Case Preparation for Advances & appraisal :Role Play

Presented By :1.Ravishekhar kumar2.Nagaraj N.B3.Rachita Luthra4.Ankur Beniwal5.Deepa Jain

Jindal Global Business School,Sonipat,Haryana

• Presentation on Loan Application Procedure: Term Loan & Working Capital Loan:

• Case example - Loan application by M/s JAIHIND Auto Spare Manufactures.

• Presentation on procedures followed in Credit Appraisal by SBI, Panipat.

• Decision post due Diligence of facts & figures on the approval or rejection of Loan application

Credit Appraisal starts with the Promoter of M/s JAIHIND visiting the SBI, Panipat Manager and briefing about his business plan to set us Auto spare manufacturing unit and further enquires the details of procedure and documents that needs to be submitted to avail the Loan.

After hearing to the details, Bank Manager will provide the Application copy with the complete list of documents that needs to be submitted.

Promoter will prepare all the documents and schedules an appointment on 01st Aug 2015 to submit the Loan application including the necessary documentation which is detailed in this presentation.

PROPOSAL: 1.Fund Based TERM LOAN OF INR 19 CR & WORKING CAPITAL LOAN 2 CR

Duly filled Loan Application Form

Key Project Parameters:

Borrower’s Profile M/s JAIHIND Auto Spare Manufacturers

Promoters details Ravishekhar Kumar (CHAIRMAN)

Project Cost (Crores)Debt (Fund Based) 21 84%Equity 0 0%Promoter’s contribution

4 16%

Total cost 25 100%

Cost of project (Crores)

Land (2 acres) 3

Building 2

P & M 12

Other assets 1

Contingencies 1

WC Margin 3

Total Project cost 25

Source of promoter fund Cash Balance (3 year ITR for references)

Tenure of Loan 7 years

sales growth rate Capacity increase Change in product mix Change in price of Raw material

Assessment of Term Loan: Land P &M Buildings Other Assets

Standard Term & Condition : Technology from Siemens Germany. Land will be owned by company. Company is registered under Company Act and legal jurdiction

will be applicable according to Delhi High court.

Date of registration of Jaihind Enterprise

12.02.2014

Legal consultant M/s Saha & Ray.

Production Capacity 50k spares like suspension system and break parts per months

Technical collaborations Hyundai India and Siemen Germany

Manufacturing and sales unit Chennai,Delhi,Bangalore Head office Gurgaon ,Haryana

Company Address 2010 2011 2012 2013 2014

Sales Turnover

JMTBarubad, Jharkhand 214.87 291.77 363.45 306.85 285.8% Increase in sales 36% 25% -16% -7%

Bharat ForgeMundhwa, Pune 2947 3685 3151 3399 4712% Increase in sales 25% -14% 8% 39%

Kalyani ForgePune, Maharashtra 412216 177 235 278 260 205

% Increase in sales 33% 18% -6% -21%

Sona Koyo Steerings Systems Limited

38/6, Delhi-Jaipur Road, Gurgaon --- 1034 1140 1118 1043

% Increase in sales 10% -2% -7%

Industry Avg. % Increase in sales 31% 10% -4% 1%

NET Profit

JMTBarubad, Jharkhand 3.53 9.82 16.08 12.02 7.06% Increase in Net Profit 178% 64% -25% -41%

Bharat ForgeMundhwa, Pune 310 362 305 399 718% Increase in Net Profit 17% -16% 31% 80%

Kalyani ForgePune, Maharashtra 412216 3.31 6.45 13.41 8.83 4.78

% Increase in Net Profit 95% 108% -34% -46%

Sona Koyo Steerings Systems Limited

38/6, Delhi-Jaipur Road, Gurgaon --- 37.41 38.84 30.61 51.66

% Increase in Net Profit 4% -21% 69%

Industry Avg. % Increase in NET Profit

97% 40% -12% 15%

Source: http://www.moneycontrol.com/india/stockpricequote/auto-ancillaries

The graph shows the vehicle production rates for the fastest-growing countries with GDP thresholds of more than Rs7500 billion as of 2013.Between 2009 and 2013, China’s automotive industry had a compound annual growth rate, or CAGR, of 18.6%. The CAGR for India’s auto industry was 16.3%. High-growth economies require better means of transportation and faster mobility. So, more vehicles are made and sold. This attracts more investment. The auto industry benefits from the cycle.Car manufacturers—like Honda (HMC), Toyota TM), General Motors (GM), and Ford (F)—experienced high growth in Asia during the economic slowdown in the West. These companies are part of the First Trust NASDAQ Global Auto ETF (CARZ)

Sourcehttp://marketrealist.com/2015/02/gdp-automotive-industry-growth-related/

Demand for automobiles, particularly passenger vehicles and commercial vehicles were adversely impacted during FY 2013- 14:Due to lower GDP growth, high interest rates and high fuel prices. During FY 2013-14, RBI increased the key policy rates by 75 basis points to control inflation. Interest rates remained firm thus making it difficult to purchase consumer durable items on finance. High costs of borrowing and elevated consumer price inflation adversely affected household consumer sentiment and spending. Slowdown in GDP growth has been due to decline in both consumption and investment growth. Investments were stalled because of high interest rates, poor demand conditions, and regulatory issues.

