1

2

1. INTRODUCTION
1.1. IMPORTANCE OF THE STUDY
The object and, therefore, the importance of a project appraisal is making an analysis to see
whether the project is viable. It is vital to know whether a project is technically feasible and
whether it is going to be an economic liability or not.
A project appraisal is an important part of any project and should be taken seriously because
a lot rests on it. The effects of a project appraisal are long reaching and have very definite
long term effects because of the capital investment that is always required in any project.
Once a decision has been made to go ahead with a project, it is irreversible. Even if, through
some catastrophic event, the project has to come to an unpredicted halt, the investment has
been made so all could be lost. These high expenditures can be critical, not just for that
particular project but for the health and survival of the entire business.
Making an effective project appraisal is no easy task because there are can often be
unforeseen circumstances (though a good project manager should be able to cover as many
eventualities as possible). It is also not easy to measure all costs and the potential benefits
of a project. This high degree of uncertainty could undermine the confidence of a project
so it is vital that the appraisal is as thorough as it possibly can be.
It is also important when it comes to a project appraisal to be realistic about the amount of
capital that is going to be tied up, and the length of time that the project is going to take. If
this is not done, it is possible that the business may suffer real hardship because it was
unprepared for the financial constraints placed upon it.
1.2. OBJECTIVE OF THE STUDY
Every work has some specific objective. The main objective of this report is dividing in
two categories:-
Broad Objective
Specific Objective
Firstly to identify the overall scenario of the project appraisal and management at IDBI.
Secondly to develop an analysis on the process of project appraisal, analysis of the
projects & its success trend.
1.3. LIMITATION OF THE STUDY
The following limitations are apparent in collecting data and prepare the report-
Time is the first limitation, because the given time is not sufficient to prepare an
assignment covering all the fact to develop a thriving critical analysis on project
appraisal & management.
Another limitation of this report is the lacking information.

3
































4

2 BANKING INDUSTRY IN INDIA
The story of Indian coinage itself is very vast and fascinating, and also throw stremendous light
on the various aspects of life during different periods. The Rig Veda speaks only gold, silver
copper and bronze and the later Vedic texts also mention tin, lead, iron and silver. Recently
iron coins were found in very early levels at Attranji Kheri (U.P.) and Pandu Rajar Dhibi
(Bengal). A money economy existed in India since the days of Buddha.
In ancient India during the Maurya dynasty (321 to 185 BC), an instrument called adesha was
in use, which was an order on a banker desiring him to pay the money of the note to a third
person, which corresponds to the definition of a bill of exchange as we understand it today.
During the Buddhist period, there was considerable use of these instruments. Merchants in
large towns gave letters of credit to one another.
Trade guilds acted as bankers, both receiving deposits and issuing loans. The larger temples
served as bankers and in the south the village communities economically advanced loans to
peasants. There were many professional bankers and moneylenders like the sethi, the word
literally means chief. It has survived in the North India as seth. Small purchases were
regularly paid for in cowry shells (varataka), which remained the chief currency of the poor in
many parts of India. Indigenous banking grew up in the form of rural money lending with
certain individuals using their private funds for this purpose. The scriptures singled out the
vaishyas as the principal bankers. The earliest form of Indian Bill of Exchange was called
Hundi. Exports and import were regulated by barter system.
Kautilyas Arthasastra mentions about a currency known as panas and even fines paid to courts
were made by panas. E. B. Havell in his work: The History of Aryas Rule in India says that
Muhammad Tughlaq issued copper coin as counters and by an imperial decree made them pass
at the value of gold and silver. The people paid their tribute in copper instead of gold, and they
bought all the necessaries and luxuries they desired in the same coin.
However, the Sultans tokens were not accepted in counties in which his decree did not run.
Soon the whole external trade of Hindustan come to a standstill. When as last the copper tankas
had become more worthless than clods, the Sultan in a rage repealed his edict and proclaimed
that the treasury would exchange gold coin for his copper ones. As a result of this thousands
of men from various quarters who possessed thousands of these copper coins bought them to
the treasury and received in exchange gold tankas. The origin of the word "rupee" is found in
theSanskrit rpya "shaped; stamped, impressed; coin" and also from the Sanskrit word "rupa"
meaning silver. The standardisation of currency unit as Rupee in largely due to Sher Shah in
1542.
The English traders that came to India in the 17th century could not make much use of the
indigenous bankers, owing to their ignorance of the language as well the inexperience
indigenous people of the European trade. Therefore, the English Agency Houses in Calcutta
and Bombay began to conduct banking business, besides their commercial business, based on
unlimited liability. The Europeans with aptitude of commercial pursuit, who resigned from
civil and military services, organized these agency houses.
A type of business organization recognizable as managing agency took form in a period from
1834 to 1847. The primary concern of these agency houses was trade, but they branched out
into banking as aside line to facilitate the operations of their main business. The English agency
5

