project appraisal of hotel

“Project Preparation and Appraisal of Hotel cum Resort”

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BRCM COLLEGE OF BUSINESS ADMINISTRATION

Chapter 1

Introduction of Topic


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1.1 ENTREPRENEURSHIP

Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who

undertakes innovations, finance and business acumen in an effort to transform innovations

into economic goods". This may result in new organizations or may be part of revitalizing

mature organizations in response to a perceived opportunity. The most obvious form of

entrepreneurship is that of starting new businesses (referred as Startup Company);

however, in recent years, the term has been extended to include social and political forms

of entrepreneurial activity. When entrepreneurship is describing activities within a firm or

large organization it is referred to as intra-preneurship and may include corporate

venturing, when large entities spin-off organizations.

Entrepreneurial activities are substantially different depending on the type of organization

and creativity involved. Entrepreneurship ranges in scale from solo projects (even

involving the entrepreneur only part-time) to major undertakings creating many job

opportunities. Many "high value" entrepreneurial ventures seek venture capital or angel

funding (seed money) in order to raise capital to build the business. Angel investors

generally seek annualized returns of 20-30% and more, as well as extensive involvement in

the business.[4]

Many kinds of organizations now exist to support would-be entrepreneurs

including specialized government agencies, business incubators, science parks, and some

NGOs. In more recent times, the term entrepreneurship has been extended to include

elements not related necessarily to business formation activity such as conceptualizations

of entrepreneurship as a specific mindset (see also entrepreneurial mindset) resulting in

entrepreneurial initiatives e.g. in the form of social entrepreneurship, political

entrepreneurship, or knowledge entrepreneurship have emerged.

Brown and Upton had the opinion that Entrepreneurship can be known as the method of

gaining, pulling simultaneously all the resources, and installing them in the quest of

apparent chances in the coming future for lengthy gains.

http://en.wikipedia.org/wiki/Entrepreneur

http://en.wikipedia.org/wiki/Innovations

http://en.wikipedia.org/wiki/Organization

http://en.wikipedia.org/wiki/Organization

http://en.wikipedia.org/wiki/Startup_Company

http://en.wikipedia.org/wiki/Venture_capital

http://en.wikipedia.org/wiki/Angel_investors

http://en.wikipedia.org/wiki/Angel_investors

http://en.wikipedia.org/wiki/Seed_money

http://en.wikipedia.org/wiki/Capital_%28economics%29

http://en.wikipedia.org/wiki/Entrepreneurship#cite_note-3

http://en.wikipedia.org/wiki/Business_incubator

http://en.wikipedia.org/wiki/Science_park

http://en.wikipedia.org/wiki/Non-governmental_organization

http://en.wikipedia.org/wiki/Mindset

http://en.wikipedia.org/wiki/Entrepreneurial_mindset

http://en.wikipedia.org/wiki/Social_entrepreneurship

http://en.wikipedia.org/wiki/Political_entrepreneur

http://en.wikipedia.org/wiki/Political_entrepreneur

http://en.wikipedia.org/wiki/Knowledge_entrepreneurship


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1.2 IMPORTANCE OF ENTREPRENEURSHIP

1) Provides employment to huge mass of people: -

People often hold a view that all those who do not get employed anywhere jump into

entrepreneurship, a real contrast to this is that 76% of establishments of new business in

the year 2003 were due to an aspiration to chase openings. This emphasizes the fact that

entrepreneurship is not at all an encumbrance to an economy. What's more is that

approximately 34 million of fresh employment opportunities were created by entrepreneurs

from the period of 1980. This data makes it clear that entrepreneurship heads nation

towards better opportunities, which is a significant input to an economy.

2) Contributed towards research and development system: -

Almost 2/3% of all innovations are due to the entrepreneurs. Without the boom of

inventions the world would have been a much dry place to live in. Inventions provide an

easier way of getting things done through better and standardized technology.

3) Creates wealth for nation and for individuals as well:-

All individuals who search business opportunities usually create wealth by entering into

entrepreneurship. The wealth created by the same play a considerable role in the

development of nation. The business as well as the entrepreneur contributes in some or

other way to the economy, may be in the form of products or services or boosting the GDP

rates or tax contributions. Their ideas, thoughts, and inventions are also a great help to the

nation.

4) Sky-scraping heights of apparent prospects: -

The individual gets maximum scope for growth and opportunity if he enters into

entrepreneurship. He not only earns, the right term would be he learns while he earns. This

is a real motivating factor for any entrepreneur as the knowledge and skills he develops

while owning his enterprise are his assets for life time which usually, lacks when a person

is under employment. The individual goes through a grooming process when he becomes

an entrepreneur. In this way it not only benefits him but also the economy as a whole.


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5) It is a challenging opportunity for the people: -

Although entrepreneurship is a challenging task but in most of the cases the rewards it

gives are much more than what one anticipates. It does not only reward an entrepreneur at

financial levels but also on individual level. It provides self-satisfaction to the

entrepreneur.

6) Entrepreneurship provides self-sufficiency: -

The entrepreneur not only become self-sufficient but also provides great standards of living

to its employees. It provides opportunity to a number of people working in the

organization. The basic factors which become a cause of happiness may be liberty,

monetary rewards, and the feeling of contentment that one gets after doing the job.

Therefore the contribution of entrepreneurs makes the economy an improved place to live

in.

1.3 WHAT IS PROJECT MANAGEMENT?

Project management is the discipline of planning, organizing, securing, and managing

resources to achieve specific goals. A project is a temporary endeavor with a defined

beginning and end (usually time-constrained, and often constrained by funding or

deliverables), undertaken to meet unique goals and objectives, typically to bring about

beneficial change or added value. The temporary nature of projects stands in contrast with

business as usual (or operations), which are repetitive, permanent, or semi-permanent

functional activities to produce products or services. In practice, the management of these

two systems is often quite different, and as such requires the development of distinct

technical skills and management strategies.

The primary challenge of project management is to achieve all of the project goals and

objectives while honoring the preconceived constraints. Typical constraints are scope,

time, and budget. The secondary—and more ambitious—challenge is to optimize the

allocation and integrate the inputs necessary to meet pre-defined objectives.

http://en.wikipedia.org/wiki/Project

http://en.wikipedia.org/wiki/Business_operations

http://en.wikipedia.org/wiki/Scope_%28project_management%29

http://en.wikipedia.org/wiki/Operations_research

http://en.wikipedia.org/wiki/Resource_allocation


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1.4 WHY PROJECT MANAGEMENT?

Excellent product quality

Consumers generally look for low cost and high quality, while purchasing a product.

Maintaining a high standard of excellence in developing quality products earns the

company goodwill amongst its customers. How can a project management team help in

improving the quality of a product? The project management plans the allocated budget,

resources and testing methods that keep the pace of production high, both qualitatively and

quantitatively.

Adequate communication

Improper communication among employees can lead to misunderstandings and negatively

impact the performance of the firm. A project manager can be a bridge among the

diversified branches of project undertaking. And why only employees? Stakeholders also

form a part of the company. They prefer investing in those companies that deliver projects

on time and keep them informed about updates and progress of the projects.

Reducing risks

The probability of getting hit by an unwanted or unexpected event has increased manifold

in today's competitive business environment. Why is project management so important?

The project management team can identify the potential risks, take their time to rectify

them and help the company save valuable resources. In case of worst crisis, the project

management team can opt for change management method to attain the desired goals.

Strategic objectives and goals

Strategic goals are the blueprint of the task undertaken by a company. For instance, a

software company aims to prepare software and related programming codes, whereas an

infrastructure company has a target of constructing dams, bridges and other construction

works. A project management team helps the company in achieving the strategic goals, as

it streamlines the task of a company in taking many important decisions.


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1.5 WHY PROJECT PREPARATION?

Systematic and effective Project Preparation is important for a range of reasons outlined

below:

Project risks are managed and controlled.

Scarce implementation resources (e.g. capital funding) are optimally utilized and are

only allocated to viable projects.

Projects are well conceptualized and planned.

Development is appropriately tailored to local needs and is integrated in nature.

Projects are supported by the key stakeholders (including the community, municipality,

funders and implementation partners).

Government and other funders can predict and therefore manage their cash flows by

enhancing the predictability of project outcomes and timeframes for implementation.

1.6 WHY PROJECT APPRAISAL?

Investment appraisal is a decision-making technique, which considers the cost and benefit

of an investment in fixed asset or a project involving fixed asset over a period of time

(often more than one financial year)

When an organization is considering a capital investment, such as investment in non-

current asset (e.g. investment in building, land, vehicles etc.), the huge amount of capital

required and often the length of time that the investment may require and the long term that

the asset is required for means that management need to consider the whole process of

project appraisal carefully and professionally to minimize the risk of the project not being

viable.

.


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1.7 INTRODUCTION OF PROJECT FINANCE

Project finance is the long term financing of infrastructure and industrial projects based

upon the projected cash flows of the project rather than the balance sheets of the project

sponsors. Usually, a project financing structure involves a number of equity investors,

known as sponsors, as well as a syndicate of banks or other lending institutions that

provide loans to the operation. The loans are most commonly non-recourse loans, which

are secured by the project assets and paid entirely from project cash flow, rather than from

the general assets or creditworthiness of the project sponsors, a decision in part supported

by financial modeling. The financing is typically secured by all of the project assets,

including the revenue-producing contracts. Project lenders are given a lien on all of these

assets, and are able to assume control of a project if the project company has difficulties

complying with the loan terms.

Generally, a special purpose entity is created for each project, thereby shielding other

assets owned by a project sponsor from the detrimental effects of a project failure. As a

special purpose entity, the project company has no assets other than the project. Capital

contribution commitments by the owners of the project company are sometimes necessary

to ensure that the project is financially sound, or to assure the lenders of the sponsors'

commitment. Project finance is often more complicated than alternative financing methods.

Traditionally, project financing has been most commonly used in the extractive (mining),

transportation, telecommunications and energy industries. More recently, particularly in

Europe, project financing principles have been applied to other types of public

infrastructure under public–private partnerships (PPP) or, in the UK, Private Finance

Initiative (PFI) transactions (e.g., school facilities) as well as sports and entertainment

venues.

Risk identification and allocation is a key component of project finance. A project may be

subject to a number of technical, environmental, economic and political risks, particularly

in developing countries and emerging markets. Financial institutions and project sponsors

may conclude that the risks inherent in project development and operation are unacceptable

(financeable). To cope with these risks, project sponsors in these industries (such as power

plants or railway lines) are generally completed by a number of specialist companies

operating in a contractual network with each other that allocates risk in a way that allows

http://en.wikipedia.org/wiki/Finance

http://en.wikipedia.org/wiki/Infrastructure

http://en.wikipedia.org/wiki/Stock

http://en.wikipedia.org/wiki/Bank

http://en.wikipedia.org/wiki/Loan

http://en.wikipedia.org/wiki/Nonrecourse_debt

http://en.wikipedia.org/wiki/Security_interest

http://en.wikipedia.org/wiki/Financial_modeling

http://en.wikipedia.org/wiki/Lien

http://en.wikipedia.org/wiki/Special_purpose_entity

http://en.wikipedia.org/wiki/Bankruptcy

http://en.wikipedia.org/wiki/Mining

http://en.wikipedia.org/wiki/Transportation

http://en.wikipedia.org/wiki/Telecommunication

http://en.wikipedia.org/wiki/Energy

http://en.wikipedia.org/wiki/Public%E2%80%93private_partnership

http://en.wikipedia.org/wiki/Private_Finance_Initiative

http://en.wikipedia.org/wiki/Private_Finance_Initiative

http://en.wikipedia.org/wiki/Developing_countries

http://en.wikipedia.org/wiki/Emerging_market

http://en.wikipedia.org/wiki/Financial_institution


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financing to take place. "Several long-term contracts such as construction, supply, off-take

and concession agreements, along with a variety of joint-ownership structures, are used to

align incentives and deter opportunistic behavior by any party involved in the project." The

various patterns of implementation are sometimes referred to as "project delivery

methods." The financing of these projects must also be distributed among multiple parties,

so as to distribute the risk associated with the project while simultaneously ensuring profits

for each party involved.

