Anda di halaman 1dari 30

Credit Appraisal at CBI

Chapter

12

CASE STUDY - ABC PARTS PVT. LTD

12.1BORROWERS PROFILE

ABC Parts Private Limited


Group Name
Address of Regd./Corporate Office
Constitution
Date of incorporation
Dealing with CBI since

41, DLF, Industrial Area, New Delhi-110015


Private Limited
18/08/1960
Maintaining current account with CBI, New Delhi for
the last 8 years.
Manufacturing of Auto & Tractor Parts (Large Scale)

Industry/Sector
Business Activity (Product)

Engaged in Designing, Engineering and


Manufacturing of Auto and Tractor components.

BACKGROUND
The Company ABC Parts Pvt. Ltd. was incorporated in 1960. The borrower has setup
manufacturing units at 4 locations for manufacturing of Automotive Parts. This company is an
ISO-9001 - 2000 Certified Company and working speedily on achieving the TQ 14000. The
Management of the company is experienced and working in the line since long and the party is

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

having the regular orders for marketing of products and as well as contracts with corporate
manufacturing units of Vehicles/Auto Mobiles. Because of their standing the company is getting
repeated orders. The Company is supplying its product to manufacture of Automobile/Vehicles
Manufacturer unit as Original Equipment Manufacturers. The company has set up in- house R&D
facility in their unit, sophisticated instrumentation laboratory, testing laboratory etc., which
reflects the broad vision of the company to withstand the changing environment.

SHAREHOLDING
Major Share holders

No. of shares Amt. in Rs. Lacs % Holding

Promoters Holding

100000

100.00

100%

FIs/ Mutual Funds/UTI/Banks/FIIs

NIL

NIL

NIL

NRIs/OCBs

NIL

NIL

NIL

Public

NIL

NIL

NIL

Total

100000

100.00

100%

FACILITIES REQUIRED
Secured/Unsecured
Nature

Proposed

Fund Based

Secured

CC(H)

900.00

Fund Based Ceiling

900.00

Non Fund Based


ILC/FLC

Accman Institute of Management, Gr Noida

RBIs guidelines)

NIL

(As per

Credit Appraisal at CBI

ILG/ FLG

NIL

Non Fund Based Ceiling

NIL

Term Loan

1600.00

Secured

TOTAL COMMITMENT

2500.00

Secured
Rs. In Lacs

12.2 CREDIT APPRAISAL FOR ABC PARTS PVT. LTD


I.

MANAGERIAL EVALUATION
1. Market reputation on the promoter / management of the company: Satisfactory

2. Brief Profile of Directors


Shri Mahender Kumar Bhunsali, aged 80 years, promoted the business of auto
ancillaries after completing his education. He has been founder of the company and
is presently the chairman of the company. Looking at his rich experience along
with his forward looking capabilities, excellent work and ability to progress as per
the changing industry scenario, he was honored by Udyog Patra Award
Shri Munish Kumar Bhunsali, aged 46 years, son of Shri Mahendra Kumar
Bhunsali joined his fathers business after completing his Graduation. He has now
been associated with this business for twenty-four years and is presently Managing
Director of the company
Smt. Meenal Bhunsali W/o of Shri Munish Kumar Bhunsali aged 44 years, is also
a graduate. She has also been associated with the business for last eight years and
presently Director in the company
3. Quality of Management (Including Corporate Governance): Management

of

the
company is well experienced and have more than 40 year experience in the auto parts line.

4. Confidential Reports: Satisfactory

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

5. Marketing: The endless pursuit for quality excellence for over four decades has earned

ABC the unswerving confidence of leading automotive and tractor manufactures, that's
why its components are used as Original Equipment in vehicles manufactured. The
company supplies its products to various ORIGINAL VEHICLE MANUFACTURERS
like:
Escorts Tractors Limited,
Tractors and Farm Equipment Limited (Massey Ferguson U.K)
Carraro India Ltd., (Carraro Spa, Italy)
Samey Deutz Fahr India Ltd.,(Samey, Italy)
Eicher Tractors (Valtra, Brazil)
Ford New Holland (CNH, Italy)
"Sonalika" International Tractors Ltd (Renault, France)
International Auto Ltd. etc.
On the other hand company have well experienced management, good marketing team and vide
market network of customers of its products.