houses, that began to serve as bankers to the East India Company had no capital of their own,
and depended on deposits for their funds. They financed movements of crops, issued paper
money and established joint stock banks. Earliest of these was Hindusthan Bank, established
by one of the agency houses in Calcutta in 1770.
Banking in India originated in the last decades of the 18th century. The first banks were The
General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790;
both are now defunct. The oldest bank in existence in India is the State Bank of India, which
originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank
of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay
and the Bank of Madras, all three of which were established under charters from the British
East India Company. For many years the Presidency banks acted as quasi-central banks, as did
their successors. The three banks merged in 1921 to form the Imperial Bank of India, which,
upon India's independence, became the State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a
consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and
still functioning today, is the oldest Joint Stock bank in India.
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire
d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862;
branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself
in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade
of the British Empire, and so became a banking centre.
The next was the Punjab National Bank, established in Lahore in 1895, which has survived to
the present and is now one of the largest banks in India. The presidency banks dominated
banking in India but there were also some exchange banks and a number of Indian joint stock
banks. All these banks operated in different segments of the economy. The exchange banks,
mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks
were generally undercapitalized and lacked the experience and maturity to compete with the
presidency and exchange banks.
The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi
movement. The Swadeshi movement inspired local businessmen and political figures to found
banks of and for the Indian community. A number of banks established then have survived to
the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda,Canara
Bank and Central Bank of India.
The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina
Kannada and Udupi district which were unified earlier and known by the name South Canara (
South Kanara ) district. Four nationalised banks started in this district and also a leading private
sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian
Banking".
During the First World War (19141918) through the end of the Second World War (1939
1945), and two years thereafter until the independence of India were challenging for Indian
banking. The years of the First World War were turbulent, and it took its toll with banks simply
collapsing despite the Indian economy gaining indirect boost due to war-related economic
6

activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following
table:
Years
Number of banks
that failed
Authorised Capital
( Lakhs)
Paid-up Capital
( Lakhs)
1913 12 274 35
1914 42 710 109
1915 11 56 5
1916 13 231 4
1917 9 76 25
1918 7 209 1
Table No. 1
2.1 POST-INDEPENDENCE
The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal,
paralysing banking activities for months. India's independence marked the end of a regime of
the Laissez-faire for the Indian banking. The Government of India initiated measures to play
an active role in the economic life of the nation, and the Industrial Policy Resolution adopted
by the government in 1948 envisaged a mixed economy. This resulted into greater involvement
of the state in different segments of the economy including banking and finance. The major
steps to regulate banking included:
The Reserve Bank of India, India's central banking authority, was established in April
1935, but was nationalised on 1 January 1949 under the terms of the Reserve Bank of India
(Transfer to Public Ownership) Act, 1948 (RBI, 2005b).
[6]

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of
India (RBI) "to regulate, control, and inspect the banks in India".
The Banking Regulation Act also provided that no new bank or branch of an existing bank
could be opened without a license from the RBI, and no two banks could have common
directors.
2.2 NATIONALIZATION PROCESS
Nationalization of banks in India was an important phenomenon. Despite the provisions,
control and regulations of Reserve Bank of India, banks in India except the State Bank of India
or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian
banking industry had become an important tool to facilitate the development of the Indian
economy. At the same time, it had emerged as a large employer, and a debate had ensued about
the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India,
expressed the intention of the Government of India in the annual conference of the All India
7

Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalization." The meeting
received the paper with enthusiasm.
Thereafter, her move was swift and sudden. The Government of India issued an ordinance and
nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969.
Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies
(Acquisition and Transfer of
Undertaking) Bill, and it received the presidential approval on 9 August 1969.
A second dose of nationalization of 6 more commercial banks followed in 1980. The stated
reason for the nationalization was to give the government more control of credit delivery. With
the second dose of nationalization, the Government of India controlled around 91% of the
banking business of India. Later on, in the year 1993, the government merged New Bank of
India with Punjab National Bank. It was the only merger between nationalized banks and
resulted in the reduction of the number of nationalized banks from 20 to 19. Currently there
are 27 nationalized commercial banks.
2.3 LIBERALIZATION
In the early 1990s, the then government embarked on a policy of liberalization, licensing a
small number of private banks. These came to be known as New Generation tech-savvy banks,
and included Global Trust Bank (the first of such new generation banks to be set up), which
later amalgamated with Oriental Bank of Commerce, UTI Bank (since renamed Axis
Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy
of India, revitalised the banking sector in India, which has seen rapid growth with strong
contribution from all the three sectors of banks, namely, government banks, private banks and
foreign banks.
The next stage for the Indian banking has been set up with the proposed relaxation in the norms
for foreign direct investment, where all foreign investors in banks may be given voting rights
which could exceed the present cap of 10% at present. It has gone up to 74% with some
restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this time, were used
to the 464 method (borrow at 4%; lend at 6%; go home at 4) of functioning. The new wave
ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this
led to the retail boom in India. People demanded more from their banks and received more.