A riskier or more expensive project may require limited recourse financing secured by a

surety from sponsors. A complex project finance structure may incorporate corporate

finance, securitization, options (derivatives), insurance provisions or other types of

collateral enhancement to mitigate unallocated risk.

Project finance shares many characteristics with maritime finance and aircraft finance;

however, the latter two are more specialized fields within the area of asset finance.

1.8 HISTORY OF PROJECT FINANCING

Limited recourse lending was used to finance maritime voyages in ancient Greece and

Rome. Its use in infrastructure projects dates to the development of the Panama Canal, and

was widespread in the US oil and gas industry during the early 20th century. However,

project finance for high-risk infrastructure schemes originated with the development of the

North Sea oil fields in the 1970s and 1980s. For such investments, newly created Special

Purpose Corporations (SPCs) were created for each project, with multiple owners and

complex schemes distributing insurance, loans, management, and project operations. Such

projects were previously accomplished through utility or government bond issuances, or

other traditional corporate finance structures.

Project financing in the developing world peaked around the time of the Asian financial

crisis, but the subsequent downturn in industrializing countries was offset by growth in the

OECD countries, causing worldwide project financing to peak around 2000. The need for

project financing remains high throughout the world as more countries require increasing

supplies of public utilities and infrastructure. In recent years, project finance schemes have

become increasingly common in the Middle East, some incorporating Islamic finance.

http://en.wikipedia.org/wiki/Project_delivery_method

http://en.wikipedia.org/wiki/Project_delivery_method

http://en.wikipedia.org/wiki/Profit_%28economics%29

http://en.wikipedia.org/wiki/Surety

http://en.wikipedia.org/wiki/Corporate_finance

http://en.wikipedia.org/wiki/Corporate_finance

http://en.wikipedia.org/wiki/Securitization

http://en.wikipedia.org/wiki/Option_%28finance%29

http://en.wikipedia.org/wiki/Insurance

http://en.wikipedia.org/w/index.php?title=Maritime_finance&action=edit&redlink=1

http://en.wikipedia.org/wiki/Aircraft_finance

http://en.wikipedia.org/wiki/Asset_finance

http://en.wikipedia.org/wiki/Ancient_Greece

http://en.wikipedia.org/wiki/Ancient_Rome

http://en.wikipedia.org/wiki/Panama_Canal

http://en.wikipedia.org/wiki/North_Sea

http://en.wikipedia.org/wiki/Asian_financial_crisis

http://en.wikipedia.org/wiki/Asian_financial_crisis

http://en.wikipedia.org/wiki/Organisation_for_Economic_Co-operation_and_Development

http://en.wikipedia.org/wiki/Middle_East

http://en.wikipedia.org/wiki/Islamic_finance


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The new project finance structures emerged primarily in response to the opportunity

presented by long term power purchase contracts available from utilities and government

entities. These long term revenue streams were required by rules implementing PURPA,

the Public Utilities Regulatory Policies Act of 1978. Originally envisioned as an energy

initiative designed to encourage domestic renewable resources and conservation, the Act

and the industry it created lead to further deregulation of electric generation and,

significantly, international privatization following amendments to the Public Utilities

Holding Company Act in 1994. The structure has evolved and forms the basis for energy

and other projects throughout the world.

1.9 PARTIES TO A PROJECT FINANCING

There are several parties in a project financing depending on the type and the scale of a

project. The most usual parties to a project financing are;

1. Project company

2. Sponsor

3. Borrower

4. Financial Adviser

5. Technical Adviser

6. Lawyer

7. Debt financiers

8. Equity Investors

9. Regulatory agencies

10. Multilateral Agencies

11. Host government / grantor


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1.10 THE PROJECT FINANCING PROCESS

Eligible Sectors, The Banks can underwrite eligible projects in all sectors and cross-

cutting themes identified in the Needs Assessment (except for efforts to locate and

disarm unexploded mines).ITF financed operations cover economic management, public

sector management, social safety nets, education, health, water supply and sanitation,

urban reconstruction, rural water and irrigation infrastructure, telecommunications, finance

and private sector development.

The trust fund, which gives particular emphasis to areas where the Bank has a comparative

advantage, will not pay for humanitarian relief missions, peace-keepers,

or other security, military, or political interventions.

Eligible expenditures that can be financed for the above from ITF are:

Investment and capital expenditures, including prefeasibility studies and incremental

recurrent costs.

Technical assistance and training.

Eligible recipients of grants from the Trust Fund must meet the Bank's criteria,

included those that apply to financial viability. Recipient entities responsible for

implementing activities financed from the ITF can be inside or outside Iraq, and include:

Iraqi ministries, governorates and municipalities, private entities, NGOs, UN agencies, or

international financial institutions.

The ITF emphasizes Iraqi ownership and building Iraqi institutional capacity. Under the

ITF, potential recipients, in consultation with World Bank staff, submit project proposals

for approval to the Iraqi Strategic Review Board (ISRB), which determines whether

proposals are consistent with priority needs. Following ISRB approval, the World Bank

proceeds to appraise the project.

For satisfactorily appraised operations, the Bank, as the ITF Administrator, and the

recipient negotiate and sign a Grant Agreement which spells out the terms and conditions

under which funds will be made available to the recipient entity.


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The Grant Agreement governs the actual use and disbursement of funds. It specifies

measurable indicators to monitor implementation progress. It also contains detailed

financial management, procurement, monitoring, and other fiduciary arrangements to

ensure that funds are used for eligible expenditures.

1.11 IMPORTANCE OF PROJECT FINANCING

Whether expanding manufacturing facilities, implementing new processing capabilities,

or leveraging existing assets in new markets, innovative financing is often at the core of long-term

projects to transform a company‘s operations. Akin to the underlying corporate

transformation, the challenge with innovative financial structures such as project finance is

that the investment is made upfront while the anticipated benefits of the initiative are

realized years later. There has been a rise in number of companies that need innovative

financing to satisfy their capital needs, in a significant number of instances they have

viable goals but find that traditional lenders are unable to understand their initiatives. And

so the need merged for project finance.

Project financing is a specialized form of financing that may offer some cost advantages

when very large amounts of capital are involved it can be tricky to structure, and is usually

limited to projects where a good cash flow is anticipated

1.12 REASONS FOR FINANCE Project finance can be defined as: financing of an industrial (or infrastructure) project with

myriad capital needs, usually based on non-recourse or limited recourse structures, where

project debt and equity (and potentially leases) used to finance the project are paid back

from the cash flow generated by the project, with the project's assets, rights and interests

held as collateral. Whether expanding manufacturing facilities, start new business,

technology up gradation, expansion implementing new processing capabilities, or leveraging

existing assets in new markets, innovative financing is often at the core of long-term projects to

transform a company‘s operation.


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1.13 TERM LOAN PROCEDURE

The procedure associated with term loan for starting an event firm involves the following

principal step:

1) Submission of Loan Application:-

The borrower may submit the application to any of the three lending institutions. viz IDBI,

ICICI and IFCI. The borrower is required to fill out a common application form which

seeks comprehensive information about the project. Specifically, the common application

form covers the following aspect:

Promoter background

Promoters of the industrial concern

Particulars of the project (capacity, process, technical arrangement, management

location, land and building, plant and machinery, raw material, effluent, labor,

housing, and schedule of implementation.

Cost of project

Means of finance

Marketing and selling arrangement

Profitability and cash flow

Economic consideration

Government consents

2) Initial Processing Loan Application:-

When the application is received, and officer of the recipient institution reviews to

ascertain whether it is complete for processing. If it incomplete the borrower is asked to

provide the required additional information. When the application is considered complete

the recipient institute prepares a ‗flash report‘ which is essentially summarized of the loan

application, to be evaluated at the Senior Executive Meeting (SEM). Once the SEM, on the

basis of its evaluation of the ‗flash report‘, decides that the project justify a detailed

appraisal, it nominate the lead financial institution. The factor taken into account for

designating the lead financial institution are : location of the project, prior experience of

institution in handling similar project, presentation of institutions in the state and promoter

group, and exiting workload of the institution.


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Fir the convenience of borrower, financial institution operate scheme of participation for

rupee term loans and underwriting assistance. Under this scheme, the borrowers interact

with only the lead financial institution which administers the entire loan and underwriting

facility. The lead institutions exercise the right of other participating intuition as their

constituent authority.

3) Appraisal of the Proposed Project:-

The detailed appraisal of the project is done by the lead institutions. The appraisal covers

the marketing, technical, financial, managerial and economic aspects, the appraisal

memorandum is normally prepared within two month after site inspection and placed

before the Senior Executive Meeting /Inter-Institutional Meeting (SEM/IIM) for a decision

about approval of the project and determining the sharing arrangement among the

institutions. Once a favorable decision is taken at the SEM/IIM forum and the sharing

arrangement worked out, the case is referred to the Board of the lead financial institution.

4) Issue of the Letter of Sanction:-

After the Board of the lead financial institution approves the proposal, a financial letter of

sanction is issued to the borrower. This communicate to the borrower the assistance

sanctioned by the lead institution and the assistance sanction /to be sanctioned by other

participant in the consortium arrangement. Each of the participating institute would , after

approval by its share of assistance to the lead financial institution under advice its share of

assistance. The same will be shared on a pro data basis amongst the lead and other

participating institution.

5) Acceptance of the Term and Condition by the Borrowing Unit:-

On receiving the letter of sanction from the lead financial institution, the borrowing unit

conveys its board meeting at which term and condition associated with the letter of

sanction is accepted and an appropriate resolution is passed to that effect. The acceptance

of the term and conditions has to be conveyed to the lead institution within thirty days.


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6) Execution of Loan Agreement:-

The lead financial institution, after receiving the letter of acceptance from the borrower,

sends the draft the agreement to the borrower to be executed by authorized person and

properly stamped as per the Indian Stamp act 1899. The agreement, properly executed and

stamped, along with other documents as per required by the lead financial institution must

be returned do it. Once the lead financial institution also signs the agreement, it become

effective.

7) Disbursement of Loan:-

Periodically, the borrower is required to submit information on the physical progress of the

project, financial status of the project, arrangement made for financing the project,

contribution made by the promoters, projected fund flow statement, compliance with

various statutory requirement, and fulfillment of pre-disbursement, condition. Based on the

information provided by the borrower, the lead financial institution will determine the

amount of term loan to be disbursed from time to time. Before entire term loan is disbursed

borrower must fully comply with all the term and condition of the loan agreement.