6. Borrowers' diversification, expansion, modernization program: The

company is
setting up a new manufacturing facility, as a part of companys overall
expansion/integration plant for its production activities. For the above purpose, a plot of
land measuring about 11,190 sq. meters has been allotted to the company by New Okhala
Industrial Development Association, near New-Delhi. The Company Intend to set up new
machinery there for setting up a new plant to cater growing demands of its customers, who
have already placed orders to increase supply.

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

II. BUSINESS EVALUATION


Comments on industry scenario and industry outlook:
The past few years have witnessed a continuous influx of global auto majors in India.
Many auto majors have established facilities, which have also been aided by the liberal
government policy. India crossed million-mark last fiscal, which has set the domestic auto
ancillary industry on a roll. Auto MNCs are also launching their latest models in India.
The domestic auto industry has also come up with new and quality models. Consequently,
the importance for precision auto components has been growing. The increase in demand
for auto components in India has also resulted in an increase in revenues and exports.
Exports of auto components from India have witnessed a CAGR of over 19% over the last
six years.
The auto component sector is on a growth trajectory as is evident by the fact that an auto
component has been designated as a Thrust Sector by the Government of India under the
EXIM Policy.
Also, the problems of high rejection rates which plagued the domestic auto ancillary
industry has been overcome which is exhibited in number of overseas deals concluded by
the domestic industry amidst stiff competition from other Asian countries. The
Government has extended various fiscal incentives and policy measures which have helped
the industry.
Critically, outsourcing of automobile components that have relatively high engineering and
design content from suppliers in low cost countries like India, is gaining momentum fast. It
is estimated that in the next 10 years the auto components industry will reach USD 33-40
billion.
Going by the current trends in the domestic automotive industry and as stated above, it is
expected that the indigenous demand for auto components will also reach USD 13-15
billion in the next 10 years and about USD 20-25 billion would be exported. To meet the
combined demand from domestic and international customers the industry will have to

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

make significant incremental investment Hence, the Indian auto component industry (and
by sequel the forging industry) is poised to achieve a position in the top slot in the world
and will be in all probability a major driver of growth and employment in the domestic
economy.
The fortunes of the auto ancillary sector are closely linked to those of the auto sector.
Demand swings in any of the segments (cars, two-wheelers, commercial vehicles) have an
impact on auto ancillary demand. Demand is derived from original equipment
manufacturers (OEM) as well as the replacement market. Replacement demand accounts for
close to 57% of total demand, while OEMs account for 27%, with exports accounting for the
balance 16%.
The Indian auto component industry had an estimated 480 companies operating in this area in
FY05, employing more than 250,000 people and the industry exported goods worth
estimated at US$ 1.4 bn. Share of exports to output is estimated to have increased from 15%
in FY04 to 16% in FY05.
One area where domestic units compare favorably with their international peers is it terms of
costs. Lower labour costs give Indian auto ancillary companies an absolute cost
advantage. India's strength in exports lies in forgings, castings and plastics historically. But this
is changing with more component manufactures investing in upgradation of
technology in recent years

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

III. TECHNICAL EVALUATION


1. Land & Building - The Party has proposed to setup the designing , engineering and

manufacturing unit at Noida -II having the area of 11,190 sq Mts The Party has already
constructed approx 45000 sq feet Industrial Shed. The building area is sufficient for the
installation of the plant and machinery and for smooth working of the unit.
2. Plant and Machinery: It is reported by the party that they are one of the largest integrated

plant of its kind for manufacturing Auto and Tractor Component in North India spread
over sprawling area of 57,340 sq feet at different locations in Delhi, Faridabad and Noida.
There are different types of shops i.e grinding shop, Turning centers, Machine Shops,
ensuring high productivity and better quality to keep pace with the ever rising quality
standards. The party is also having HEAT TREATMENT SHOP with hardening,
annealing, carbonizing, tampering furnaces which make the component to withstand
strength in operating conditions of the parts.. The party has submitted the quotations from
the suppliers/manufacturers with the term and conditions for supply. The credential of the
suppliers is verified for the supply of the machinery as per bank guidelines.
3. Raw Materials: The basic raw material required for the unit is forging of auto parts ,

stainless steel, welding rods and store items etc. The material is available through local
suppliers/ units and most of the raw material is purchased from Delhi & NCR.
4. Manufacturing Process: The auto parts being manufactured under strict quality control

by using latest CNC Machines of improved technology, modern process control devices
monitored by microprocessors and backed by a competent team of technical personnel to
ensure strict quality norms as laid down by the OEM units/ Manufacturer of Tractors and
other Vehicles.