8

MAJOR PLAYERS:-
The major players in the public sector according to market capitalization are
(As on 18
TH
JUNE, 2014)
NAME Last Price % Chg
52 wk
High
52 wk
Low
Market Cap
(Rs. cr)
SBI 2,638.15 -0.61 2,833.85 1,452.90 196,957.18
Bank of Baroda 858.05 -2.05 1,009.00 429.25 36,954.41
PNB 977.20 -0.33 1,068.00 402.20 35,381.47
Bank of India 290.75 -3.10 356.75 126.95 23,081.48
Canara Bank 441.30 -2.30 498.00 189.90 20,355.35
IDBI Bank 105.15 -2.32 116.50 52.30 16,865.42
Union Bank 230.85 -2.47 259.60 97.10 14,550.62
Central Bank 77.90 -1.70 88.85 43.05 10,519.92
UCO Bank 102.40 -2.98 115.75 46.00 10,390.62
Syndicate Bank 159.20 -1.49 177.85 61.05 9,943.39
IOB 79.80 -3.51 89.90 37.15 9,858.08
Oriental Bank 315.90 -3.56 377.30 121.40 9,472.22
Indian Bank 177.05 0.91 198.90 60.50 8,230.14
Allahabad Bank 133.20 -4.28 148.45 64.90 7,254.20
Corporation Bk 400.00 0.16 417.50 220.10 6,701.68
Andhra Bank 97.35 -2.99 110.00 47.30 5,739.90
Vijaya Bank 53.35 -2.91 58.80 33.40 4,583.40
Dena Bank 84.05 -0.65 94.40 41.85 4,520.35
Bank of Mah 47.85 -2.05 58.00 29.10 4,015.07
State B Bikaner 546.40 -0.66 595.90 281.90 3,824.80
State Bk Travan 611.00 0.02 650.00 364.50 3,620.39
State Bk Mysore 565.00 -0.49 604.80 368.00 2,712.76
United Bank 45.70 -1.40 55.15 23.40 2,535.20
Punjab & Sind 72.20 -1.57 83.90 36.75 1,987.55
UTI - Gold 2530.17 0.00 3050.00 2375.00 351.24
Table No. 2
Sources:http://www.moneycontrol.com/stocks/top-companies-in-india/total-assets-bse/banks-
public-sector.html
9


The major players in the Private Sector along with Foreign Banks according to market
Capitalization is
(As on 18
TH
JUNE, 2014)
NAME Last Price % Chg
52 wk
High
52 wk
Low
Market Cap
(Rs. cr)
HDFC Bank 834.00 -1.47 856.00 528.00 200,801.87
ICICI Bank 1,420.40 -1.98 1,590.35 758.80 164,237.73
Axis Bank 1,847.20 0.42 1,990.00 764.00 87,050.22
Kotak Mahindra 960.00 2.19 960.00 588.00 73,964.85
IndusInd Bank 541.30 -2.04 585.00 318.00 28,499.22
Yes Bank 543.00 -1.60 588.00 216.10 22,518.77
ING Vysya Bank 635.20 -0.51 723.15 405.50 12,050.88
Federal Bank 126.35 1.00 130.00 44.25 10,806.90
JK Bank 1,599.85 -2.02 1,995.00 995.00 7,755.72
Karur Vysya 458.05 -1.80 501.00 297.65 4,914.28
City Union Bank 73.70 0.48 78.95 37.95 4,007.79
South Ind Bk 28.25 0.71 30.05 18.95 3,802.60
Karnataka Bank 133.75 -2.23 150.75 69.10 2,520.07
DCB Bank 75.45 4.00 77.90 38.05 1,889.80
Stan Chart IDR 121.50 -0.08 133.00 108.00 1,458.00
Lakshmi Vilas 103.00 -1.53 109.20 57.50 1,004.88
Dhanlaxmi Bank 53.20 -4.23 61.00 24.20 669.97
Table No. 3
Sources:http://www.moneycontrol.com/stocks/top-companies-in-india/total-assets-bse/banks-
private-sector.html

10

IDBI RANKING AND PROFIT UNDER DIFFERENT HEADS
RANK CRITERIA NET PROFIT (Rs. Cr)
6 MARKET CAPITALIZATION 16921.56
6 NET SALES 26597.51
12 NET PROFIT 1121.40
5 TOTAL ASSETS 295005.31
5 0THER INCOME 171.08
14 EMPLOYEE COST 5.61
6 PBDIT 21810.61
6 INTEREST 20576.04
5 TAX 619.73
19 EPS 6.99
5 INVESTMENT 103733.50
7 CASH/BANK 16817.91
6 DEBT 295919.92
6 CONTIGENT LIABILITIES 196540.68
Table No. 4
Sources:http://www.moneycontrol.com/stocks/top-companies-in-india/banks-private-
sector.html