8) Creation of Security:-

The term loans (both rupee and foreign currency) and the deferred payment guarantee

assistance provided by the All-India financial institution are secured through the first

mortgage, by way of deposit of title deeds of immovable properties and hypothecation of

movable properties. As the creation of mortgage, particularly in the case of land, trend to

be a time consuming process, the institution permit interim disbursement against alternate

security (in the form of guarantees by the promoter). The mortgage, however, has to be

created within a year from the date of the first disbursement. Otherwise the borrower has to

pay an additional charge of 1 percent interest.

9) Monitoring:-

Monitoring of the project is done at the implementation stage as well as operational stage.

During the implementation stage, the project is monitored through: (i) regular report,

furnished by the promoters, which provide information about placement of orders,

construction of building procurement of plant, installation of plant and machinery, trial

production, etc., (ii) periodic site visits, (iii) discussion with promoters, bankers, suppliers,


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creditors and other connected with project, (iv) progress report submitted by the nominee

director, and (v) audited account of the company.

During the operation stage, the project is monitored with the help of (i) quarterly progress

report on the project, (ii) site inspection, (iii) reports of nominee director, and (iv)

comparison of performance with promise.

The most important aspect of monitoring of course is the recovery of dues represented by

interest and principal amount.

The financial institution has been made following observation during the implementation

stage

Marketing Appraisal

Technical Appraisal

Financial Appraisal

Economic Appraisal

Managerial Appraisal


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Chapter 2

Industry Profile


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2.1 HOSPITALITY INDUSTRY – AN OVERVIEW

Hospitality is all about offering warmth to someone who looks for help at a strange or

unfriendly place. It refers to the process of receiving and entertaining a guest with

goodwill. Hospitality in the commercial context refers to the activity of hotels, restaurants,

catering, inn, resorts or clubs who make a vocation of treating tourists.

Helped With unique efforts by government and all other stakeholders, including hotel

owners, resort managers, tour and travel operators and employees who work in the sector,

Indian hospitality industry has gained a level of acceptance world over. It has yet to go

miles for recognition as a world leader of hospitality. Many take Indian hospitality service

not for its quality of service but India being a cheap destination for leisure tourism.

With unlimited tourism and untapped business prospects, in the coming years Indian

hospitality is seeing green pastures of growth. Availability of qualified human resources

and untapped geographical resources give great prospects to the hospitality industry. The

number of tourists coming to India is growing year after year. Likewise, internal tourism is

another area with great potentials.

The hospitality industry is a 3.5 trillion dollar service sector within the global economy. It

is an umbrella term for a broad variety of service industries including, but not limited to,

hotels, food service, casinos, and tourism. The hospitality industry is very diverse and

global. The industry is cyclical; dictated by the fluctuations that occur with an economy

every year. Today hospitality sector is one of the fastest growing sectors in India. It is

expected to grow at the rate of 8% between 2007 and 2016. Many international hotels

including Sheraton, Hyatt, Radisson, Meridien, Four Seasons Regent, and Marriott

International are already established in the Indian markets and are still expanding.

Nowadays the travel and tourism industry is also included in hospitality sector. The boom

in travel and tourism has led to the further development of hospitality industry.

In 2003-04 the hospitality industry contributed only 2% of the GDP. However, it is

projected to grow at a rate of 8.8% between 2007-16, which would place India as the

second-fastest growing tourism market in the world. This year the number of tourists

visiting India is estimated to have touched the figure of 4.4 million. With this huge figure,

India is becoming the hottest tourist destination. The arrival of foreign tourists has shown a


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compounded annual growth of 6 per cent over the past 10 years. Besides, travel and

tourism is the second highest foreign exchange earner for India. Moreover, it is also

estimated that the tourism sector will account for nearly 5.3 per cent of GDP and 5.4 per

cent of total employment.

Hotel Industry in India has witnessed tremendous boom in recent years. Hotel Industry is

inextricably linked to the tourism industry and the growth in the Indian tourism industry

has fuelled the growth of Indian hotel industry. The thriving economy and increased

business opportunities in India have acted as a boon for Indian hotel industry. The arrival

of low cost airlines and the associated price wars have given domestic tourists a host of

options. The 'Incredible India' destination campaign and the recently launched 'Atithi Devo

Bhavah' (ADB) campaign have also helped in the growth of domestic and international

tourism and consequently the hotel industry.

According to a report, Hotel Industry in India currently has supply of 110,000 rooms and

there is a shortage of 150,000 rooms fuelling hotel room rates across India. According to

estimates demand is going to exceed supply by at least 100% over the next 2 years. Five-

star hotels in metro cities allot same room, more than once a day to different guests,

receiving almost 24-hour rates from both guests against 6-8 hours usage. With demand-

supply disparity, hotel rates in India are likely to rise by 25% annually and occupancy by

80%, over the next two years. This will affect the competitiveness of India as a cost-

effective tourist destination. To overcome, this shortage Indian hotel industry is adding

about 60,000 quality rooms, currently in different stages of planning and development,

which should be ready by 2012. Hotel Industry in India is also set to get a fillip with Delhi

hosting 2010 Commonwealth Games. The future scenario of Indian hotel industry looks

extremely rosy. It is expected that the budget and mid-market hotel segment will witness

huge growth and expansion while the luxury segment will continue to perform extremely

well over the next few years.

Hotel industry in India has been an important industry to the Indian Economy. It is one of

the largest foreign exchange earners, to the country and also one of the largest employers,

both directly and indirectly.


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The hotel industry in India can be divided into eight segments based on the norms set by

the Ministry of Tourism. They are 5-Star Deluxe, 5-Star, 4-Star, 3-Star, 2-Star, 1-Star,

Heritage and Unclassified. However, the 3-star, 2-star, 1star and unclassified hotels in

India are spread across the length and breadth of the country and are highly fragmented in

nature, whereas, the upscale, mid-market and heritage categories are highly organized. The

upscale category hotels are primarily present in the metros and the tier 1 cities and are now

targeting the tier 2 cities for expansion.

The industry is characterized significantly by small unorganized players, labour-intensive

operations, seasonality, cyclicality, highly capital intensive nature and highly sensitive to

the external factors like economy, terrorism and political status.

The demand for the hotel rooms is driven by the rise in the number of the domestic and

well as the foreign tourists. The demand for the foreign tourists is driven by the level of

growth in Global GDP, increased business activities of other nations with India, growing

number of tourist destinations, rise in trade and sporting events, marketing efforts like

“Atithi Devo Bhava” & “Incredible India”.

Domestic tourist arrivals are the backbone of Indian Hotel Industry as the number of

domestic tourists is more than 100 times as compared to foreign tourists. Domestic tourists

are of 2 types, leisure travellers and business travellers. Growth in leisure travellers is

driven by rising personal discretionary income, evolving lifestyle, growing number of

multi earner families, weekend vacation culture, and improvement in rail, air as well as

road connectivity, diverse topography and rich cultural heritage. Drivers of domestic

business traveling are rise in trade and commerce, increasing geographical spread of

companies, growing MICE culture.

Players like Lemon Tree, IBIS, Park, Sarovar and Ginger have identified that there is

dearth of quality rooms in the mid-market segment across the country, especially in the tier

1 and tier 2 cities. Approximately, 55 per cent of the upcoming inventory is expected to be

in the mid-market and economy segment. Entry of such organized players is expected to

improve the quality of offerings and bridge the wide gap between mid-market and upscale

category.


20


By 2015, the Indian Hotel Industry is expected to reach Rs 230 billion, growing at a robust

CAGR of over 12.2%. A total investment of Rs 448 billion is expected in the next five

years.

India is currently ranked 12th in the Asia Pacific region and 68th overall in the list of the

world's attractive destinations, according to the Travel and Tourism Competitiveness

Report 2011 by the World Economic Forum (WEF).

Despite global economic woes, development of hotels in India has been one of the most

lucrative investments. As per Cygnus estimates, total supply (number of hotel rooms) in

India is expected to reach more than 180,000 within five years. Various domestic and

international brands have made significant inroads into this space and more are expected to

follow; around 40 international brands will enter the country in the next five years.

Indian Hotel Industry holds a huge potential due to the positive impact of demand-supply

scenario, growth drivers, investments and government initiatives for tourism sector. To

develop a better understanding of the industry, Cygnus has come out with a comprehensive

Industry insight - Indian hotel industry, which brings out the past performance, trends and

future prospects keeping in mind the various factors.


21


2.2 SWOT ANALYSIS OF INDIAN HOTEL INDUSTRY

STRENGTHS

Natural and cultural diversity: India has a rich cultural heritage. The "unity in

diversity" tag attracts most tourists. The coastlines, sunny beaches, backwaters of

Kerala, snow-capped Himalayas and the quiescent lakes are incredible.

Demand-supply gap: Indian hotel industry is facing a mismatch between the

demand and supply of rooms leading to higher room rates and occupancy levels.

With the privilege of hosting Commonwealth Games 2010 there is more demand of

rooms in five star hotels. This has led to the rapid expansion of the sector

Government support: The government has realized the importance of tourism and

has proposed a budget of Rs. 540 crore for the development of the industry. The

priority is being given to the development of the infrastructure and of new tourist

destinations and circuits. The Department of Tourism (DOT) has already started the

"Incredible India" campaign for the promotion of tourism in India.

Increase in the market share: India's share in international tourism and hospitality

market is expected to increase over the long-term. New budget and star hotels are

being established. Moreover, foreign hospitality players are heading towards Indian

markets.

WEAKNESSES

Poor support infrastructure: Though the government is taking necessary steps,

many more things need to be done to improve the infrastructure. In 2003, the total

expenditure made in this regard was US $150 billion in China compared to US$ 21

billion in India.

Slow implementation: The lack of adequate recognition for the tourism industry has

been hampering its growth prospects. Whatever steps are being taken by the

government are implemented at a slower pace.

Susceptible to political events: The internal security scenario and social unrest also

hamper the foreign tourist arrival rates.


22


OPPORTUNITIES

Rising income: Owing to the rise in income levels, Indians have more spare money

to spend, which is expected to enhance leisure tourism.

Open sky benefits: With the open sky policy, the travel and tourism industry has

seen an increase in business. Increased airline activity has stimulated demand and has

helped improve the infrastructure. It has benefited both international and domestic

travels.

THREATS

Fluctuations in international tourist arrivals: The total dependency on foreign

tourists can be risky, as there are wide fluctuations in international tourism. Domestic

tourism needs to be given equal importance and measures should be taken to promote

it.

Increasing competition: Several international majors like the Four Seasons,

Shangri-La and Aman Resorts are entering the Indian markets. Two other groups -

the Carlson Group and the Marriott chain - are also looking forward to join this race.

This will increase the competition for the existing Indian hotel majors.

2.3 IMPACT OF RECESSION ON HOTEL INDUSTRY

The state of turmoil in global financial markets has generated new concerns for the

hospitality industry.

Existing hotels in India are also likely to benefit from the improved performance of the

non-room sources of income, namely Food & Beverage (including banquet operations),

Spa, Corporate Club memberships and other ancillary services.

India is expected to see Asia's biggest drop in corporate travel spending, falling 25% this

year compared to 2008.


23


2.4 GOOD IDEAS FOR STARTING A HOTEL

Step 1: Decide the services you wish to sell

Choose those services in which you have a strong hold, in which you have majority of your

experience and expertise and which can generate maximum revenue for you. Don't try to

be jack of all trades and sell all event planning services one can think of.