5. Production Capacity: The stated projections are accepted by the bank as they both match

and are in sync the installed capacity and the market demand. The new plant will become
operational in the mid of the financial year 2010-11 and production capacity of the
company will increased.

6. Quality Control: The party has proposed to set up in- house R&D facility comprising of

pilot plant facility, sophisticated instrumentation laboratory, testing laboratory etc. for Raw
Material and finished goods etc. Quality control test are being undertaken for raw material
and other products at stages of production. The product shall meet all the specification
requirement of their client.

7. Staff and Labor: As the machines are semi automatic and the unit is located at the Nodia,

which is the approved industrial area. So, there is no problem of skilled and unskilled labor
and it will be easily available as per the requirement of the party as and when required for
the proposed unit at Noida.

8. Power: The party has taken the temporary power load connection of

20KW for

completion of construction at Noida unit.

9. Other Infrastructure: The unit of the party is situated at Noida, it is a

developed
industrial area and is connected to other parts of the country by roads and rails routes. All
types of facilities like postal, telecommunication, transportation etc. are easily/already
available.
IV. LEGAL EVALUATION
Status of various statutory approvals and clearances:
For the Noida Unit Company has already obtained the Various approvals such as sanction of
building plan, Electricity/Power Load Connection, Water Connection, Pollution Control
Clearance. The other units of the Company are

already working at different locations in

Faridabad and Delhi. The Director of the company has reported that they have obtained the all
approvals required for the units for manufacturing of auto parts i.e, registration of the units
with the concerned departments i.e. SSI registration, Income tax, Sales Tax, authorization
from Pollution control board.

Credit Appraisal at CBI

V. FINANCIAL EVALUATION
Financial Statements of the company are as follows

PROFIT AND LOSS ACCOUNT: ABC PARTS PVT. LTD


(In Rs. Lacs)

31.03.2007 31.03.2008 31.03.2009 31.03.2010 31.03.2011


Audited
Audited
Audited
Provisional Projection
1995.39
2047.12
2584.65
2379.88
4840.00
2.59
26.26
-7.92
103.37
1868.41
1954.42
2502.28
2270.66
4405.56
126.98
92.70
82.37
109.22
434.44
17.40
7.44
17.84
12.39
20.00
144.38
100.14
100.21
121.61
454.44
40.00
40.00
69.74
3.67
113.59
104.38
60.14
30.47
117.94
340.85
41.97
52.91
74.08
84.98
344.00
146.35
113.05
104.55
202.92
684.85

Sales Turnover
% rise or fall in sales
Cost of sales
Operating Profit
Other Income
Profit Before Tax
Provision for taxes
Profit After Tax
Depreciation
Cash Profit

BALANCE SHEET: ABC PARTS PVT. LTD


(In Rs. Lacs)