11

Return on Assets and Return on Equity of SCBs Bank Group-wise
(Per cent)
Sr.no. Bank group/year Return on Assets Return on Equity
2011- 12 2012- 13 2011- 12 2012- 13
1 Public sector banks 0.88 0.78 15.33 13.24
1.1 Nationalised banks 0.88 0.74 15.05 12.34
1.2 SBI Group 0.89 0.88 16.00 15.29
2 Private sector banks 1.53 1.63 15.25 16.46
2.1 Old private sector banks 1.20 1.26 15.18 16.22
2.2 New private sector banks 1.63 1.74 15.27 16.51
3 Foreign banks 1.76 1.94 10.79 11.52
All SCBs 1.08 1.03 14.60 13.84
Table No. 5
Notes:
1. Return on Assets = Net profit/Average total assets.
2. Return on Equity = Net profit/Average total equity.
3. * Nationalised banks include IDBI Bank Ltd.
Source: RBI
12







































13

3 COMPANY PROFILE
3.1 HISTORY
The Industrial Development Bank of India (IDBI) was established in 1964 under an Act of
Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 1976, the ownership
of IDBI was transferred to the Government of India and it was made the principal financial
institution for coordinating the activities of institutions engaged in financing, promoting and
developing industry in India. IDBI provided financial assistance, both in rupee and foreign
currencies, for green-field projects as also for expansion, modernization and diversification
purposes. In the wake of financial sector reforms unveiled by the government since 1992, IDBI
also provided indirect financial assistance by way of refinancing of loans extended by State-
level financial institutions and banks and by way of rediscounting of bills of exchange arising
out of sale of indigenous machinery on deferred payment terms.
After the public issue of IDBI in July 1995, the Government shareholding in the Bank came
down from 100% to 75%. IDBI played a pioneering role, particularly in the pre-reform era
(196491), in catalyzing broad based industrial development in India in keeping with its
Government-ordained development banking charter. Some of the institutions built with the
support of IDBI are the Securities and Exchange Board of India (SEBI), National Stock
Exchange of India (NSE), the National Securities Depository Limited (NSDL), the Stock
Holding Corporation of India Limited (SHCIL), the Credit Analysis & Research Ltd, the Exim
Bank (India), the Small Industries Development Bank of India (SIDBI) and
the Entrepreneurship Development Institute of India.
Industrial Development Bank of India (IDBI Bank) is today one of Indias largest commercial
Banks. For over 40 years, IDBI Bank has essayed a key nation-building role, first as the apex
Development Financial Institution (DFI) (July 1, 1964 to September 30, 2004) in the realm of
industry and thereafter as a full-service commercial Bank (October 1, 2004 onwards). As a
DFI, the erstwhile IDBI stretched its canvas beyond mere project financing to cover an array
of services that contributed towards balanced geographical spread of industries, development
of identified backward areas, emergence of a new spirit of enterprise and evolution of a deep
and vibrant capital market.
On October 1, 2004, the erstwhile IDBI converted into a Banking company (as Industrial
Development Bank of India Limited) to undertake the entire gamut of Banking activities while
continuing to play its secular DFI role. Post the mergers of the erstwhile the bank with its parent
company (IDBI Ltd.) on April 2, 2005 (appointed date: October 1, 2004) and the subsequent
merger of the erstwhile United Western Bank with IDBI Bank on October 3, 2006, the tech-
savvy, new generation Bank with majority Government shareholding today touches the lives
of millions of Indians through an array of corporate, retail, SME and Agri products and
services.
As on March 31, 2011, the Bank had a network of 598 centers, 833 Branches and 1455 ATMs.
Headquartered in Mumbai, IDBI Bank today rides on the back of a robust business strategy, a
highly competent and dedicated workforce and a state-of-the-art information technology
14

platform, to structure and deliver personalized and innovative Banking services and customized
financial solutions to its clients across various delivery channels.
3.2 VISION
To be the most preferred and trusted bank enhancing value for all stakeholders.
3.3 MISSION
o Delighting customers with our excellent service and comprehensive suite of best-in-class
financial solutions
o Touching more people's lives with our expanding retail footprint while maintaining our
excellence on corporate and infrastructure financing
o Continuing to act in an ethical, transparent and responsible manner, becoming the role
model for corporate governance
o Deploying world class technology, systems and processes to improve business efficiency
and exceed customers expectations
o Encouraging a positive, dynamic and performance-driven work culture to nurture
employees grow them and build a passionate and committed work force
o Expanding our global presence
o Relentlessly striving to become a greener bank.
3.4 MERGERS
Industrial Development Bank of India Limited
In response to the felt need and on commercial prudence, it was decided to transform IDBI into
a Bank. For the purpose, Industrial Development bank (transfer of undertaking and Repeal)
Act, 2003 [Repeal Act] was passed repealing the Industrial Development Bank of India Act,
1964. In terms of the provisions of the Repeal Act, a new company under the name of Industrial
Development Bank of India Limited (IDBI Ltd.) was incorporated as a Govt. Company under
the Companies Act, 1956 on September 27, 2004. Thereafter, the undertaking of IDBI was
transferred to and vested in IDBI Ltd. with effect from the effective date of October 01, 2004.
In terms of the provisions of the Repeal Act, IDBI Ltd. has been functioning as a Bank in
addition to its earlier role of a Financial Institution.
Merger of IDBI Bank Ltd. With IDBI Ltd.
Towards achieving the faster inorganic growth of the bank Ltd., a wholly owned subsidiary of
IDBI Ltd, was amalgamated with IDBI Ltd. In terms of the provisions of Section 44A of the
Banking Regulation Act, 1949 providing for voluntary amalgamation of two banking
companies. The merger became effective from April 02, 2005.
Merger of United Western Bank with IDBI Ltd.
The United Western Bank Ltd. (UWB), a Satara based private sector bank was placed under
moratorium by RBI. Upon IDBI Ltd. Showing interest to take over the said bank towards its
further inorganic growth, RBI and Govt. of India amalgamated UWB with IDBI Ltd. In terms
of the provisions of Section 45 of the Banking Regulation Act, 1949. The merger came into
effect on October 03, 2006.
15

