.7 5 26.99 310.6 0 23.10 307.9 8 19.79 303.2 6 47.65 303.2 6 41.22 345.6 0 35.66 342.2 5 30.86 337.2 9 26.71 337.5 9 23.12 331.0 8 20.02 323.0 5 2 255.6 1 0 255.6 1 3 304.3 8 0 304.3 8 4 306.5 9 0 306.5 9 5 306.4 3 0 306.4 3 6 310.8 8 0 310.8 8 7 307.9 6 0 307.9 6 8 303.0 3 0 303.0 3
39
Project on Financial Appraisal – COTTON YARN
195.2 Total Income Income Tax @ 30% Final Tax Provision: higher of both the taxes 58.57 75.85 90.75 91.62 91.73 93.18 92.39 90.98 3 58.57 252.8 5 75.85 302.5 0 90.75 305.3 9 91.62 305.7 5 91.73 310.6 0 93.18 307.9 8 92.39 303.2 6 90.98
24. DIVIDEND (INCLUSIVE OF DIVIDEND TAX) 1 0% 0 15% 0 0 2 12% 40.65 15% 6.10 46.75 3 12% 40.65 15% 6.10 46.75 4 14% 47.42 15% 7.11 54.54 5 14% 47.42 15% 7.11 54.54 6 16% 54.20 15% 8.13 62.33 7 16% 54.20 15% 8.13 62.33
8
Promoter's Contribution- Share Capital 338.75 338.75 338.75 338.75 338.75 338.75 338.75 338.75
Dividend Rate
18%
Dividend Amount
60.97
Dividend Tax Rate
15%
Dividend Tax Amount
9.15
Dividend Amount (Inclusive of
Dividend Tax)
70.12
25. RESERVE & SURPLUS (RETAINED PROFIT) AS A SOURCE OF CASH 1 Retained Profit 2 3 4 5 6 7 8
140.54 133.00 166.88 160.44 160.16 155.37 153.24 141.93 Expanded into source & disposition of cash: Source of Cash:
PBT Interest: Interest on Term Loan Interest on Bank Borrowing PBT with Interest added back: Total (A) Interest on Term Loan Interest on Bank Borrowing Tax Dividend (inclusive of dividend tax) Total (B) A-B = Retained Profit. Reconciled.
199.11 255.61 304.38 306.59 306.43 310.88 307.96 303.03 17.36 13.84 14.79 15.79 12.21 17.65 9.64 17.67 7.07 17.68 4.50 17.69 1.93 17.70 0.00 17.71
230.30 286.18 334.24 333.91 331.18 333.07 327.59 320.74 Disposition of Cash: 17.36 13.84 58.57 0.00 14.79 15.79 75.85 46.75 12.21 17.65 90.75 46.75 9.64 17.67 91.62 54.54 7.07 17.68 91.73 54.54 4.50 17.69 93.18 62.33 1.93 17.70 92.39 62.33 0.00 17.71 90.98 70.12
89.76 153.18 167.36 173.47 171.02 177.70 174.35 178.81 140.54 133.00 166.88 160.44 160.16 155.37 153.24 141.93
26. INCREASE IN WORKING CAPITAL (OTHER THAN CASH & BANK BALANCE) FOR THE PURPOSE OF CASH FLOW STATEMENTS
40
Project on Financial Appraisal – COTTON YARN
1 69.78 2.53 17.71 51.89 2 79.09 2.86 20.04 59.99 3 88.39 3.20 22.38 67.07 4 88.39 3.21 22.45 67.22 5 88.39 3.22 22.53 67.22 6 88.39 3.23 22.61 67.22 7 88.39 3.24 22.71 67.22
8
Current Assets:
Raw Material
88.39
Stock-in-process
3.26
Finished Goods
22.81
Book Debts
67.22
Working Capital…….Total (A)
141.91 161.98 181.03 181.27 181.36 181.46 181.56 181.68 141.91 20.07 19.05 0.24 0.09 0.10 0.11
Increase in Working Capital (other
than cash & bank balance)
0.12
10.2 WORKINGS OF SENSITIVITY
SITUATION 1: DECREASE IN CAPACITY UTILIZATION BY 5% 1. IRR Construction Period -453.27 138.45 -453.27 -20.07 -19.05 -0.24 -0.09 -0.10 -0.11 1 2 3 4 5 6 7