31.03.2007 31.03.2008 31.03.2009 31.03.2010 31.03.2011


Audited

Audited

Audited

Provisional

Projection

Share capital

100.00

100.00

100.00

100.00

175.00

Reserves and Surplus

482.55

542.69

573.16

691.10

1064.68

0.00

0.00

0.00

75.00

0.00

17.45

32.79

45.84

60.88

75.00

Def. Tax liability/ Loss

0.00

0.00

32.81

32.81

0.00

Revaluation Reserves

0.00

0.00

0.00

0.00

0.00

Net Worth

600.00

675.48

751.81

959.79

Secured Loans

496.55

685.86

981.12

1119.01

1819.54

Unsecured Loans

0.00

0.00

0.00

0.00

0.00

Term Liabilities

496.55

685.86

981.12

461.01

482.21

Share App. Money


Quasi Capital

Working Capital Advances

0.00

Accman Institute of Management, Gr Noida

1314.68

1119.01

1819.54

442.79

900.00

Credit Appraisal at CBI

Sundry Creditors

496.60

400.67

694.94

633.65

100.00

Statutory Liabilities

0.00

0.00

0.00

0.00

0.00

Adv from Customers

0.00

0.00

0.00

0.00

0.00

707.92

187.91

105.32

85.00

138.59

Current Liabilities

1204.52

1049.59

1282.47

1161.44

1138.59

Total Outside Liabilities

1701.07

1735.45

2263.59

2280.45

2958.13

Total Liabilities

2301.07

2410.93

3015.40

3240.24

4272.81

Fixed Assets

1640.29

1830.50

2372.27

2590.20

3998.99

Depreciation

792.19

845.10

919.18

1004.16

1398.16

Lease Asset

0.00

0.00

0.00

0.00

0.00

Net Block

848.10

985.40

Inventories

426.89

Sundry Debtors

Other current Liabilities

1453.09

1586.04

2600.83

602.67

796.42

932.02

979.28

735.23

353.35

473.80

326.43

403.33

Cash & bank balance

13.38

68.33

3.72

37.19

19.30

Advances to suppliers

0.00

64.57

38.14

44.23

0.00

Loans & advances

0.00

0.00

0.00

0.00

0.00

Advance Tax

0.00

0.00

0.00

0.00

113.59

277.47

330.22

243.75

307.85

150.00

1452.97

1419.14

1555.83

1647.72

1665.50

Other Current Assets


Current Assets
Investments

0.00

6.39

6.48

6.48

6.48

Security Deposits

0.00

0.00

0.00

0.00

0.00

Margin Money

0.00

0.00

0.00

0.00

0.00

Exp. Not WO

0.00

0.00

0.00

0.00

0.00

Non-current Assets
Total Assets

0.00
2301.07

6.39
2410.93

6.48
3015.40

6.48
3240.24

6.48
4272.81

BUILD UP OF NWC: ABC PARTS PVT. LTD


(In Rs. Lacs)

31.03.2007 31.03.2008 31.03.2009 31.03.2010 31.03.2011


Audited
Audited
Audited Provisional Projection
Long Term Approach
Net Worth
Term Loans
Total Long Term Sources

600.00
496.55
1096.55

Accman Institute of Management, Gr Noida

675.48
685.86
1361.34

751.81
981.12
1732.93

959.79
1119.01
2078.80

1314.68
1819.54
3134.22

Credit Appraisal at CBI

Net Fixed Assets


Other Non Current Asset
Total Long Term Uses
Surplus / Deficit
Short Term Approach
Current Liabilities (Sources)
Current Assets (Uses)
Surplus / Deficit

848.10
0.00
848.10
248.45

985.40
6.39
991.79
369.55

1453.09
6.48
1459.57
273.36

1586.04
6.48
1592.52
486.28

2600.83
6.48
2607.31
526.91

1204.52
1452.97
-248.45

1049.59
1419.14
-369.55

1282.47
1555.83
-273.36

1161.44
1647.72
-486.28

1138.59
1665.50
-526.91

FINANCIAL INDICATORS: ABC PARTS PVT. LTD


(In Rs. Lacs)

Intangible Assets
TNW
Investments in allied co.
Adjusted TNW
Current Ratio
Debt/Equity
NWC
TOL/TNW
TOL/ Adjusted TNW
Operating Profit / Sales (%)
PAT / Sales (%)
FACR

31.03.2007 31.03.2008 31.03.2009 31.03.2010 31.03.2011


Audited
Audited
Audited
Provisional Projection
0.00
0.00
0.00
0.00
0.00
600.00
675.48
751.81
959.79
1314.68
0.00
0.00
0.00
0.00
0.00
600.00
675.48
751.81
959.79
1314.68
1.21
1.35
1.21
1.42
1.46
0.83
1.02
1.31
1.17
1.38
248.45
369.55
273.36
486.28
526.91
2.84
2.57
3.01
2.38
2.25
2.84
2.57
3.01
2.38
2.25
6.36
4.53
3.19
4.59
8.98
5.23
2.94
1.18
4.96
7.04
1.71
1.44
1.48
1.42
1.43

Brief discussion on Financial Indicators


1. Paid up capital / TNW
a. Authorized capital of the company is Rs.100 Lacs comprising of 1 Lac-equity
shares of Rs. 100/- each. Paid up capital are Rs. 100 Lacs comprising of 1 Lacequity shares of Rs 100/- each. It has been projected at the level of Rs 175.00 Lacs
during current year. The company already inducted Rs. 75.00 Lacs as Share
application money, which will be converted in to Paid up share Capital before
disbursement of limits by the bank. The Company will increase the Authorized

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

Capital Limit after the Sanction of the Proposal but before the disbursement of the
loan.
b. TNW of the company is steadily increasing with full retention of profits. It was
Rs. 582.55 Lacs as on 31.03.2007 and increased to Rs. 675.48 Lacs as on
31.03.2008 and further increased to Rs. 751.81 Lacs as on 31.03.2009. It has been
estimated / projected at Rs. 959.79 Lacs and Rs.1314.68 Lacs respectively as at
31.03.2010 and 31.03.2011 due to retention of estimated/projected internal accruals
and proposed induction of capital in the business. Keeping in view of the past trend of
profitability, estimates/projections of TNW can be accepted.
2. Sales: Gross Sales of the company is showing increasing trend. Sales have increased from