Step 2: Do market research, competitor's analysis and SWOT

analysis.

It's very important to research the market properly before you start up your hotel business.

Making sure this is the right move

Unless you have some practical experience of working in the hotel business you may not

be fully prepared for the level of commitment that will be required. If you have the

opportunity to work in the trade beforehand this might help you to know what to expect.

You will probably be working long hours, often seven days a week, with little opportunity

for a holiday. You will have to have good personal and social skills as well as physical

strength and stamina. If you are planning to run the hotel with your partner or spouse you

should make sure that you are both prepared for what life will be like.

Your market

Your customer base will depend to a certain extent on:

the sector of the market you are targeting

your location

For example, you might be located in a tourist area so the majority of your guests are

holiday makers. If you are beside the sea, many of these will be British, while if you are

near an area of historical or cultural interest your guests are also likely to include many

overseas visitors.


24


Estimating demand

Having decided to take the plunge you will need to find out how much demand there is

likely to be for your business. First of all, check that people will want accommodation in

your area. For example, this might be because you are near an international airport, a major

conference centre, a tourist attraction or a town or city which attracts many visitors, both

from the UK and from overseas. You could find out whether there are companies or

organisations locally which regularly need accommodation - for example a language

school might require accommodation every summer for students or a large firm might

often have visiting colleagues from other parts of the country.

Then check out the competition. Count how many hotels and guesthouses there are already

in your area and try to find out how many rooms they have, what facilities they offer and

what prices they charge. Make a note of any self-catering accommodation, caravan and

campsites and so on which might attract your potential customers. Your local tourist

information office may be able to give you some indication of the number of visitors each

year to your area and what type of accommodation they choose.

If you are taking over an existing hotel you will be aware of existing bookings and the

previous proprietors may be able to give you an idea of occupancy levels throughout the

year. You can then decide if you want to try to improve on this by targeting a different type

of clientele.

Why will guests choose your hotel?

You need to make sure that enough people will choose your hotel rather than other hotels

or other accommodation types. It's worth checking out the competition to see:

What kind of guest they attract

What services and facilities they offer

What prices they charge

The sort of special offers and discounts they are prepared to give

When they are fully booked

If the premises have been newly refurbished


25


This might immediately show you that there is a gap in the market for a certain type of

hotel, for example, offering business people well equipped rooms with internet connection,

desks and so on. It will also give you a feel for the room rates to charge - although you

should be wary of competing solely on price there is no point in pitching your charges well

above hotels in your area which are similar to yours.

Competitors' Analysis

Find out:

Who are your competitors

Where they live?

What are their employee base (i.e. number of employees)

Client base (i.e. number of clients)

Market value (i.e. what is their reputation in the market)

Market share (i.e. how much business they have occupied)

Turnover (i.e. annual sales)?

How many events they organize in a year?

Why people attend their events?

What is so special about their events?

How do they get clients and sponsors for their events?

All this will help you in developing a better business plan for your hotel company.

Step 3: Prepare business plan for your hotel.

You will develop your business plan on the basis of market research, competitors' analysis

and SWOT analysis of your hotel company. Before developing your business plan, you

should keep some points in mind:

Be realistic and avoid optimism while estimating capital requirements, sales and

profits.

Don't ignore developing strategies which may come handy in case of adversities in

your business.


26


Following steps can be adopted for developing a business plan for your hotel :

1. Outline your business objectives.

What do you want to achieve in short term and in long term i.e. what is the mission and

vision of your event planning company? However don't stick too much with long term

objectives as they may become meaningless after a long time or changes in market

situation.

2. Determine your staffing needs and what should be their skill sets.

Develop the organizational structure of your hotel company. Outline your own skills,

knowledge and experience and determine how they can be used to achieve business

success. Prepare resume of yourself and all of the people who will be involved in your

business. These resumes will come handy when you will look for partners/investors later

on.

3. Determine how exactly you will find clients?

How you will approach them and how you will sell your services. How you will expand

your business? What will be your rules, regulations, policies and procedures regarding

payments, reimbursement, penalties, cancellation and behaviour?

4. Estimate your capital requirements for one whole year.

How you will manage the cash flow?

5. Prepare a contingency plan

I.e. what strategies you will adopt in case of capital loss, economic crisis or market

downturn.

Step 4: On the basis of your business plan determine your operating

cost

I.e. the cost to run the business.


27


Step 5: On the basis of the operating cost, decide your own fees and

the staff salary.

Step 6: Get investors/ business partners for your hotel company

On the basis of market research, competitors' analysis, SWOT analysis and your business

plan.

Step 7: Decide name and logo of your company and its status

I.e. whether organization will be a company, firm or establishment.

Step 8: Premises, recruitment and marketing your business

Hire office. Buy office stationary and recruit staff. Launch a new flashy website which

effectively describes your business and services in great detail. Hire an internet marketing

professional to promote it. If you won't promote your website, then nobody will visit your

website. So in that case your website will be as good as nothing.

Step 9: Register your Company

If you have opened a company then get it registered under the Company's Act'. If you have

opened a firm then gets it registered under the 'Indian Partnership Act'. If you have opened

an establishment, then get it registered under the 'Shops and Establishment Act‘. An event

management company is just like any other company. So whatever rules and procedures

are required to start a company, also applies to an event management company.

Step 10: Register to pay tax

Following taxes are to be paid by a hotel. Income Tax, TDS (Tax deducted at source),

service tax, entertainment tax and taxes related to moving goods and merchandise from one

destination to others. Get PAN card to file Income Tax return. TAN card to file TDS

return. Get registration for service tax. The service tax on hotel in India is 12.36%


28


Chapter 3

Projected Company Profile


29



30


3.1 ORGANISATION

Name of Organisation: PARADISE HOTEL CUM RESORT

Type: Proprietorship Firm

Tagline: ―Somewhere between Heaven and Earth‖

Symbol:

Established: 2012-13

Address: Opp. Surat Airport, Dumas Road, Near Magdalla, Surat.


31


Mission-Vision-Values:


32


3.2 SERVICES

The following are the proposed products and services will be provided by the PARADISE

Resort cum Hotel.

Hotel

Rooms & Suites

The hotel rooms will be of stylish, comfortable, well-furnished and air-conditioned rooms

with contemporary luxury and gracious service.

There will be two catagories of rooms:

Standard Rooms

Deluxe Rooms

Deluxe Room have 2 bedrooms in each,

one bathroom with steambath facility,

one LCD television, one computer,

coupboard, a gallary from which a nice

view can be seen and intercome telecome facility is also be there. We will have total 30

deluxe rooms in our hotel.

Standard Rooms includes 1 bedroom with two separate beds, one bathrooms, one

television, a coupboard etc. We will have total 50 standard rooms in our hotel.

Multi-Purpose Hall (Banquet)

The Hotel will have a banquet hall with

a capacity of 150 and 400 for parties,

banquet hall also be used for

exhibitions/events. The banquet hall is

very essential for the hotel and will be

done in a western concept.


33


Conference Hall

There will be 1 conferencing hall for

business meeting, conference and

gathering etc. the hall will be equipped

with all the modern conferencing aids.

Restaurant

The restaurant will be having 2 parts

veg and non-veg. A Lounge Bar and

a coffee shop, which will be offering

a choice of continental. Chinese and

variety of food from Indian cuisine,

with live piano music, and one open

restaurant with the above amenities

for the outside visitors will be

having.

The restaurant will have a variety of dishes like,

South Indian dishes

Chinese dishes

Italian dishes

Gujarati Thalis

North Indian dishes

Fast Foods


34


Resort Complex

Ayurveda Centre

The resort will be having an Ayurveda

centre. Ayurveda is the alternative medicine

of Indian tradition, originated in ancient

times. It is a natural healing science for cure,

prevention or rejuvenation of the body, based

on the use of herbs or herbal medicines.

Kids Arena and Board Games

The Resort Complex will be having a

separate area for the kids; Kids Arena for

children to have fun and play all the time

while visiting the Resort.

The Resort will be having an area for board

games, which will provide additional options

for the guests to spend excellence time in the

Resort.

Swimming Pool, Jacuzzi, Spa, and Steam Sauna

A swimming pool is also an important part of

the Hotel. The swimming pool facility is a

must for any club and thus it will be

instrumental for the popularity of the resort. It

will be 1 of the main basis of marketing the

resort facilities. There will also a small nearby

kid‘s swimming pool. There will be a juice

and snack bar along with the swimming pool

to add to the service provisions.


35


Handicraft Shops

There will be a part of handicraft shops where

anyone can buy a huge range of handicraft products

like,

Metal Crafts

Metal Ornamentation

Pottery & Stone Craft

Marble Inlay Work

Wood Craft

Precious and Semi-precious Stones

Paintings

Textiles

Carpets etc.

Garden

In the proposed project there is also a beautiful

and decorated Garden and its well-kept

gardens infuses a breath of fresh air and fill

both young and old with vitality, which will be

provided on rent for the enjoyment. The

capacity of the garden will be around 1000

people with huge car parking capacity.

Tennis Court

A tennis court is also available in PARADISE

hotel where anyone can play and enjoy their

best time.


36


Indoor Games Facility

Games mean fun and frolic for everyone and

are the best way to spend some time in

merriment and leisure. Indulge in our in-

house indoor games viz, chess, carom, virtual

games, your children can have a world of

their own playing games and much more.

Cyber café cum Game Zone

Virtual games, video games and Sony play

station where your children can have a world

of their own playing games and much more.

Wedding / Marriage Arrangements

Wedding/Marriage Arrangements- We do

have the facility for hosting a marriage

ceremony/reception or a social gathering to

make this immense significant moment of

your life a special and memorable one for a

lifetime.

Dive In Movie Theatre

Dive in Theatre, where you can watch

movie in the open area.


37


3.3 SWOT ANALYSIS OF HOTEL

Products/Services Research

If you are managing a hotel then it is necessary for you as a hotel manager to do research

of the products/ services promoted and sold by your corporate client.

Find out how the company promotes its products

How the company wants to build/enhance the image associated with its product

(also known as the brand image)?

What is the market value and market share of the company and its products?

Who are the customers of the product?

What are the features of the product?

What are the advantages and disadvantages of the product in comparison to

competitors' products?

All this research will later help you in making an effecting promotional campaign for your

corporate event.

SWOT Analysis

In SWOT Analysis:

'S' stands for Strengths 'O' stands for Opportunities

'W' stands for Weaknesses 'T' stands for Threats

It is a strategic planning tool which is used to identify and analyze the strengths,

weaknesses, opportunities and threats involved in your project. SWOT analysis can also be

done on your organization.


38


Strengths:

These are the attributes of your project/organization which are helpful in achieving

project's objectives. For e.g.: experienced service team, high motivation level, excellent

PR, good market share etc.

Weaknesses:

These are those attributes of your project/organization which are harmful in achieving

project's objectives. For e.g.: social loafing, lack of funds, inexperienced staff, low

energy level, lack of media and corporate contacts etc.

Opportunities:

These are those external factors which are helpful in achieving the project's objectives.

For e.g.: little competition, favorable economic conditions, support from the local

authorities, availability of the state of the art infrastructure etc.

Threats:

These are those external factors which are harmful in achieving the project's objectives.