Future Growth Prospects of Automobile and ancillaries in IndiaLiberalization of foreign investment in IndiaPromoting Ease of business environment in India by the GovernmentPromoting Make in India Campaign Ford and other major players plans to expand their business by setting up manufacturing/assembly plants in IndiaGrowing economy of the country (GDP on increasing notes)Visioning Government in ruling position

Background of Promoters and Management Promoters

Mr. Ravishekhar kr is having technical and Management degree. With 25 years of experience in automobile sector as a CEO in india and abroad.

He has good market reputation and credit worthiness.

Detail of the constitution of company’s board • Jaihind will be headed by Chairman .• Board member will consist of 3 joint director,CFO

and CTO .• Business head of North location (Delhi),South

(Chennai) and Bangalore .• Business head supported by VP and GM.• GM heading manger and Engineers.

Managerial experience to run the business/Key managersTeam Consists of:Chief technical officer (Mr. Rakesh) having 23 year of experience in automobile sector .Chief financial officer (Ms.Rachita ) having Degree in financé and experience as CFO in reputed firm for 20 years.Head marketing and Sales (Mr.Ankur) having experience of 23 years in various MNC’s .10 Managers and General manager (technical & projects) .Human resource manager ( 5 no's) of more than 10 year experience.Management style:Professionally Managed

JAIHIND will develop and offer only the highest quality products and services.

Our products will reduce customers' costs, and have a longer life than the competitors' products.

Our re-manufacturing services will also offer the client a solid, value-based purchase backed by a 100% quality commitment and effort by our employees and management.

With the proper mix of equipment, JAIHIND can work as both a manufacturer and a service provider. Additionally, the equipment gives the business an opportunity to sell itself to its clients at the production managers’ level and at the shop level, forging solid ties with production and engineering managers.

Our prototype services will be handled via the Internet: a client sends a CAD file to our secure dedicated servers, we download the CAD file into the 3-D software, and the process of developing a tangible prototype begins. Including this type of technology will bring JAIHIND much closer to the Aerospace and Automotive industries. This process can also help JAIHIND develop additional products for different markets

Our ability to share information about order status and offer products and service from our distributor partners will allow for even more opportunity with the clients, as they are always looking for ways to reduce purchasing costs.

Why should the industrial buyers work with JAIHIND Products and Services?•JAIHIND's products are developed to perform better than the competition. Our products are developed with the goal of providing our clients a good, value-based purchase that will help them be more profitable in their day-to-day operations. Our commitment to high quality and consistency in our products and services is what sets us apart from others.•Our services also combine a good value-based approach, and still provide quality. Our attention to customer detail is a critical component in our customer service area. Our custom sales software allows our staff to keep detailed, accurate notes on our customers' requirements, allowing us to fulfill orders to their preferences. This commitment to consistency allows the customer to feel confident when they ship orders in for service.Future Products and Services•JAIHIND will methodically seek out additional products to match our customers' requirements while working closely on applications to provide our clients with a better overall result in their manufacturing processMarket Analysis SummaryNational market Description consists of 314,555 potential clients•Automotive - Automotive repair, and Auto body industry.•Automotive - Auto Makers, and their support industries.Our sales goal is to integrate our Industrial Products and Services into the above markets. Our sales approach is simple, utilizing a well trained inside sales staff to approach new clients, and to respond to well-placed ads in industrial publications. Our software applications will make it possible for these businesses to interact closely with JAIHIND and its distributor partners.

• Set up JAIHIND's Industrial Services Location - Prepare working area for incoming equipment, wiring, shipping and receiving areas, networked accounting systems, and develop a work flow methodology for the entire shop.

• Complete the equipment selections and installation - Equipment will be selected from various machine tool dealers throughout the U.S. These machine tools will be inspected closely for quality, selecting the best possible pieces while working within our budget.

• Manager selections and training begins - JAIHIND will be looking for individuals who posess a good aptitude for engineering, preferably with a background in QC and Machining.

• Contractor selection for outsourced manufacturing - Competing contract manufacturers will be providing sample parts and quotations for our products, in particular, contractors will be quoting on the Automotive and Sporting Goods lines as they have the highest potential volume and will require substantially more manufacturing capacity than we will have available.