Rs. 20.47 crores in 2007-08 to Rs. 25.85 crores in 2008-2009. Thus the company has
registered a growth of more than 26% over the last year. But sale during the financial year
2009-10 did not register any growth, due to fluctuation in the foreign market export sale of
the company decreased from the last financial year. The company has achieved net sales of
Rs 22.30 crore during the financial year 2009-10. The company is estimating the sale on
the basis of order in hand. In view of the recovery of economy since Oct. 2009, Company
is expecting the good growth rate in sale in coming financial years, Another reason of the
healthy estimates are good government policies for export out of India and recovery of
overall global market from the financial crunch. The new plant of the company will
become function in the mid of the financial year 2010-11, which will increase the
production capacity of the company. The company has good demand of its product in the
market. Increase in the production capacity of the company will increase the turnover of
the company. Based on its existing clientele and the demand in the market of the products
of the company, the company is estimating its Gross turnover for the financial year 201011 at Rs.48.40 Crore. Keeping in view the overall growth in the automobile and auto part
manufacturing market, the estimated turnover of the company can be accepted.

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

3. Other income: The other income of the company includes interest on FDR, Rebate and

Discounts received, Foreign Exchange Benefit etc. The other incomes for the year end
31.03.2008 were Rs. 7.44 Lacs and for the year ending 31.03.2009 were Rs. 17.84 Lacs.
The other incomes of the company as per the provisional balance sheet for the financial
year 2009-10 have Rs. 12.39 Lacs. The company is estimating other income at Rs. 20.00
for the financial year 2010-11.The Company estimated these income by taking care of
interest receivable on FDR and current discounts /rebate policies of the suppliers. Keeping
in view the past records of the company, Estimates/Projections of Other Incomes can be
accepted.

4. Profitability: PAT / Sale of the company for the financial year 2007-08 was 3% and for

the financial year 2008-09 was 1% . The PAT of the company for the financial year 200809 was decreased because of increase in the depreciation and Interest expenditure of the
company. Due to expansion and installation of new equipments during the financial year,
depreciation and financial expenses of the company increased disproportionately as
compared to the increase in gross sale of the company. These expenses were 10.68% of
turnover for the financial year 2008-09 in comparison to 8.59% for the financial year
2007-08. As per the provisional balance sheet for the financial year 2009-10 the company
achieved profitability @ 4.96% (PAT/Sale) upto 31.03.2010. The company is estimating
the profitability for the financial year 2010-11 at 7.04%. Increase in the production
capacity of the company will reduce the operation cost of the company and the
profitability of the company will increase. Keeping in view the industry scenario and past
trends of the company projections/estimates of the profitability of the company can be
accepted.

5. Investments: The Company has made investments in Fixed Deposits. The value of Fixed

Deposits at the end of the financial year 2008-09 is Rs. 6.48 Lacs.

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

6. Current ratio: Current ratio of the company for the financial year ending 31.03.2007 &

31.03.2008 was 1.21:1 & 1.35:1 .But current ratio for the financial year 2008-09 was
1.22:1 which is little lower than the bench mark of the bank i.e, 1.33:1 which was due to
expansion plan of the company and formation of long term assets of the company during
the financial year 2008-09 to increase the overall profitability of the company. The
company used its internal accrual for purchase of capital assets of the company. In spite of
using its short term funds for the purchase of the capital assets the NWC of the company is
positive. The expansion in the capital assets has increased the size of the plant and
profitability of the company which also improve the short term liquidity of the company.
As per the provisional balance sheet for the financial year 2009-10 the current ratio of the
company is 1.42, which is above the bench mark of the bank. Keeping in view the past
records/trends of the company estimated level current ratio can be accepted.

7. Debt Equity Ratio: Debt Equity Ratio of the company for the financial year 2007-08 was

1.02:1 and for the financial year 2008-09 was 1.31:1. As per provisional Balance sheet of
the company the debt equity ratio for the financial year 2009-10 is 1.17. The Company has
estimated it debt equity ratio for current financial year at 1.38:1. The debt equity ratio of
the company is below the acceptable bench mark of the bank i.e. 3:1 and proves the long
term solvency of the company. Hence keeping in view the past trends of the company
estimates/ projections of Debt Equity ratio of the company can be accepted.