For e.g.: high competition, little or no support from local authorities, bad weather, poor

infrastructure, high lab our rate, unavailability of raw material etc.

It is very important that you conduct SWOT analysis before developing a hotel plan to

develop a strategy which maximizes the potential of strengths and opportunities of your

project and at the same time, minimizes the impact of the weaknesses and threats.

Analysis Report

After conducting market, competitors, product/service research and SWOT analysis, create

a report which contain details of all the research work done by you. Documentation of your

research work is important. Your analysis report will also help you in getting loans for

your hotel.


39


3.4 COMPETITORS

Basically there are many local players in Hotel Industry in Surat. But here is a list of very

influencing players:

The Grand Bhagvati (TGB)

The Gateway Hotel

Best Western Yuvraj

Embassy Hotel

Hotel Budget Inn

Lords Plaza

Hotel Golden Plaza

Hotel Relax Inn

Ginger

Hotel Oyester

Royal Park Club Resort

Tex Palazzo


40


3.5 ADVERTISEMENT PICTURES


41



42



43



44


3.6 PLANT LAYOUT


45


3.7 CAPACITY PLANNING

Hotel Number

Types of Rooms

- Standard 50

- Deluxe 30

Restaurant

- Non Veg 01

- Veg 01

Administrative Office 01

Handicraft Shops 10

Multipurpose Hall 01

Garden 01

Children Playground 01

Swimming Pool 02

Tennis Court 01

Indoor Game Centre 01

Dive In Cinema Theatre 01

Ayurveda Centre 01

Staff Quarter 01

Cyber café cum Video Game Zone 01


46


3.8 LICENCE OR PERMISSIONS REQUIRED FROM GOVERNMENT

The Ministry of Tourism will approve hotels at project stage based on documentation.

Documentation

Duly filled up Application form.

Application Fee.

Proposed name of the hotel.

Name of the promoters with a note on their business antecedents.

Complete postal address of the promoters/tel./fax/email

Status of the owners/ promoters:

o If Public/ private limited company with copies of Memorandum and Articles

of Association

o If Partnership, a copy of partnership deed and certificate of registration

o If proprietary concern, name and address of proprietor/certificate of

registration

Location of hotel site with postal address

Details of the site

o Area (in sq. meters)

o Title - owned/ leased with copies of sale/ lease deed

o Copy of Land Use Permit from local authorities

o Distances from Railway station, airport, main shopping centers (in Kms)

Details of the project:

o Copy of feasibility report.

o Star category planned.

o Number of rooms and area for each type of room (in sq.ft.)

o Number of attached baths and areas (in sq.ft.)

o Details of public areas - Lobby/lounge restaurants, bars, shopping, banquet /

conference halls, health club, swimming pool, parking facilities.

o Facilities for the physically challenged persons.

o Eco-friendly practices and any other additional facilities.

o Date by which project is expected to be completed and operational.

Blue prints/ sketch plans signed by owners and architect showing

o Site plan

o Front and side elevations

o Floor plans for all floors

o Detail of guest room and bath room with dimensions in sq.ft.

o Details of Fire Fighting Measures/ Hydrants etc.


47


Air-conditioning details for guest rooms, public areas

Local approvals by:

o Municipal authorities

o Concerned Police Authorities

o Any other local authority as maybe required.

o Approval /NOC from Airport Authority of India (for projects located near

Airports)

Proposed capital structure:

o Total project cost

o Equity component with details of paid up capital

o Debt - with current and proposed sources of funding

Certificates/No Objection Certificate's (attested copies)

o Certificate/ license of Registration from Municipality/ Corporation

o Certificate/ license from concerned Police Department authorizing the

running of a hotel.

o Clearance Certificate from Municipal Health Officer/ Sanitary Inspector.

o No Objection Certificate from the Fire Service Department (Local Fire

Brigade Authorities)

o Public liability insurance

o Money Changers License (necessary for 4*,5*& 5*-D only)

Sanctioned building plans/occupancy certificate

If classified earlier, a copy of the earlier & ―Certificate of Classification issued by

Department of Tourism‖

Any other local authority as maybe required.

Approval /NOC from Airport Authority of India (AAI) for projects located near

Airports

Indicate whether a few rooms or all rooms are to be let out on a time-share basis.

Application fees


48


Chapter 4

Research Methodology


49


4.1 REASON FOR CHOOSING TOPIC:-

Hotel Industry in India has witnessed tremendous boom in recent years. Hotel Industry is

inextricably linked to the tourism industry and the growth in the Indian tourism industry

has fuelled the growth of Indian hotel industry. The thriving economy and increased

business opportunities in India have acted as a boon for Indian hotel industry. The arrival

of low cost airlines and the associated price wars have given domestic tourists a host of

options. The 'Incredible India' destination campaign and the recently launched 'Atithi

Devo Bhavah' (ADB) and „Khushboo Gujarat Ki‟ campaign have also helped in the

growth of domestic and international tourism and consequently the hotel industry.

4.2 NEED FOR RESEARCH:-

The main need for research is to know how project is to be financed for starting an hotel on

the basis of the projected fund flow and cash flow rather than the balance sheets of the

project sponsors so; the main reason is to be known on the what basis and what criteria

loans are given to the an event planner firm by financial institution and bank.

Also the purpose of this research is to know how project is to be financed, the need of

research is to know how this loan provided to the firm and what are the steps and

procedure involve in it.

4.3 RESEARCH PROBLEM STATEMENT:-

―Project Preparation and Appraisal of Hotel cum Resort on basis of both primary data and

secondary data.‖


50


4.4 OBJECTIVE OF RESEARCH:-

Primary Objective:-

To prepare and appraise the project for hotel cum resort.

Secondary Objective:-

To know how project is to be financed for starting hotel and to know how this

loan provided to the firm and what are the steps and procedure involve in it.

To analysis financial evaluation of the project.

To know which the main area are that to be covered in project financing.

To find out appropriateness of the project by using various financial tools and

techniques of the project.

4.5 RESEARCH DESIGN:-

This study is descriptive because, it gives useful information from available data. So that,

here ―Descriptive Research design‖ is to be used. This research is based on secondary data.

4.6 CASE STUDY:-

Project Preparation and Appraisal of Hotel cum Resort is based on case study. The basic

purpose behind this topic is to know how project is to be financed for starting hotel cum

resort on the basis of the projected fund flow and cash flow rather than the balance sheets

of the project sponsors so; the main reason is to be known on the what basis and what

criteria loans are given to the hotel cum resort by financial institution and bank.

4.7 DATA COLLECTION:-

Data collection is based on secondary data only which is gathered from local hotels of

Surat, which are as follows:

TGB Hotels

Avadh Restaurant

Step up Restaurant & Banquet


51


4.8 DATA ANALYSIS:-

Following data analysis tool must be applied in this project:

Data Classification and Tabulation

Ratio Analysis

Projected Fund Flow Statement

Projected Cash Flow Statement

Projected Profit and Loss Account

Projected Balance Sheet Statement

Projected Working Capital

Sensitivity Analysis

Net Present Value

4.9 LIMITATION OF RESEARCH:-

The project study undertakes only certain aspect of hotel industry.

The project report based on the assumption and projected data.

Some of firm might give wrong information about their personal detail viz. Income

& strategy.

Some external factor doesn‘t consider.

If there is any error in data, all through they collected from official websites may

influence the result & finding


52


4.10 SCOPE OF RESEARCH:-

Scope of study means the study whichever is carried out where it will helpful in future.

The study will helpful to know how project is to be financed for starting a hotel.

The study will helpful to know how loan provided to the firm and what are the

steps and procedure involve in it.

The study will helpful to know what are the technical and fundamental factor affect

while starting a new hotel.

On the basis of the study individual firm can take the corrective actions.

The study will be helpful to know the raising pattern of fund in market.

It will be helpful to the company to know where it is lacking behind to raising fund

from market.


53


Chapter 5

Data Analysis and Findings


54


5.1 COST OF FINANCE

Cost of Finance

Particular Amount

Land 5,00,00,000

Buildings 3,00,00,000

Furniture 80,00,000

Computers (15) 5,00,000

Motor Car (5) 50,00,000

Working Capital 10,00,000

Total Cost of Finance 9,45,00,000

5.2 MEANS OF FINANCE

Means of Finance Particular Amount

Own Capital 2,83,50,000

Term Loan 6,61,50,000

Total Means of Finance 9,45,00,000


55


5.3 PROJECTED PROFIT AND LOSS ACCOUNT

Projected Profit & Loss Account

Particulars Amount

2012-13 2013-14 2014-15 2015-16 2016-17

Income (Annexure A)

12,53,64,000 16,29,48,000 19,77,06,000 22,91,58,000 26,39,10,000

Material Consumed

3,00,00,000 3,30,00,000 3,69,60,000 4,13,95,200 4,63,62,624

Operating Expense

(Annexure B) 5,73,00,000 7,05,30,000 9,25,89,600 10,50,80,952 11,86,24,445

Gross Profit 3,80,64,000 5,94,18,000 6,81,56,400 8,26,81,848 9,89,22,931

Gross Profit In Percentage

30.36% 36.46% 34.47% 36.08% 37.48%

Administrative

Exp (Annexure C)

1,24,60,000 1,36,06,000 1,52,44,780 1,71,83,860 1,96,11,439

Depriciation (Annexure D)

48,50,000 41,77,500 75,67,875 58,29,994 68,28,865

Profit Before Interest And

Tax 2,07,54,000 4,16,34,500 4,53,43,745 5,96,67,994 7,24,82,628

Interest

(Annexure E) 1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925

Profit Before Tax (PBT)