• JAIHIND Industrial Services Marketing Campaign - Our marketing campaign will initially target the local Louisiana market with a letter to the key personnel within the target businesses. This introduction will be a combination letter marketing the JAIHIND Industrial Sales Division as well; alternately, the Industrial Sales Divisions sales personnel will follow up on these accounts.

Clearance achieved from Forest Department Environmental department Railway ISO standardization and all certificte

norms defined. Land Clearance Power connections. State permission

Key Goals to our marketing strategy are as follows:• Develop a high profile sales environment, to bring our products to

new and existing clients.• Develop new ways to market our products to potential clients via

our branded applications and software.• Develop channel partnerships utilizing our own applications,

drawing from these partners services and products to develop a large base of products and services to be offered to larger clients.

• Develop and maintain a quality customer service and follow-up program for all of the JAIHIND divisions.

• Develop and utilize an ongoing automated marketing system to contact potential clients.

• Carefully target marketing expenditures to maximize returns on the campaigns. JAIHIND will develop and implement many strategic alliances to build its product and services offering.

Strategic Alliances • Alliances to manufacture our higher volume products will aid in

keeping our internal costs in check while allowing unlimited growth potential by utilizing our channel partners' production capabilities.

Our sales forecast table uses the following assumptions:

Auto Body Products average growth rate of 34% annually.

Auto Body Services average growth rate of  14% annually.

Industry Analysis Compounded Annual Growth Rate of 7.02% 

The goal is to build a solid base for the corporation with our primary products and services while continuing the long term development of our distribution and secondary services business. Auto Body Products average growth rate of

Tie-up for raw material with Tenova Engg. Limited for fix rate (price hedging)

Forecast of increase Sales growth. Detail Project allocation and Risk

analysis is done.

Jaihind Auto Spare Manufacturer Collateral

Commercial Land (Own by Promoter)

Market value 50 crore

Secondary Source of Repayment

JAIHIND Products and Services' projected balance sheet shows a strong cash development capability over the projected 3year plan

During the life of the plan, inventory requirements may change as we offer our clients different purchasing options and build our inventory of used products; any differences in cash flow and inventory would show that the cash is tied up in inventory

IRR of business is 12%. Cost of funding and operations is below

IRR. NPV Projected NPV( Crore)

2016 2017 2018 201926 28 30 32

Financial Appraisal

Land - 3 Building - 2 Plant and Machinery - 12 Other Assets - 1 Preliminary and pre Operating Expenses - 1 IDC@ 8 % - 2 Contingencies - 1 WC Margin – 3

TOTAL COST OF PROJECT – 25 Crores

Net Sales       42.27       

PBT       3.29PBT/ N Sales       0.078PAT       2.30Cash Accruals       2.30PBDIT       6.34Interest Coverage Ratio

      2.07

PUC       0TNW       22Adjusted TNW       22TOL/TNW       0.18TOL/ Adjusted TNW

      0.18

Current Ratio       1.35       

DSCR       1.21

2016 2017 2018Liquidity Ratios Current Ratio 1.35 1.32 1.33

Efficiency ratios PBT to Total Tangible Assets (%) 7.0% 8.0% 9.5%Operating cost to Sales (%) 50.00% 47.00% 44.00%Bank Finance to Current Assets 0.87 0.85 0.78

Profitability Ratios Return on sales 6.09 6.57 6.99Return on Assets 11.69 13.92 16.33

Leverage Ratios Debt asset ratio 0.87 0.85 0.84Interest coverage 2.38 2.67 2.99

Turnover Ratios Fixed asset turnover ratio 2.35 2.65 3.00Total asset turnover ratio 1.92 2.12 2.34

Debt Service Coverage Ratio 1.95 1.94 2.18

Credit Review

Documents Remarks Approved

Not Approved

Purpose of loan Business Ok Character OkCapital Good ability to

raise finance ok

Collateral Land worth 50 Crore

Capacity to repay Secondary source

High

Market environment Industry Backup to repay (primary and secondary source)Business risk Financial statements

Managerial ExperienceTrack RecordAntecedentsCompetency Management structure RBI/ECGC list check for defaulter

Commercial AppraisalViability of businessMarket Demand Entry and Exit barrier Scope of growthGovernment policies

Promoters capacity to raise finance Source of marginFund to repay debt Financial health of borrowerSensitivity Analysis Financial Projections Working capital assessmentRatios

Technical FeasibilityTechnology partnerCapacity Machine life reliability Capacity utilizations

Conditions Economy Number of competitorsDemand vs. supply Availability of manpowerPollution control

Collateral

Cash flow

Visit to Plant Site

Appraisal decision

Sanction Letter to borrower Acceptance of term and condition by

borrower Opening of account for recording

transections

Thank you