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

12.3 PRESENT PROPOSAL


The Borrower, ABC PARTS Pvt. Ltd. approached to the Bank for the Sanction of following
facilities: For Sanction of Working Capital Limit of Rs. 900.00 Lacs
And, for Sanction of Term Loan of Rs.1600.00 Lacs (by way of takeover of Term Loan of
Rs. 612.00 Lacs from SBBJ, Barakhamba Road, New Delhi and sanction of Fresh Term
Loan of Rs. 988.00 Lacs for New Plant & Machinery at Noida Unit)

1. JUSTIFICATION FOR WORKING CAPITAL SANCTION


MAXIMUM PERMISSIBLE BANK FINANCE: ABC PARTS PVT. LTD
(In Rs. Lacs)

Inventories
Sundry Debtors
Chargeable Current Assets
Other Current Assets
Total Current Assets
Other Current Liabilities
Working Capital Gap (A)
Minimum Stipulated
Working Capital -25% of
TCA (B)
Actual / Projected NWC
(C)
PBF 1 ( A - B )
PBF 2 ( A - C )
MPBF

31.03.2007 31.03.2008 31.03.2009 31.03.2010 31.03.2011


Audited
Audited
Audited
Provisional Projection
426.89
602.67
796.42
932.02
979.28
735.23
353.35
473.80
326.43
403.33
1162.12
956.02
1270.22
1258.45
1382.61
290.85
463.12
285.61
389.27
282.89
1452.97
1419.14
1555.83
1647.72
1665.50
1204.52
248.45

588.58

800.26

718.65

830.56

755.57

929.07

238.59
1426.91

363.24

354.79

388.96

411.93

416.38

248.45

369.55

273.36

486.28

526.91

-114.79
0.00

475.78
461.01

366.61
482.21

517.14
442.79

-114.79

461.01

366.61

442.79

Accman Institute of Management, Gr Noida

1010.54
900.00
900.00

Credit Appraisal at CBI

2. JUSTIFICATION FOR TERM LOAN


a.

Purpose: Sanction of Fresh Term Loan of Rs. 988.00 Lacs for purchase of New
Plant & Machinery at new unit at New Industrial Area, Noida.

b. Summary of Cost of Project and Means of Finance

Cost of Project
Cost of Machinery
Electricity and Water Connection

Amount
1313.79
20.00
1333.79

Total
Means of Finance
Term Loan
Unsecured Loans
Share Capital & internal accruals
Total

Amount
988.00
75.00
270.79
1333.79
(In Rs. Lacs)

c. Sources of Promoters Contribution and the time schedule as to


when the
funds will be brought.
Promoters of the company have already contributed Rs. 75.00 Lacs by way of
share application money and Rs. 60.88 Lacs as unsecured loan up to 31.03.2010 as
unsecured loans. Promoters will introduce remaining amount of unsecured loans
Rs.14.12 Lacs during the current financial year. The balance amount of promoters
contribution & internal accrual will be arranged by 100% retention of profits for the
financial year 2009-10 and 2010-11.

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

d. Projections for the profitability of the project

PROJECTIONS - ABC PARTS PVT. LTD.

Net sales
Profit after
Tax
Depriciatio
n
Cash Profit

2010-

2011-

2012-

2013-

2014-

2015-

2016-

2017-

2018-

11
4251.3

12
4677.4

13
5145.2

14
5648.7

15

16
6811.8

17
7482.0

18
7850.6

19

256.83

316.38

350.91

385.66

414.55

489.72

551.54

570.83

606.02

224.81

266.09

226.17

207.25

176.16

164.74

140.03

149.02

126.67

6202.6

8237.69

481.64 582.47 577.08 592.91 590.71 654.46 691.57 719.85 732.69


(In Rs. Lacs)

e. DSCR calculation

DEBT SERVICING COVERAGE RATIO - ABC PARTS PVT. LTD.