99,38,475 3,32,00,375 3,90,92,570 5,59,96,669 7,11,92,703

Prvocision For

Tax 20,00,000 1,15,00,000 1,60,00,000 2,00,00,000 2,30,00,000

Net Profit After Tax

79,38,475 2,17,00,375 2,30,92,570 3,59,96,669 4,81,92,703

Net Profit In Percentage

6.33% 13.32% 11.68% 15.71% 18.26%


56


5.4 PROJECTED BALANCE SHEET

Projected Balance Sheet

Particulars Amount

2012-13 2013-14 2014-15 2015-16 2016-17

Liabilities

Own Capital 2,83,50,000 2,83,50,000 2,83,50,000 2,83,50,000 2,83,50,000

Reserve and surplus

79,38,475 2,96,38,850 5,27,31,420 8,87,28,089 13,69,20,792

Secured Loan 5,29,20,000 3,96,90,000 2,64,60,000 1,32,30,000 0

Total Liabilities 8,92,08,475 9,76,78,850 10,75,41,420 13,03,08,089 16,52,70,792

Assets

Fixed Assets

Land 5,00,00,000 7,00,00,000 7,00,00,000 10,25,00,000 10,25,00,000

Buildings 2,70,00,000 2,43,00,000 3,08,70,000 2,77,83,000 4,30,04,700

Furniture 72,00,000 64,80,000 1,03,32,000 92,98,800 83,68,920

Motor Car 42,50,000 36,12,500 64,70,625 55,00,031 46,75,027

Computer 2,00,000 80,000 12,32,000 4,92,800 1,97,120

Total Fixed Assets

8,86,50,000 10,44,72,500 11,89,04,625 14,55,74,631 15,87,45,767

Current Assets

Stock 4,00,000 5,00,000 5,50,000 5,80,000 6,00,000

Cash & Bank Balance

29,08,475 49,86,350 48,86,795 50,33,458 2,98,25,025

Total CA 33,08,475 54,86,350 54,36,795 56,13,458 3,04,25,025

Current Liabilities

Sundry Creditors 7,50,000 7,80,000 8,00,000 8,80,000 9,00,000

Provision for Tax 20,00,000 1,15,00,000 1,60,00,000 2,00,00,000 2,30,00,000

Total CL 27,50,000 1,22,80,000 1,68,00,000 2,08,80,000 2,39,00,000

Total Assets 8,92,08,475 9,76,78,850 10,75,41,420 13,03,08,089 16,52,70,792


57


5.5 WORKING CAPITAL STATEMENT

Working Capital Statement

Particulars Amount

2012-13 2013-14 2014-15 2015-16 2016-17

Current Assets

Stock 4,00,000 5,00,000 5,50,000 5,80,000 6,00,000

Cash and Bank 29,08,475 49,86,350 48,86,795 50,33,458 2,98,25,025

Total CA 33,08,475 54,86,350 54,36,795 56,13,458 3,04,25,025

Current Liabilities

Sundry Creditors 7,50,000 7,80,000 8,00,000 8,80,000 9,00,000

Provision For Tax 20,00,000 1,15,00,000 1,60,00,000 2,00,00,000 2,30,00,000

Total CL 27,50,000 1,22,80,000 1,68,00,000 2,08,80,000 2,39,00,000

Net Working Capital

5,58,475 (67,93,650) (1,13,63,205) (1,52,66,542) 65,25,025

5.6 FUND FLOW STATEMENT

Fund Flow Statement

Particulars Year

2012-13 2013-14 2014-15 2015-16 2016-17

Sources of Fund

Profit After Tax add

Depreciation 2,36,04,000 3,43,12,000 3,69,11,620 4,54,97,988 5,63,11,492

Own Capital 2,83,50,000 0 0 0 0

Bank Loan 6,61,50,000 0 0 0 0

Net Decrease in Working Capital

(5,58,475) (10,82,000) (16,81,620) (39,03,337) (2,30,81,492)

Total Sources 11,75,45,525 3,32,30,000 3,52,30,000 4,94,01,325 3,32,30,000

Application of Funds

Repayment Instalment

1,32,30,000 1,32,30,000 1,32,30,000 1,32,30,000 1,32,30,000

Land 5,00,00,000 2,00,00,000 0 3,25,00,000 0

Building 3,00,00,000 0 1,00,00,000 0 2,00,00,000

Furniture 80,00,000 0 50,00,000 0 0

Computers 5,00,000 0 30,00,000 0 0

Motor Car 50,00,000 0 40,00,000 0 0

Interest on Capital

1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925

Total Application

11,75,45,525 3,32,30,000 3,52,30,000 4,94,01,325 3,32,30,000


58


5.7 CASH FLOW STATEMENT

Cash Flow Statement

Particulars Amount

2012-13 2013-14 2014-15 2015-16 2016-17

Operating Activities


79,38,475 2,17,00,375 2,30,92,570 3,59,96,669 4,81,92,703

Depreciation 48,50,000 41,77,500 75,67,875 58,29,994 68,28,865

Interest 1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925

Stock (4,00,000) (1,00,000) (50,000) (30,000) (20,000)

Creditors 7,50,000 30,000 20,000 80,000 20,000

Provision for tax

20,00,000 95,00,000 45,00,000 40,00,000 30,00,000

Total Cash from

Operation 2,59,54,000 4,37,42,000 4,13,81,620 4,95,47,988 5,93,11,492

Less: Actual Tax payments

(29,81,543) (99,60,113) (1,17,27,771) (1,67,99,001) (2,13,57,811)

Net Cash from Operation

2,29,72,458 3,37,81,888 2,96,53,849 3,27,48,987 3,79,53,681

Investment Activities

Land (5,00,00,000) (2,00,00,000) - (3,25,00,000)

Building (3,00,00,000)

(1,00,00,000)

(2,00,00,000)

Furniture (80,00,000) - (50,00,000)

Computers (5,00,000) - (30,00,000)

Motor Car (50,00,000) - (40,00,000)

Total Cash In Investment

(9,35,00,000) (2,00,00,000) (2,20,00,000) (3,25,00,000) (2,00,00,000)

Financing Activities

Own Capital 2,83,50,000 - -

Secured Loan 6,61,50,000 - -

Repayment of Loan

(1,32,30,000) (1,32,30,000) (1,32,30,000) (1,32,30,000) (1,32,30,000)

Interest (1,08,15,525) (84,34,125) (62,51,175) (36,71,325) (12,89,925)

Total Cash from Finance

7,04,54,475 (2,16,64,125) (1,94,81,175) (1,69,01,325) (1,45,19,925)

Total Cash Flow

29,08,475 20,77,875 (99,555) 1,46,663 2,47,91,567

Opening Balance of

Cash - 29,08,475 49,86,350 48,86,795 50,33,458

Closing Bank Balance

29,08,475 49,86,350 48,86,795 50,33,458 2,98,25,025


59


5.8 ANNEXURE

A…Income from hotel room rent Particular 2012-13 2013-14 2014-15 2015-16 2016-17

Plant Capacity Usage (In %)

62% 74% 83% 87% 95%

Rooms:

Standard (Rs.2500) (50 Rooms)

77,500 92,500 1,03,750 1,30,500 1,42,500

Deluxe (Rs.4000) (30 Rooms)

74,400 88,800 99,600 1,17,450 1,28,250

Total Usage 1,51,900 1,81,300 2,03,350 2,47,950 2,70,750

Days 30 30 30 30 30

Multipurpose hall (Rs. 500000)

3,10,000 3,70,000 4,15,000 4,35,000 4,75,000

Total 48,67,000 58,09,000 65,15,500 78,73,500 85,97,500

Month 12 12 12 12 12

Total Sales 5,84,04,000 6,97,08,000 7,81,86,000 9,44,82,000 10,31,70,000

A…Income from Restaurant Particular 2012-13 2013-14 2014-15 2015-16 2016-17

Total table 100 100 100 100 100

Capacity Usages 62% 74% 83% 87% 95%

62 74 83 87 95

Average Amount of Bill (4-persons)

3,000 3,500 4,000 4,300 4,700

Total Usage 1,86,000 2,59,000 3,32,000 3,74,100 4,46,500

Days 30 30 30 30 30

Total 55,80,000 77,70,000 99,60,000 1,12,23,000 1,33,95,000

Month 12 12 12 12 12

Total Sales 6,69,60,000 9,32,40,000 11,95,20,000 13,46,76,000 16,07,40,000

Total Revenue 12,53,64,000 16,29,48,000 19,77,06,000 22,91,58,000 26,39,10,000


60


B…Operating Expenses

Particular 2012-13 2013-14 2014-15 2015-16 2016-17

Salary Expenses 4,50,00,000 5,70,00,000 7,70,40,000 8,72,10,000 9,72,00,000

Consumable Items

3,00,000 3,30,000 3,69,600 4,13,952 4,76,045

Gas & Fuel Expenses

1,20,00,000 1,32,00,000 1,51,80,000 1,74,57,000 2,09,48,400

Total 5,73,00,000 7,05,30,000 9,25,89,600 10,50,80,952 11,86,24,445

Salary Expense Statement

Particular 2012-13 2013-14 2014-15 2015-16 2016-17

Staff 300 350 400 425 450

Months 12 12 12 12 12

Average Salary per Month

10,000 11,000 12,750 13,500.00 14,000

Total Salary of Restaurant Staff

3,60,00,000 4,62,00,000 6,12,00,000 6,88,50,000 7,56,00,000

Manger 25 30 40 45 50

Average Salary of Manger

30,000 30,000 33,000 34,000 36,000

Total Salary of Mangers

90,00,000 1,08,00,000 1,58,40,000 1,83,60,000 2,16,00,000

Total Salary

Expenses 4,50,00,000 5,70,00,000 7,70,40,000 8,72,10,000 9,72,00,000


61


C…Administrative Expense

Particular 2012-13 2013-14 2014-15 2015-16 2016-17

Office Expense 15,00,000 16,50,000 18,64,500 20,88,240 24,01,476

Stationary Exp 3,00,000 3,30,000 3,72,900 4,17,648 4,80,295

Miscellaneous Exp 2,50,000 2,75,000 3,10,750 3,48,040 4,00,246

Accountant Fees 1,50,000 1,65,000 1,86,450 2,08,824 2,40,148

Advertisement Exp 15,00,000 16,50,000 18,64,500 20,88,240 24,01,476

Telephone Exp 3,00,000 3,30,000 3,72,900 4,17,648 4,80,295

Decoration Expenses 5,00,000 5,50,000 6,21,500 6,96,080 8,00,492

House Keeping Expenses

8,00,000 8,80,000 9,94,400 11,13,728 12,80,787

Insurance Expenses 10,00,000 10,00,000 10,00,000 10,00,000 10,00,000

Cleaning and Laundry Expenses

9,00,000 9,90,000 11,18,700 12,86,505 14,79,481

Repair and maintenance

Expenses 4,00,000 4,40,000 4,97,200 5,71,780 6,57,547

Electricity 48,60,000 53,46,000 60,40,980 69,47,127 79,89,196

Total 1,24,60,000 1,36,06,000 1,52,44,780 1,71,83,860 1,96,11,439

D…Depreciation

Particular 2012-13 2013-14 2014-15 2015-16 2016-17

Buildings 3,00,00,000 2,70,00,000 3,43,00,000 3,08,70,000 4,77,83,000

Less: Depreciation (10%)

30,00,000 27,00,000 34,30,000 30,87,000 47,78,300

2,70,00,000 2,43,00,000 3,08,70,000 2,77,83,000 4,30,04,700

Furniture 80,00,000 72,00,000 1,14,80,000 1,03,32,000 92,98,800


8,00,000 7,20,000 11,48,000 10,33,200 9,29,880

72,00,000 64,80,000 1,03,32,000 92,98,800 83,68,920

Motor Car 50,00,000 42,50,000 76,12,500 64,70,625 55,00,031


7,50,000 6,37,500 11,41,875 9,70,594 8,25,005

42,50,000 36,12,500 64,70,625 55,00,031 46,75,027

Computers 5,00,000 2,00,000 30,80,000 12,32,000 4,92,800


3,00,000 1,20,000 18,48,000 7,39,200 2,95,680

2,00,000 80,000 12,32,000 4,92,800 1,97,120

Total Depreciation 48,50,000 41,77,500 75,67,875 58,29,994 68,28,865


62


5.9 PROJECTED RATIO

Current Ratio

Particulars Year

2012-13 2013-14 2014-15 2015-16 2016-17

Current Asset (A) 33,08,475 54,86,350 54,36,795 56,13,458 3,04,25,025

Current Liability (B) 27,50,000 1,22,80,000 1,68,00,000 2,08,80,000 2,39,00,000

Current Ratio (A/B) 1.20 0.45 0.32 0.27 1.27

Interpretation

This ratio shows the proportion of current assets to current liabilities. It is measures of

working capital available at a particular time. It indicates short-term financial strength of

the firm and it is measure of whether firm will be able to meet its current liability. Here

firm‘s current ratio decreased for 4 years and then it increases to 1.27 which indicate that

firm has in strong position to meet its current liabilities.