Change of name of IDBI Ltd. to IDBI Bank Ltd.
In order that the name of the Bank truly reflects the functions it is carrying on, the name of the
Bank was changed to IDBI Bank Limited and the new name became effective from 07 May,
2008 upon issue of the Fresh Certificate of Incorporation by Registrar of Companies,
Maharashtra. The Bank has been accordingly functioning in its present name of IDBI Bank
Ltd.
3.5 BANKS PROFILE
IDBI Bank Ltd. is today one of India's largest commercial Banks. For over 40 years, IDBI Bank
has essayed a key nation-building role, first as the apex Development Financial Institution
(DFI) (July 1, 1964 to September 30, 2004) in the realm of industry and thereafter as a full-
service commercial Bank (October 1, 2004 onwards). As a DFI, the erstwhile IDBI stretched
its canvas beyond mere project financing to cover an array of services that contributed towards
balanced geographical spread of industries, development of identified backward areas,
emergence of a new spirit of enterprise and evolution of a deep and vibrant capital market. On
October 1, 2004, the erstwhile IDBI Bank converted into a Banking company (as Industrial
Development Bank of India Limited) to undertake the entire gamut of Banking activities while
continuing to play its secular DFI role. Post the mergers of the erstwhile IDBI Bank with its
parent company (IDBI Ltd.) on April 2, 2005 (appointed date: October 1, 2004) and the
subsequent merger of the erstwhile United Western Bank Ltd. with IDBI Bank on October 3,
2006, the tech-savvy, new generation Bank with majority Government shareholding today
touches the lives of millions of Indians through an array of corporate, retail, SME and Agri
products and services.
Headquartered in Mumbai, IDBI Bank today rides on the back of a robust business strategy, a
highly competent and dedicated workforce and a state-of-the-art information technology
platform, to structure and deliver personalised and innovative Banking services and customised
financial solutions to its clients across various delivery channels.
As on March 31, 2013 IDBI Bank has a balance sheet of Rs. 3,22,769 crore and business size
(deposits plus advances) of Rs 4,23,423 crore. As an Universal Bank, IDBI Bank, besides its
core banking and project finance domain, has an established presence in associated financial
sector businesses like Capital Market, Investment Banking and Mutual Fund Business. Going
forward, IDBI Bank is strongly committed to work towards emerging as the 'Bank of choice'
and 'the most valued financial conglomerate', besides generating wealth and value to all its
stakeholders.

16

3.6 ORGANISATIONAL STRUCTURE

Fig No. 1
KEY EXECUTIVES
S.No Name Designation
1 M S Raghavan Chairman
3 M S Raghavan Managing Director
2 Pawan Agrawal Company Secretary
4 Snehlata Shrivastava Non-Executive Director
5 BK Batra Deputy Managing Director
6 Melwyn Rego Deputy Managing Director
7 Subhash Tuli Independent Director
8 P S Shenoy Independent Director
9 S Ravi Independent Director
10 Ninad Karpe Independent Director
11 Pankaj Vats Independent Director
Table No. 6

IDBI BANK LTD
CORPORATE BANKING
LARGE CORPORATE GROUP (LCG)
MID CORPORATE GROUP (MCG)
INFRASTRUCTURE CORPORATE GROUP
(ICG)
RETAIL BANKING
PERSONAL BANKING
MSME
AGRI BUSINESS GROUP
17

