TERM LOAN
INTRODUCTION
Setting up a
Steel Plant / Cement Plant / Road Project /
Hospital / Hotel etc.
will involve CAPITAL EXPENDITURE
A CAPITAL EXPENDITURE involves current
outlay of funds in the expectation of a
stream of benefits extending far into the
future
ANALYSIS
SELECTION
FINANCING
IMPLEMENTATION
REVIEW
FACTORS IN
TERM LOAN APPRAISAL
a)
b)
b)
c)
d)
e)
f)
SOME IMPORTANT
TERMINOLOGIES
TENOR OF LOAN Time period for which the
loan will remain in the books of the Bank. It is
calculated Door to Door
DEBT : EQUITY Ratio (DE) the ratio of Term
Loan to Equity component
QUASI EQUITY the equity not forming part of
the share capital of the company, it can be
unsecured loan, deposit from the Public etc.
PURPOSE
Mention the purpose for which the Term
Loan is intended
PRE-SANCTION VISIT
Visit to the Factory site and submit a
comprehensive report
The visit will give the ground reality of the
Project and the stage of progress of the
Project
TEV STUDY
If required, a TEV study of the Project may be
entrusted to a 3rd Party having expertise in the
particular industry
Compare the TEV Report with the Project
Report submitted by the company and the
acceptability of the TEV Report
If there is wide divergence in the two reports,
call for a meeting between the TEV
Consultant and the Promoters of the Project
i)
COST OF PROJECT
i)
ii)
iii)
iv)
v)
vi)
vii)
viii)
ix)
x)
xi)
xii)
Will include
Land & Land development
Civil Construction Factory Building & Non-factory building
Plant & Machinery Imported & Indigenous
Electricals
Technical Know-how Fee
Miscellaneous Fixed Assets
Preliminary Expenses
Pre-operative expenses
Interest during construction (IDC)
Margin Money for Working Capital
Initial Cash losses
Contingencies (ranging from 5 to 15% of core costs)
MEANS OF FINANCE
I) SHARE CAPITAL can be
a) Equity Capital contribution bythe owners
b) Preference Capital by preference
shareholders
II) TERM LOAN by Banks / FIs
III) DEBENTURE CAPITAL can be
a) Non-convertible Debentures have a fixed
rate of interest and normally have a maturity of 5
9 years
b) Convertible Debentures can be converted
fully / partially to Equity shares, upon maturity
TECHNOLOGY
Here, the technology to be used in the
production process are mentioned. The
Appraising Official has to state clearly that
the technology is current, tested and there
will be no hassles in production process.
PRODUCTION FACTORS
I)
II)
III)
IV)
V)
VI)
RAW MATERIAL
CONSUMABLES
POWER
WATER
MAN-POWER
LOGISTICS, i.e.,
- Transportation by road / railway
- Availability of Trucks
- Nearest Railway Yard
- Nearest Sea-Port
MARKETING
Inputs on marketing arrangement by the
company to sell its products. Tie-up with
clients if any, needs to be mentioned
IMPLEMENTATION SCHEDULE
Starting from Land acquisition to
construction to installation of P&M to Trial
Run to Commercial operation need to be
mentioned
FINALISATION OF CMA
Based on the parameters, the CMA is
finalised and acknowledgement of the
company obtained.
The CMA will contain Profitability
statement, the Balance Sheet and the
various financial ratios for the project and
the company
DISBURSEMENT SCHEDULE OF
TERM LOAN
Schedule of disbursement, preferably on
quarterly basis this will calculate the IDC
for the Project cost
REPAYMENT SCHEDULE OF
TERM LOAN
Moratorium needs to be specified
moratorium is the repayment holiday after
DCCO
The repayment may be quarterly / monthly
basis - needs to be mentioned in the
appraisal
These are only installments. Interest to be
paid as and when due
COMMERCIAL VIABILITY
This is assessed on DSCR, i.e., debt servicing
capability of the company from its income.
Gross DSCR = Cash Accrual + TL Interest
TL installments + TL interest
Net DSCR = Cash Accrual
TL installments
Cash Accrual = Profit + Depreciation + Amortisation
expenses
SENSITIVITY ANALYSIS
This indicates the sensitivity of the plant to
adverse variations in production factors and
sales
Normally, this is assessed on
- adverse variations in variable cost
- adverse variation in sale volume and
- adverse variation in selling price
The sensitivity is calculated till the Gross DSCR
reaches 1.00
SECURITY MARGIN
This is the availability of fixed assets vis-vis the Term Loan outstanding
The value of Fixed assets is the Written
Down Value (WDV)
Ideally, the security margin should be
25%+
OTHERS
Net Present Value (NPV) is the sum of the
present values of all the cash flows (+ve / -ve)
that are expected to occur over the life of the
Project
NPV = Summation of (Cash flow year wise)
(1+Discount Rate)yr wise
less Initial Investment
Accept the proposal if NPV is +ve and Reject if it
is -ve
141.19
63.54
14.12
218.85
37
EXPENSES
FOOD & CONSUMABLE
34.24
POWER & FUEL (70% FIXED) 13.13
SAL. & WAGES (40% FIXED)
10.94
ADMIN. EXPENSES
4.38
DEPRECIATION
77.23
REPAIRS & MAINTENANCE
4.58
INTEREST ON TERM LOAN
33.90
INTEREST ON CASH CREDIT
1.40
PRELIMINARY EXPENSE
15.00
ADVERTISING
4.24
199.04
PROFIT BEFORE TAX(PBT)
19.81
TAX
1.49
PROFIT AFTER TAX (PAT)
18.32
9.19 (70%)
4.38 (40%)
4.38
77.23
4.58
33.90
15.00
4.24
152.90
VARIABLE COST = TOTAL COST FIXED COST
= 199.04 152.90 = 46.14
CONTRIBUTION = INCOME VARIABLE COST
= 218.85 46.14 = 172..71
BEP = FIXED COST
= 152.90
172.71
x
70
% CAP. UTILISATION
CONTRIBUTION
= 62%
39
40
INSTALMENTS DUE
(IN ONE YEAR)
18.32
77.23
15.00
110.55
15.00
x
4
60.00
Thanks