1.20

0.45 0.32

0.27

1.27

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2012-13 2013-14 2014-15 2015-16 2016-17

Current Ratio


63


Operating Profit Ratio

Particulars Year

2012-13 2013-14 2014-15 2015-16 2016-17

PBIT (A) 2,07,54,000 4,16,34,500 4,53,43,745 5,96,67,994 7,24,82,628

Net Income (B) 12,53,64,000 16,29,48,000 19,77,06,000 22,91,58,000 26,39,10,000

OPERATING PROFIT RATIO ((A)/(B))*100

16.55% 25.55% 22.93% 26.04% 27.46%

Interpretation

It shows efficiency of the management. The higher the ratio, the less will be margin

available to proprietor. Here firm operating profit ratio fluctuated in moderate level which

indicates more margins available to proprietor and it increases year by year. And it

increases is last year compare to first year.

16.55%

25.55% 22.93%

26.04% 27.46%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2012-13 2013-14 2014-15 2015-16 2016-17

Operating Ratio


64


Net Profit Ratio

Particulars Year

2012-13 2013-14 2014-15 2015-16 2016-17

PAT (A) 79,38,475 2,17,00,375 2,30,92,570 3,59,96,669 4,81,92,703

SALES (B) 12,53,64,000 16,29,48,000 19,77,06,000 22,91,58,000 26,39,10,000

NET PROFIT RATIO

((A)/(B))*100 6.33% 13.32% 11.68% 15.71% 18.26%

Interpretation

It shows efficiency of the management. The higher the ratio, the less will be margin

available to proprietor after deducting interest and tax. Here firm operating profit increases

year by year which indicates more margins available to proprietor due to the increase in

revenue.

6.33%

13.32%

11.68%

15.71%

18.26%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

2012-13 2013-14 2014-15 2015-16 2016-17

Net Profit Ratio


65


Debt Equity Ratio

Particulars Year

2012-13 2013-14 2014-15 2015-16 2016-17

Total Long Term Debt (A)

5,29,20,000 3,96,90,000 2,64,60,000 1,32,30,000 0

Capital (B) 2,83,50,000 2,83,50,000 2,83,50,000 2,83,50,000 2,83,50,000

Reserve (c) 7938475 29638850 52731420 88728089.25 136920791.8

Debt Equity Ratio (A/(B+C))

1.46 0.68 0.33 0.11 0.00

Interpretation

This ratio established relationship between the outside long-term liabilities and owners

fund. If this ratio rises, it shows that the financial risk of firm has decreased. Here firm debt

equity ratio decreased by year which indicate there will be no high business risk for the

firm.

1.46

0.68

0.33 0.11 0.00

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2012-13 2013-14 2014-15 2015-16 2016-17

Debt Equity Ratio


66


Debt Service Coverage Ratio

Particulars Year

2012-13 2013-14 2014-15 2015-16 2016-17

PBIT (A) 2,07,54,000 4,16,34,500 4,53,43,745 5,96,67,994 7,24,82,628

Depreciation (B) 48,50,000 41,77,500 75,67,875 58,29,994 68,28,865

Interest on Term Loan (C)

1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925

Instalment of Loan (D)

1,32,30,000 1,32,30,000 1,32,30,000 1,32,30,000 1,32,30,000

DSCR ((A+B+C)/(C+D))

1.51 2.50 3.04 4.09 5.55

Interpretation

This ratio is calculated by bank when it has to considered term loan application. This ratio

indicates the measure of safety available for payment of instalment of the term loan and

interest due. If this ratio is high, lower the currency on the loan. Here firm DSCR ratio

increase with a high amount.

1.51

2.50

3.04

4.09

5.55

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2012-13 2013-14 2014-15 2015-16 2016-17

Debt Service Coverage Ratio


67


Return on Assets

Particulars Year

2012-13 2013-14 2014-15 2015-16 2016-17

FIXED ASSETS 8,86,50,000 10,44,72,500 11,89,04,625 14,55,74,631 15,87,45,767

PAT 79,38,475 2,17,00,375 2,30,92,570 3,59,96,669 4,81,92,703

Return on Assets

((B)/(A)) 8.95% 20.77% 19.42% 24.73% 30.36%

Interpretation

Return on assets indicate the profitability of firm and is very much in use among financial

analysts. If this ratio is more it means assets are being used effectively to earn profit of the

firm. Here ratio increased then it decreased then after it also increased which indicate

moderate management style of the firm. And at last it increases constantly which suggest

that the management of firm is going to be best.

8.95%

20.77% 19.42%

24.73%

30.36%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2012-13 2013-14 2014-15 2015-16 2016-17

Return on Assets


68


Return on Capital Employed

Particulars Year

2012-13 2013-14 2014-15 2015-16 2016-17

Capital Employed (A)

8,92,08,475 9,76,78,850 10,75,41,420 13,03,08,089 16,52,70,792

PAT (B) 79,38,475 2,17,00,375 2,30,92,570 3,59,96,669 4,81,92,703

Return on Capital

Employed 8.90% 22.22% 21.47% 27.62% 29.16%

Interpretation

Return on capital employed indicate the profitability of firm and is very much in use

among financial analysts. Here ratio increased by year which indicate moderate

management style of the firm. It shows the profitability of firm against capital employed.

8.90%

22.22% 21.47%

27.62% 29.16%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2012-13 2013-14 2014-15 2015-16 2016-17

Return on Capital Employed


69


5.10 REPAYMENT OF LOAN SCHEDULE

E…Interest No Amount Interest Instalment Ins+Int Total

1 6,61,50,000 9,92,250 11,02,500.00 20,94,750 6,50,47,500

2 6,50,47,500 9,75,713 11,02,500.00 20,78,213 6,39,45,000

3 6,39,45,000 9,59,175 11,02,500.00 20,61,675 6,28,42,500

4 6,28,42,500 9,42,638 11,02,500.00 20,45,138 6,17,40,000

5 6,17,40,000 9,26,100 11,02,500.00 20,28,600 6,06,37,500

6 6,06,37,500 9,09,563 11,02,500.00 20,12,063 5,95,35,000

7 5,95,35,000 8,93,025 11,02,500.00 19,95,525 5,84,32,500

8 5,84,32,500 8,76,488 11,02,500.00 19,78,988 5,73,30,000

9 5,73,30,000 8,59,950 11,02,500.00 19,62,450 5,62,27,500

10 5,62,27,500 8,43,413 11,02,500.00 19,45,913 5,51,25,000

11 5,51,25,000 8,26,875 11,02,500.00 19,29,375 5,40,22,500

12 5,40,22,500 8,10,338 11,02,500.00 19,12,838 5,29,20,000

13 5,29,20,000 7,93,800 11,02,500.00 18,96,300 5,18,17,500

14 5,18,17,500 7,77,263 11,02,500.00 18,79,763 5,07,15,000

15 5,07,15,000 7,60,725 11,02,500.00 18,63,225 4,96,12,500

16 4,96,12,500 7,44,188 11,02,500.00 18,46,688 4,85,10,000

17 4,85,10,000 7,27,650 11,02,500.00 18,30,150 4,74,07,500

18 4,74,07,500 7,11,113 11,02,500.00 18,13,613 4,63,05,000

19 4,63,05,000 6,94,575 11,02,500.00 17,97,075 4,52,02,500

20 4,52,02,500 6,78,038 11,02,500.00 17,80,538 4,41,00,000

21 4,41,00,000 6,61,500 11,02,500.00 17,64,000 4,29,97,500

22 4,29,97,500 6,44,963 11,02,500.00 17,47,463 4,18,95,000

23 4,18,95,000 6,28,425 11,02,500.00 17,30,925 4,07,92,500

24 4,07,92,500 6,11,888 11,02,500.00 17,14,388 3,96,90,000

25 3,96,90,000 5,95,350 11,02,500.00 16,97,850 3,85,87,500

26 3,85,87,500 5,78,813 11,02,500.00 16,81,313 3,74,85,000

27 3,74,85,000 5,62,275 11,02,500.00 16,64,775 3,63,82,500

28 3,63,82,500 5,45,738 11,02,500.00 16,48,238 3,52,80,000

29 3,52,80,000 5,29,200 11,02,500.00 16,31,700 3,41,77,500


70


30 3,41,77,500 5,12,663 11,02,500.00 16,15,163 3,30,75,000

31 3,30,75,000 4,96,125 11,02,500.00 15,98,625 3,19,72,500

32 3,19,72,500 4,79,588 11,02,500.00 15,82,088 3,08,70,000

33 3,08,70,000 4,63,050 11,02,500.00 15,65,550 2,97,67,500

34 2,97,67,500 4,46,513 11,02,500.00 15,49,013 2,86,65,000

35 2,86,65,000 4,29,975 11,02,500.00 15,32,475 2,75,62,500

36 2,75,62,500 4,13,438 11,02,500.00 15,15,938 2,64,60,000

37 2,64,60,000 3,96,900 11,02,500.00 14,99,400 2,53,57,500

38 2,53,57,500 3,80,363 11,02,500.00 14,82,863 2,42,55,000

39 2,42,55,000 3,63,825 11,02,500.00 14,66,325 2,31,52,500

40 2,31,52,500 3,47,288 11,02,500.00 14,49,788 2,20,50,000

41 2,20,50,000 3,30,750 11,02,500.00 14,33,250 2,09,47,500

42 2,09,47,500 3,14,213 11,02,500.00 14,16,713 1,98,45,000

43 1,98,45,000 2,97,675 11,02,500.00 14,00,175 1,87,42,500

44 1,87,42,500 2,81,138 11,02,500.00 13,83,638 1,76,40,000

45 1,76,40,000 2,64,600 11,02,500.00 13,67,100 1,65,37,500

46 1,65,37,500 2,48,063 11,02,500.00 13,50,563 1,54,35,000

47 1,54,35,000 2,31,525 11,02,500.00 13,34,025 1,43,32,500

48 1,43,32,500 2,14,988 11,02,500.00 13,17,488 1,32,30,000

49 1,32,30,000 1,98,450 11,02,500.00 13,00,950 1,21,27,500

50 1,21,27,500 1,81,913 11,02,500.00 12,84,413 1,10,25,000

51 1,10,25,000 1,65,375 11,02,500.00 12,67,875 99,22,500

52 99,22,500 1,48,838 11,02,500.00 12,51,338 88,20,000

53 88,20,000 1,32,300 11,02,500.00 12,34,800 77,17,500

54 77,17,500 1,15,763 11,02,500.00 12,18,263 66,15,000

55 66,15,000 99,225 11,02,500.00 12,01,725 55,12,500

56 55,12,500 82,687 11,02,500.00 11,85,188 44,10,000

57 44,10,000 66,150 11,02,500.00 11,68,650 33,07,500

58 33,07,500 49,612 11,02,500.00 11,52,113 22,05,000

59 22,05,000 33,075 11,02,500.00 11,35,575 11,02,500

60 11,02,500 16,537 11,02,500.00 11,19,038 -0.00


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5.11 NET PRESENT VALUE

Total Cost of Project

9,45,00,000

Year 2012-13 2013-14 2014-15 2015-16 2016-17

PBIT 2,07,54,000 4,16,34,500 4,53,43,745 5,96,67,994 7,24,82,628

Interest @ 10% 1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925

PBT 99,38,475 3,32,00,375 3,90,92,570 5,59,96,669 7,11,92,703

Tax @ 30% 20,00,000 1,15,00,000 1,60,00,000 2,00,00,000 2,30,00,000

Profit After Tax 79,38,475 2,17,00,375 2,30,92,570 3,59,96,669 4,81,92,703

Add: Depreciation 48,50,000 41,77,500 75,67,875 58,29,994 68,28,865

Net Cash Accruals 1,27,88,475 2,58,77,875 3,06,60,445 4,18,26,663 5,50,21,567

PV FACTOR 0.8929 0.7972 0.7118 0.6355 0.5674

Present value of future cash flow

@ 12 % 1,14,18,281 2,06,29,683 2,18,23,499 2,65,81,600 3,12,20,714

Total Cash Inflow 11,16,73,779

Total Cash Outflow 9,45,00,000

Net Present Value 1,71,73,779

Interpretation

Here NPV is positive, which helps to take decision regarding to invest in this project will

be feasible or not.