2010-

2011-

2012-

2013-

2014-

2015-

2016-

2017-

2018-

PAT

11
256.83

12
316.38

13
350.91

14
385.66

15
414.55

16
489.72

17
551.54

18
570.83

19
606.02

Depreciation

224.81

266.09

226.17

207.25

176.16

164.74

140.03

149.02

126.67

Interest

220.62

240.23

213.89

188.2

165.27

151.41

143.8

136.15

130.27

Sub Total

702.26 822.7 790.97 781.11 755.98 805.87 835.37

856

862.96

Loan Instalment

228.29

207.94

197.44

197.7

155.02

58.34

58.66

58.98

31.5

Interest

220.62

240.23

213.89

188.2

165.27

151.41

143.8

136.15

130.27

Sub Total

448.91 448.17 411.33 385.9 320.29 209.75 202.46 195.13 161.77

DSCR

1.56

1.84

1.92

Average DSCR

2.02

2.36

3.84

4.13

4.39

5.33

2.59

Imp: Detailed projected financial statements are not shown in the report due to confidentiality of the data

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

f. Detailed Sensitivity Analysis on DSCR


Variation

Average DSCR

Minimum DSCR

Impact of Reduction of Selling price by 5%

1.95:1

1.21:1

Impact of Increase in Cost of Goods sold by 5%

2.08:1

1.28:1

Impact of Increase in Rate of Interest by 1%

1.89:1

1.17:1

g. Present physical & financial status of project, if any


Basement of the factory building is already constructed. Present Financial Status of
the project is
PARTICULARS

Cost Incurred

Cost to be Incurred

Total Cost

NIL

1313.79

1313.79

1.65

18.35

20.00

1.65

1332.14

1333.79

Cost of Construction
Cost of Electricity and Water
Connection
Total

(In Rs lacs)

h. Implementation Schedule
Activity

Start Date

Land Acquisition

Already

Building and Civil Construction

Already

Delivery of Equipment at site

March ,2010

Installation of Equipments

June, 2010

Commissioning of plant

August,2010

Completion Date
Done
June 2010 ( Shed Measuring 45000 Sq Ft is
already Constructed)
June,10

i. Proposed Repayment Schedule

Accman Institute of Management, Gr Noida

July,10
Sept,10

Credit Appraisal at CBI

Scheduled date of Completion of Project

Sept 2010

Commercial Operations Date (COD)

Oct 2010

Implementation period (in months)

6 Months

Moratorium (in months)

12 Months

Repayment period in months/quarters/ Half year

84 Months

No. of installment

84

Starting Date

Oct 2011

End Date (Last installment)

Sept 2018

Door to door tenor

Accman Institute of Management, Gr Noida

102 months

Credit Appraisal at CBI

12.4 SECURITY
1. Primary
For working capital limits: Hypothecation of Companys present and future raw

i)

material, Stock in process, finished goods, stores and spares and other current assets and Book
Debts
For Term Loan:

ii)

First charges on plant and machinery purchased from fresh term loan of Rs.

988.00 Lacs. Security Cover Available


Description of Security
Land Situated at, Nodia, U.P.
Building and Sheds
Plant & Machinery*
Other Fixed Assets**

Book Value
365.68

1100.00

519.55

519.55

1671.87

1671.87

56.21

56.21

2613.31

3347.63

Total

iii)

Guarantee:

(In Rs lacs)

Personal /Corporate

Name of Guarantor
Mr. M K Bhunsali
Mr. Munish Kumar Bhunsali
Mrs. Kumad Bhunsali

Market Value

Net Worth As on Immovable property


31.03.10
As on 31.03.10

Position
Chairman

394.95

261.00

MD

389.45

261.00

Director

124.56

40.50
(In Rs lacs)

Accman Institute of Management, Gr Noida

RISK RATING DONE BY ZONAL OFFICE (CCPC Department)


CONDUCT OF ACCOUNT EVALUATION
Parameter

Comments

Rate

Status of account

No irregularity is observed with our bank in last 2 yrs

3.00

Operations in account

Operations in account are healthy

3.00

Submission of financial data

Timely submission of data

3.00

TOTAL SCORE
Factor

% score obtained

Weight

Weighted Score

Financial Evaluation

75.00

40.00%

30.00

Business

60.00

25.00%

15.00

Evaluation
Management Evaluation

75.00

20.00%

15.00

Conduct of Account

75.00

15.00%

11.25

&

Industry

71.25

AGGREGATE SCORE
(The Aggregate Score of 71.25 refers to CBI- B+)

THIS MEANS THE RATING OF THE BORROWER IS CBI B+.