8
Capital Cost of Project
BIDAT
176.35 206.62 233.35 226.48 218.84 209.12 200.83 192.29
Deployment in Net
Current Asset
-0.12
Terminal Cash Inflows 33.21% 2. TERMINAL CASH INFLOWS Residual Value of Land at cost Residual Value of other fixed assets (5%) at cost Recovery of Net current Assets at par Terminal Cash Inflows 3. WACC Capital Equity Term Loan Bank Borrowing for Working Capital Amount 338.75 150 133.67 Rate 0.15 0.08 0.09 Cost
210.34
Net Cash Flows
37.90 186.55 214.29 226.24 218.75 209.02 200.73 402.51
RR
11.53 20.59 178.22 210.34
50.81 12.63 12.2
41
Project on Financial Appraisal – COTTON YARN
TOTAL WACC 4. EFFECTIVE TAX RATE Total Tax Provision over 10 years Total PBT over 10 years Actual Tax rate 5. COMMERCIAL BREAKEVEN POINT Sales Variable Cost RM Power Selling Expenses Interest on Bank Borrowing for WC Contribution Fixed Cost Wages Factory Overhead Office salary Administrative Expenses Interest on term loan Depreciation Preliminary expenses W/O PBT 6. COMMERCIAL BEP IN TERMS OF: Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) 7. CASH BREAKEVEN POINT Sales Variable Cost RM Power 1060.68 49.4 1613.39 0.35 1041.42 562.37 36.33 8.12 28.97 5.99 9.65 35.67 6 130.70 224.97 1061.99 49.46 45.91 17.34 1174.70 355.66 1530.36 489.68 1642.67 0.30 622.41 0.12 75.64
42
Project on Financial Appraisal – COTTON YARN
Selling Expenses Interest on Bank Borrowing for WC Contribution Fixed Cost Wages Factory Overhead Office salary Administrative Expenses Interest on term loan PBT 8. CASH BEP IN TERMS OF: Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) 9. DEBT SERVICE COVERAGE RATIO 1 Cash Accruals PAT Depreciation Preliminary expenses W/O Interest on Term Loan TOTAL Debt Service Interest on Term Loan Principal Installment TOTAL DSCR Average DSCR 10. SUMMARY OF EVALUATION Parameters IRR WACC Spread Commercial BEP Capacity Utilization 0.35 Result 0.33 0.12 0.21 Accept Accept Evaluation 17.36 21.43 38.79 4.20 14.79 21.43 36.21 5.28 12.21 21.43 33.64 6.42 9.64 21.43 31.07 6.73 6.42 7.07 21.43 28.50 7.07 4.50 21.43 25.93 7.40 1.93 21.43 23.36 7.85 0.00 0.00 0.00 84.40 122.73 156.60 157.84 157.56 160.55 158.42 154.89 55.10 6.00 17.36 47.65 6.00 14.79 41.22 6.00 12.21 35.66 6.00 9.64 30.86 6.00 7.07 26.71 0.00 4.50 23.12 0.00 1.93 20.02 0.00 0.00 2 3 4 5 6 7 8 0.19 576.74 328.33 36.28 8.11 28.96 5.98 9.64 88.98 348.25 48.40 17.67 1176.15 437.23
162.85 191.16 216.03 209.14 201.49 191.76 183.47 174.92
43
Project on Financial Appraisal – COTTON YARN
Quantity Sold(TPA) Amount of Sales(Rs million) Cash BEP Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) DSCR High Low Average 7.85 4.20 6.42 Accept 0.19 576.74 328.34 Accept 1041.42 562.37
SITUATION 2: INCREASE IN RAW MATERIAL PRICES BY 5% 1. IRR Construction Period -453.27 146.33 -453.27 -20.66 -19.64 -0.24 -0.09 -0.10 -0.11 1 2 3 4 5 6 7