3.7 PRODUCTS & SERVICES
1. Deposits: Different types of deposits are
o Savings Account
o Flexi Current Account
o Flexi Deposits
o Capital Gains Account
2. Loans: Different types of loan services available are
o Home Loan
o Home Loan Interest Saver
o Loan against Property
o Loan against Property - Overdraft
o Loan against Property Interest Saver
o Loan for commercial Property Purchase
o Loan for Rent Receivables
o Education Loan
o Personal Loan
o Auto Loan Loans Against Securities
o Reverse Mortgage Loan
o Corporate Loan
3. Cards: Different types of cards & their services available are
o Revision Debit Card Loyalty Points
o Cash at POS facility on Debit Cards
o Online Payment through Debit Cards
o Being ME Debit Card
o International Debit cum ATM card
o Gold Debit cum ATM card
o IDBI Bank Cash card
o IDBI Bank Gift Card
o Kids Debit Card
o Platinum Card
o World/Global Currency Card
o Womens Debit Card
o Debit Card Offers
o Magic Card
4. 24 Hours Banking:
o Phone Banking
o Mobile Banking
o Account Alert
o Internet Banking
o Mobile Payment Service
5. Corporate Banking: Corporate Banking products include
o Project Appraisal
o Debt Syndication
o Advisory Services
o Environmental Services
o Secured and Structured Product Services
o Film Financing Scheme
o Carbon Credit
18

o Cash Management Services
o Trade Finance
o Tax Payments
6. Investment Advisory: Service includes
o Mutual Fund
o Life Insurance
o General Insurance
o New Pension Scheme
7. SME Finance
8. Agri Business
9. Lockers
10. Foreign Currency Products
11. Treasury
12. NRI Services
3.8 CUSTOMERS
Following table consists of a partial list of customers of IDBI Bank
Infrastructure Financing
Debt Syndication and
Advisory Services
Securitization
Bharti Shipyard Ltd. Videocon Industries Shriram City Union Finance
Suzlon Energy Ltd. Pipavav Shipyard Standard Chartered Bank
GMR Power Corporation
Pvt. Ltd
XL Telecom and Energy Tata Motors Finance Ltd.
KMC Construction Ltd. JSW Cement Muthoot Fincorp Ltd.
Table No. 7
3.9 COMPETITORS
Following table gives a partial list of competitors of IDBI Bank Ltd.
Public Sector Bank Private Sector Bank Foreign Bank
SBI HDFC Bank ABN Amro
PNB ICICI Bank BNP Paribas
Bank OF Baroda Axis Bank Deutsche Bank
Canara Bank Kotak Mahindra Bank Citibank
Bank of India Federal Bank HSBC
Union Bank of India Yes Bank Standard Chartered Bank
Table No. 8
19

3.10 BASIC FINANCIAL ANALYSIS
Ratio Analysis:
Ratios Mar12 Mar13 Mar14
Liquidity Ratio
Current Ratio CA/CL .02 0.03 0.03
Quick Ratio QA/CL 27.11 24.82 23.11
Profitability Ratio
ROA PAT/Assets 137.47 159.33 147.38
Return on Net Worth (%) PAT/Net Worth 11.56 8.86 4.74
Profit Margin PAT/Sales 7.99 6.65 3.79
Solvency Ratios
Debt Ratio Debt/Equity 13.5872
Equity Multiplier Total Assets/ Total Equity 14.9701
Activity Ratios
Debtors Turnover Sales/ Avg Debtors 0.0961
Total Asset turnover Sales/Total Assets 0.09 0.08 0.08
Market Value Ratios
P/E Ratio Price per Share/EPS 5.48
Market to Book Ratio MV per Share/ BV per Share 0.65
Table No. 9

20







































21

4. PROJECT APPRAISALS
4.1 INTRODUCTION OF PROJECT
A Project is defined as a collection of linked activities, carried out in an organized manner with
a clearly defined start point and finish point, to achieve some specific results that satisfy the
needs of an organization as derived from the current business plans.
Creativity and idea generation are not the exclusive territory of the management. It is the people
who do the day-to-day operational work and often have the best ideas to improve organizational
performance. Continuous improvement is not an initiative or campaign but should be part of
everyday work and a way of life for everyone, seeking always to find better ways to do the job
to make organization more effective and more efficient. Sometimes good ideas that come from
continuous improvement activity in one part of the organization may have benefits to other
functions.
4.1.1 THE DYNAMIC LIFECYCLE OF A PROJECT:
There are four phases of Project Lifecycle:
1. Definition: The start of the project once needs have been clearly identified and the
project can be defined with the agreement of those people with an interest in the
outcomes.
2. Planning: The process of planning the project to derive a realistic schedule taking into
account the constraints imposed on the project.
3. Execution: Launching the project work ensuring everyone understand the plan is
always up to date with changes that occur.
4. Closure: Preparing your customer for acceptance and handover to ensure the project
has delivered the agreed outcomes, any follow-on activities are identified and assigned
and the project evaluation process is completed.
22






REDIFINE
REPLAN









Fig: The four Phases and the dynamic action cycle
4.1.2 PHASES OF PROJECT:















Project Identification
Project Selection
Preparation of Project Report
Appraisal of Project
Sanction of Financial
Assistance
Documentation & Disbursement
Supervision & Follow up
Recovery of Loan Sanction
PHASE
1
PHASE
4
PHASE
3
CONCEPTION & DEFINITION
P
L
A
N
N
I
N
G