DETERMINATION OF ROI
From the internal circular of the bank on ROI the corresponding ROI for auto ancillary firm
having a credit risk rating of A are:
BASE RATE + 2.75% for Working Capital limit, and
BASE RATE + 2.50% + 0.50% for Term loan
Note : The rating has been done by the zonal and regional offices or credit department of CBI and not
done by the Branch level and thus I dont have the knowledge how the ratings has been done.
Imp: The rating as shown in the above section is not a replication of the original
model in any form,
And the values and calculation of scores is for the purpose of understanding
the process

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

12.6 RECOMMENDATIONS:
On examining the request of the Company, the following were observed:
The Management of the company is well experienced.
The Company has been in operation for past 40 years and has been earning profits
continuously.
The company has good track record in dealing with Banks.
The overall financial position of the company is satisfactory.
Keeping in view the increasing profitability and financial position of the company, the
following are recommended

For Sanction Term Loan of Rs. 1600.00 Lacs ( including Takeover of Term Loan of Rs. 612
Lacs from State Bank of Bikaner and Jaipur) for purchase of new plant and machinery .

ii

For Sanction Working Capital limit of Rs. 900.00 Lacs

The facilities desired by the borrowers are subject to the given ROI and Terms and Conditions.
Nature

Applicable ROI

Limits Sanctioned

Fund Based

BASE RATE + 2.75%

900.00

Term Loan

BASE RATE + 2.50% + 0.50%

1600.00

TOTAL COMMITMENT

2500.00
(In Rs lacs)

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

Chapter

CONCLUSION&
RECOMMENDATIONS

13

CONCLUSION

The study at CBI gave a vast learning experience to me and has helped to enhance my
knowledge. During the study I learnt how the theoretical financial analysis aspects are used in
practice during the working capital finance and term loan assessment. I have realized during my
project that a credit analyst must own multi-disciplinary talents like financial, technical as well as
legal know-how.
The credit appraisal for business loans has been devised in a systematic way. It is a process of
appraising the credit worthiness of loan applicants. Thus it extremely important for the lender
bank to assess the risk associated with credit; thereby ensure the security for the funds deposited by
the depositors. There are clear guidelines on how the credit analyst or lending officer has to
analyze a loan proposal. It includes phase-wise analysis which consists of 6 phases:
1. Financial statement analysis
2. Working capital and its assessment techniques
3. Techno Economic Feasibility Analysis
4. Credit risk assessment
5. Documentation
6. Loan administration
Central Bank of Indias adoptions of the Projected Balance Sheet method (CMA) of assessment
procedures are based on sound principles of lending. This method of assessment has certain
flexibility required to avoid any rigid approach to fixing quantum of finance.

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

FINDINGS

After completing the entire project at CENTRAL BANK OF INDIA the following key findings as mentioned
below were observed.

1. At Central Bank of India, Branch Office the priority to appraise a proposal was given to
new or fresh clients over the existing clients presenting proposals for renewal
2. Ratings, as being performed at CBI, are done once a year. Therefore, the ratings do not
take into account short term drastic changes like price level changes (which are an issue
with any method based on accounting statements, since annual reports are based on
historical cost basis of accounting and other changes like sudden mishap/ of the
counterparty are not readily accounted for by the rating system due to long lag between
repeat ratings on the same account.
3. Some of the parameters in Business and industry evaluation are based on the information
provided by company, which in some cases may not be sufficient. No specific guidelines
are followed in such cases. Also, some of the parameters here may be rendered redundant
in some cases and may push up/ push down the rating needlessly in these cases.
4. The present risk rating model does not have any mechanism to prioritize certain sectors of
the economy. There are certain sector in the economy where risk spread is low and certain
sectors where spread of risk is high like real estate. Also, there are certain infrastructural
projects which need to be prioritized. The risk rating model is not flexible to incorporate
all these issues.
5. Banks choose benchmark to arrive at the Base Rate for a specific tenor that may
be disclosed transparently.
6. With the deregulation of the financial sector, the ability of the banks to service the credit
requirements of the SME sector depends on the underlying transaction costs, efficient
recovery processes and available security. There is an immediate need for the banking
sector to focus on credit and finance requirements of SMEs.

Accman Institute of Management, Gr Noida

Credit Appraisal at CBI

RECOMMENDATIONS

The Credit Department at CBI Branch Nehru Place Delhi, works at its full potential and the
staff is highly experienced and has a very strong intuitive sense. So, there is no such
recommendation on the entire

process. However to make the process more flexible

and

efficient, an electronic database should be designed carrying all the available and important
information related to the proposals accepted, and it should be easily accessible to the Credit
Department. This will help reduce paperwork and loss of information.

Accman Institute of Management, Gr Noida