8
Capital Cost of Project
BIDAT
204.30 231.00 253.84 246.99 239.36 229.64 221.36 212.82
Deployment in Net
Current Asset
-0.12
Terminal Cash Inflows 37.46% 2. TERMINAL CASH FLOWS Residual Value of Land at cost Residual Value of other fixed assets (5%) at cost Recovery of Net current Assets at par Terminal Cash Inflows 3. WACC Capital Equity Term Loan Amount 338.75 150.00 Rate 15% 8.42% Cost 50.81 12.63 11.53 20.59 187.28 219.39
219.39
Net Cash Flows
57.97 210.34 234.20 246.75 239.27 229.54 221.25 432.10
RR
44
Project on Financial Appraisal – COTTON YARN
Bank Borrowing for Working Capital TOTAL WACC 4. EFFECTIVE TAX RATE Total Tax Provision over 10 years Total PBT over 10 years Actual Tax rate 5. COMMERCIAL BREAKEVEN POINT Sales Variable Cost RM Power Selling Expenses Interest on Bank Borrowing for WC Contribution Fixed Cost Wages Factory Overhead Office salary Administrative Expenses Interest on term loan Depreciation Preliminary expenses W/O PBT 6. COMMERCIAL BEP IN TERMS OF: Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) 7. CASH BREAKEVEN POINT Sales Variable Cost RM 1060.68 1613.39 32.35% 1017.39 549.39 36.28 8.10 28.96 5.99 9.64 35.66 6 130.64 253.01 1113.71 49.40 48.40 18.22 1229.73 383.66 1613.39 561.91 1883.44 29.83% 140.46 629.21 12.12% 9.12% 12.81 76.25
45
Project on Financial Appraisal – COTTON YARN
Power Selling Expenses Interest on Bank Borrowing for WC Contribution Fixed Cost Wages Factory Overhead Office salary Administrative Expenses Interest on term loan PBT 8. CASH BEP IN TERMS OF: Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) 9. DEBT SERVICE COVERAGE RATIO 1 Cash Accruals PAT Depreciation Preliminary expenses W/O Interest on Term Loan TOTAL Debt Service Interest on Term Loan Principal Installment TOTAL DSCR Average DSCR 10. SUMMARY OF EVALUATION Parameters IRR WACC Spread Result 37.46% 12.12% 25.34% Accept Evaluation 17.36 21.43 38.79 4.90 14.79 21.43 36.21 5.93 12.21 21.43 33.64 7.00 9.64 21.43 31.07 7.36 7.11 7.07 21.43 28.50 7.76 4.50 21.43 25.93 8.15 1.93 21.43 23.36 8.70 0.00 0.00 0.00 111.58 146.28 176.21 177.47 177.20 180.19 178.06 174.54 55.10 6 17.36 47.65 6 14.79 41.22 6 12.21 35.66 6 9.64 30.86 6 7.07 26.71 0 4.50 23.12 0 1.93 20.02 0 0.00 2 3 4 5 6 7 8 19.33% 608.04 328.34 36.28 8.10 28.96 5.99 9.64 88.98 348.25 49.40 48.40 17.67 1176.15 437.23
190.04 214.72 235.64 228.77 221.13 211.40 203.11 194.56
46
Project on Financial Appraisal – COTTON YARN
Commercial BEP Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) Cash BEP Capacity Utilization Quantity Sold(TPA) Amount of Sales(Rs million) DSCR 19.33% 608.04 328.34 Accept 32.35% 1017.39 549.39 Accept
High Low Average
8.70 4.90 7.11
Accept
47
doc_360165587.docx