&

S
C
H
E
D
U
L
I
N
G

H
A
N
D
-
O
V
E
R

&

C
L
O
S
U
R
E

EXECUTING THE PROJECT WORK
DEFINE
OBJECT
IVES
COMMUNIC
ATE
THE
PLAN
MONITOR
PROGR
ESS
PLAN THE
WORK
REVIEW &
EVALU
ATE
MONITOR
PROGR
ESS
PROBLEM
PROBLEM
PHASE
2
23

4.1.3 PROJECTS COMING TO BANKS FOR FINANCING:
1
NEW PROJECTS For setting up new units.
2
EXPANSION PROJECTS For increasing the capacity of existing units.
3
DIVERSIFICATION OF
PROJECTS
For manufacturing new products by existing
units.
4
BACKWARD INTEGRATION
PROJECTS
For manufacturing certain products which are
being used as raw materials by the existing
unit.
5
FORWARD INTEGRATION
PROJECTS
For manufacturing certain products which
require the products of existing unit as raw
materials.
6
MODERNISATION PROJECTS
It can be any one or more than one of the
following objects
a) Changing obsolete machinery.
b) Enlarging the product mix/product
range to meet changing requirements of
the market.
c) Reducing the manufacturing cost or for
improving the quality of the product.
d) Changing the requirement of raw
material.
7
REHABILITATION
PROGRAMME
For reviving sick units and making them viable
to complete with normal/health units.

24

4.2 PROJECT APPRAISAL
Project appraisal is the structured process of assessing the viability of a project or proposal. It
involves calculating the feasibility of the project before committing resources to it. It is a tool
that companys use for choosing the best project that would help them to attain their goal.
Project appraisal often involves making comparison between various options and this done by
making use of any decision technique or economic appraisal technique.
Project appraisal is a tool which is also used by companies to review the projects completed by
it. This is done to know the effect of each project on the company. This means that the project
appraisal is done to know, how much the company has invested on the project and in return
how much it is gaining from it.
The process of project appraisal consists of five steps and they are initial assessment, defining
problem and long-list, consulting and short-list, developing options, and comparing and
selecting project. The process of appraisal generally starts from the initial phase of the project.
If the appraisal process starts from an early stage, then the company will be in a better position
to decide how capital should be spend in the project and also it will help them to make the
decision of not spending too much or stopping a project that is not economically viable.
Project appraisal is the process of assessing and questioning proposals before resources are
committed. It is an essential tool for effective action in community renewal. Its a means by
which partnerships can choose the best projects to help them achieve what they want for their
community.
But appraisal has been a source of confusion and difficulty for projects in the past. Audits of
the operation of Single Project Budget schemes have highlighted concerns about the design
and operation of project appraisal systems, including:
Mechanistic, inflexible systems
A lack of independence and objectivity
A lack of clear definition of the stages of appraisal and of responsibility for these stages
A lack of documentary evidence after carrying out the appraisal
Its no surprise that audits or inspections arent impressed with the quality of appraisals, and
are specifically found with problems like;
Individual appraisals which do not cover the necessary information or provide only a
superficial analysis of the project
Particular problems in dealing with risks, options and value for money
Appraisals which are considered too onerous/burdensome for smaller projects
Rushed appraisals
Project appraisal is a requirement before funding of programs is done. But tackling problems
like those outlined above is about more than getting the systems right on paper. Experience in
projects emphasizes the importance of developing an appraisal culture which involves
developing the right system for local circumstances and ensuring that everyone involved
recognizes the value of project appraisal and has the knowledge and skills necessary to play
their part in it.
25