Here NPV is getting positive, so that it can be proved that this project is feasible and viable

to invest money.


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5.12 PAY BACK PERIOD

Year Net Cash Accruals Cumulative cash flow

2012-13 1,27,88,475 1,27,88,475

2013-14 2,58,77,875 3,86,66,350

2014-15 3,06,60,445 6,93,26,795

2015-16 4,18,26,663 11,11,53,458

2016-17 5,50,21,567 16,61,75,025

Net Investment 9,45,00,000

Pay Back Period 3 Years 2 months and 22 days

Interpretation

PB indicates the period at the end of which investment will be received back. It worked out

on the basis of net cash flow.

In above table it shows that firm can received its investment back in 3 Years 2 months and

22 days, which indicates the more feasibility of investment opportunity.


73


5.13 INTERNAL RATE OF RETURN (IRR)

Total Investment 9,45,00,000

Year Net Cash Accruals Discount factor

@ 10% Present value

2012-13 1,27,88,475.00 0.8496 1,08,65,314.36

2013-14 2,58,77,875.00 0.7219 1,86,79,948.95

2014-15 3,06,60,445.00 0.6133 1,88,03,949.03

2015-16 4,18,26,663.00 0.5211 2,17,94,522.87

2016-17 5,50,21,567.20 0.4427 2,43,58,505.68

Total Present Value 9,45,02,240.89

Internal Rate of Return 17.70

Interpretation

Internal rate of return (IRR) is the discount rate at which the net present value of an

investment becomes zero. In other words, IRR is the discount rate which equates the

present value of the future cash flows of an investment with the initial investment.

Here IRR is 17.70, which means that at this rate the present value of all total cash flows

will be zero.


74


5.14 SENSITIVITY ANALYSIS

Situation: Sales Decreased by 10%



Particulars Amount

2012-13 2013-14 2014-15 2015-16 2016-17

Income (Annexure A)

11,28,27,600 14,66,53,200 17,79,35,400 20,62,42,200 23,75,19,000

Material Consumed

3,00,00,000 3,30,00,000 3,69,60,000 4,13,95,200 4,63,62,624

Operating Expense (Annexure B)

5,73,00,000 7,05,30,000 9,25,89,600 10,50,80,952 11,86,24,445

Gross Profit 2,55,27,600 4,31,23,200 4,83,85,800 5,97,66,048 7,25,31,931

Gross Profit In Percentage

22.63% 29.40% 27.19% 28.98% 30.54%

Administrative Exp

(Annexure C) 1,24,60,000 1,36,06,000 1,52,44,780 1,71,83,860 1,96,11,439

Depreciation (Annexure D)

48,50,000 41,77,500 75,67,875 58,29,994 68,28,865

Profit Before Interest And Tax

82,17,600 2,53,39,700 2,55,73,145 3,67,52,194 4,60,91,628

Interest

(Annexure E) 1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925

Profit Before Tax (PBT)

(25,97,925) 1,69,05,575 1,93,21,970 3,30,80,869 4,48,01,703

Provision For Tax - 56,00,000 64,00,000 1,10,00,000 1,49,00,000


(25,97,925) 1,13,05,575 1,29,21,970 2,20,80,869 2,99,01,703

Net Profit In Percentage

-2.30% 7.71% 7.26% 10.71% 12.59%


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Particulars Amount

2012-13 2013-14 2014-15 2015-16 2016-17

Liabilities

Own Capital 2,83,50,000 2,83,50,000 2,83,50,000 2,83,50,000 2,83,50,000

Reserve and surplus

(25,97,925) 87,07,650 2,16,29,620 4,37,10,489 7,36,12,192

Secured Loan

5,29,20,000 3,96,90,000 2,64,60,000 1,32,30,000 0

Total Liabilities

7,86,72,075 7,67,47,650 7,64,39,620 8,52,90,489 10,19,62,192

Assets

Fixed Assets

Land 5,00,00,000 7,00,00,000 7,00,00,000 10,25,00,000 10,25,00,000

Buildings 2,70,00,000 2,43,00,000 3,08,70,000 2,77,83,000 4,30,04,700

Furniture 72,00,000 64,80,000 1,03,32,000 92,98,800 83,68,920

Motor Car 42,50,000 36,12,500 64,70,625 55,00,031 46,75,027

Computer 2,00,000 80,000 12,32,000 4,92,800 1,97,120

Total Fixed Assets

8,86,50,000 10,44,72,500 11,89,04,625 14,55,74,631 15,87,45,767

Current Assets

Stock 4,00,000 5,00,000 5,50,000 5,80,000 6,00,000

Cash & Bank Balance

(96,27,925) (2,18,44,850) (3,58,15,005) (4,89,84,142) (4,15,83,575)

Total CA (92,27,925) (2,13,44,850) (3,52,65,005) (4,84,04,142) (4,09,83,575)

Current Liabilities

Sundry Creditors

7,50,000 7,80,000 8,00,000 8,80,000 9,00,000

Provision for Tax

- 56,00,000 64,00,000 1,10,00,000 1,49,00,000

Total CL 7,50,000 63,80,000 72,00,000 1,18,80,000 1,58,00,000

Total Assets 7,86,72,075 7,67,47,650 7,64,39,620 8,52,90,489 10,19,62,192


76


Net Present Value

Total Cost of Project 9,45,00,000

Year 2012-13 2013-14 2014-15 2015-16 2016-17

PBIT 82,17,600 2,53,39,700 2,55,73,145 3,67,52,194 4,60,91,628

Interest 6,61,50,000 Rs. @ 10%

1,08,15,525 84,34,125 62,51,175 36,71,325 12,89,925

PBT (25,97,925) 1,69,05,575 1,93,21,970 3,30,80,869 4,48,01,703

Tax @ 30% 0 56,00,000 64,00,000 1,10,00,000 1,49,00,000

Profit After Tax

(25,97,925) 1,13,05,575 1,29,21,970 2,20,80,869 2,99,01,703

Add: Depreciatio

n 48,50,000 41,77,500 75,67,875 58,29,994 68,28,865

Net Cash Accruals

22,52,075 1,54,83,075 2,04,89,845 2,79,10,863 3,67,30,567

PV FACTOR 0.89 0.80 0.71 0.64 0.57

Present value of

future cash flow @ 12 %

20,10,781 1,23,43,013 1,45,84,267 1,77,37,858 2,08,41,910

Total Cash Inflow 6,75,17,829

Total Cash Outflow 9,45,00,000

Net Present Value (2,69,82,171)

Interpretation

Here if we decreased sales by 10% then also NPV is negative, which indicate more risk

and less profitability of the firm. By doing sensitivity analysis it is clearly seen that NPV

we get is negative, this project is not viable.


77


Internal Rate of Return

Year Net Cash Accruals Discount facto

@ 10% Present value

2012-13 22,52,075.00 0.9780 22,02,518.34

2013-14 1,54,83,075.00 0.9565 1,48,09,165.42

2014-15 2,04,89,845.00 0.9354 1,91,66,760.81

2015-16 2,79,10,863.00 0.9148 2,55,34,067.28

2016-17 3,67,30,567.20 0.8947 3,28,63,290.92

Total Present Value 9,45,75,802.76

Internal Rate of Return 2.25

Interpretation

Internal rate of return (IRR) is the discount rate at which the net present value of an

investment becomes zero. In other words, IRR is the discount rate which equates the

present value of the future cash flows of an investment with the initial investment.

In sensitivity analysis, by decreasing sales by 10%, IRR is 17.70, which means that at this

rate the present value of all total cash flows will be zero.


78


Payback Period

Year Net Cash Accruals Cumulative cash flow

2012-13 22,52,075 22,52,075

2013-14 1,54,83,075 1,77,35,150

2014-15 2,04,89,845 3,82,24,995

2015-16 2,79,10,863 6,61,35,858

2016-17 3,67,30,567 10,28,66,425

Net Investment 9,45,00,000

Pay Back Period 4 Years 3 months and 10 days

Interpretation

PB indicates the period at the end of which investment will be received back. It worked out

on the basis of net cash flow.

In above table, in sensitivity analysis, by decreasing sales by 10%, it shows that firm can

received its investment back in 4 Years 3 months and 10 days, which indicates the more

feasibility of investment opportunity.


79


CONCLUSION

According to overall analysis, it is clear that the firm net present value is positive and its

investment also recover its investment in shorter period of time, which indicate low risk

and high profitability of the firm for the future. So it is advisable that the firm can go with

this project.

One more thing which needs attention is that, on one side situation if sales decreased by

10% still the firm net present value is positive but decreased. The firm also recover its

investment within shorter period of time, which indicates low risk and high profitability of

the firm for the future. So it is advisable that the firm can go with this project.

There is always better to calculated risk rather than investing abruptly. And this kind of

analysis will provide one with at least basic idea about risk and return characteristics of

investment, thus, according to all over analysis of project investment in hotel will be

beneficial for an investor.


80


SUGGESTIONS

This entire project is based on projected data rather than actual certain data. So some time

it may he happened that the project may not be feasible in real manner. Since project is

based on the projected estimated data, so sometime it may also happened that it is difficult

to implement in real business life and practical life.

The above all calculations do not guaranteed the profitable and successfulness of the

project because rapid changes take place in today‘s financial market condition and market

trend. One can applied more financial analysis tool in order to judge the efficiency and

profitability of the firm in context of the present financial market situation and present

market trend.

Hence while preparing and analysis of the project one shall keep in mind the future

uncertainty related with cosy of the project, expected return from the project, future

competitions, expected demand in future and legal provisions; time element which refers

that longer demand in future and legal provisions; time element which refers that longer

the time element the greater would be uncertainty.

So keep this factor in mind so as to more efforts not to eradicate it totally but definite to

minimize.


81


BIBLIOGRAPHY

Books:

Vasant Desai, ―Entrepreneurship Development‖, 8th

Edition, Himalaya Publishing

House Pvt. Ltd, New Delhi. Page no. 26-48, 136-147.

S. Sunil Kumar. ―Entrepreneurship Development‖, 2nd

Edition, New Age

International (P) Limited Publication, New Delhi. Page no. 42-62,69-82, 215-230.

Website:

www.santanderbusinessguide.com/bizguides/full/hotel.htm

http://www.readyratios.com/reference

http://www.marketresearch.com/Cygnus-Business-Consulting-and-Research-

v3438/Indian-Hotel-6771690

project appraisal of hotel

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