Project appraisal helps project initiators and designers to;
Be consistent and objective in choosing projects
Make sure their program benefits all sections of the community, including those from
ethnic groups who have been left out in the past
Provide documentation to meet financial and audit requirements and to explain
decisions to local people.
Appraisal justifies spending money on a project.
Appraisal asks fundamental questions about whether funding is required and whether a project
offers good value for money. It can give confidence that public money is being put to good
use, and help identify other funding to support a project. Getting it right may help a community
make its resources go further in meeting local need
Appraisal is an important decision making tool.
Appraisal involves the comprehensive analysis of a wide range of data, judgments and
assumptions, all of which need adequate evidence. This helps ensure that projects selected for
funding:
o Will help a partnership achieve its objectives for its area
o Are deliverable
o Involve local people and take proper account of the needs of people from ethnic minorities
and other minority groups
o Are sustainable
o Have sensible ways of managing risk.
Appraisal lays the foundations for delivery.
Appraisal helps ensure that projects will be properly managed, by ensuring appropriate
financial and monitoring systems are in place, that there are contingency plans to deal with
risks and setting milestones against which progress can be judged.
Getting the system right.
The process of project development, appraisal and delivery is complex and partnerships need
systems, which suit local circumstances and organization. Good appraisal systems should
ensure that:
o Project application, appraisal and approval functions are separate. All the necessary
information is gathered for appraisal, often as part of project development in which projects
will need support.
o Race/tribal equality and other equality issues are given proper consideration.
o Those involved in appraisal have appropriate information and training and make
appropriate use of technical and other expertise.
o There are realistic allowances for time involved in project development and appraisal.
o Decisions are within a implementers powers.
o There are appropriate arrangements for very small projects.
o There are appropriate arrangements for dealing with novel, contentious or particularly risky
projects.
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4.2.1 ROLE OF PROJECT APPRAISAL:
Project appraisal helps a partnerships management to: -
Be consistent and objective in choosing projects
Make sure its program benefits all sections of the community, including those from
ethnic groups who have been left out in the past
Provide documentation to meet financial and audit requirements and to explain
decisions to local people.
Appraisal justifies spending money on a project
Appraisal asks fundamental questions about whether funding is required and whether a
project offers good value for money. It can give confidence that public money is being
put to good use, and help identify other funding to support a project. Getting it right may
help a partnership make its resources go further in meeting local need.
Appraisal is an important decision making tool
Appraisal involves the comprehensive analysis of a wide range of data, judgments and
assumptions, all of which need adequate evidence. This helps ensure that projects
selected for funding:
Will help a partnership achieve its objectives for its area
Are deliverable
Involve local people and take proper account of the needs of people from ethnic
minorities and other minority groups
Are sustainable
Have sensible ways of managing risk.
Appraisal lays the foundations for delivery
Appraisal helps ensure that projects will be properly managed, by ensuring appropriate
financial and monitoring systems are in place, that there are contingency plans to deal
with risks and setting milestones against which progress can be judged.
4.2.2 METHODOLOGY OF PROJECT APPRAISAL:
Appraisal involves a careful checking of the basic data, assumptions and methodology used
in project preparation, an in-depth review of the work plan, cost estimates and proposed
financing, an assessment of the projects organizational and management aspects, and
finally the viability of project.
It is mandatory for the Project Authorities to undertake project appraisal or at least give
details of financial, economic and social benefits and suitably. These projects are examined
in the Planning and Development Division from the technical,
institutional/organizational/managerial, financial and economic point of view depending
on nature of the project. On the basis of such an assessment, a judgment is reached as to
whether the project is technically sound, financially justified and viable from the point of
view of the economy as a whole.
In the Planning and Development Division, there is a division of labor in the appraisal of
projects prepared by the concerned Executing Agencies. The concerned Technical Section
27

in consultation with other technical sections i.e.; Physical Planning & Housing, Manpower,
Governance and Environment sections undertake the technical appraisal, wherever
necessary. This covers engineering, commercial, organizational and managerial aspects,
while the Economic Appraisal Section carries out the pre-sanction appraisal of the
development projects from the financial and economic points of view. Economic appraisal
of a project is concerned with the desirability of carrying out the project from the standpoint
of its contribution to the development of the national economy. Whereas financial analysis
deals with only costs and returns to project participants, economic analysis deals with costs
and returns to society as a whole. The rationale behind the project appraisal is to provide
the decision-makers with financial and economic yardsticks for the selection/rejection of
projects from among competing alternative proposals for investment.
Necessary to Conduct Project Management Appraisal (PMA): -
A project management appraisal should be viewed as a useful, constructive and necessary
diagnostic tool available for augmenting the capability of the sponsoring organization's
project management team.
It can be used to provide information ranging from an informal enquiry to an extensive
analysis of the effectiveness of every aspect of the project management process. In the latter
context it can be conducted to ferret out common failings of many project management
arrangements. Some of these common failings include:
Management on the project may be unable to see the forest for the trees.
Decisions may be being unduly biased by contractual commitments already in existence,
rather than being made in the best interests of the final project results
Decisions may be similarly biased unduly by corporate policy
Short term political expediency may be overwhelming (Crisis management)
Key individuals on the project may be under the influence of some form of illegal pressure
Management on the project may simply be naive, inexperienced, lack sufficient training in
project management skills, or otherwise ill prepared for the difficult tasks at hand
Use of Project Management Appraisal (PMA): -
Identify the strengths of current practices in a project management organization, or on an
existing project
Establish how various groups within the organization perceive the organization's
effectiveness in managing projects
Examine the effectiveness of project communication and documentation, and clarify the
relationships between project scope, quality, time and cost
Identify barriers to better performance, or critical skills needed by project managers or their
supporting teams to increase their effectiveness
28

Identify sooner specific aspects which require improvement and hence speed the
achievement of results
Provide for an exchange of ideas, information, problems, solutions and strategies with
project team members, and thus develop a plan of action for carrying out improvements
Help to create a supportive environment focusing on project success, and the professional
growth of project team members
Thus, by conducting a PMA in a timely and favorable manner, potential difficulties can be
identified and brought out into the open for appropriate corrective action. Better still,
potential problems may be circumvented altogether, if the concept and timing of a PMA is
built into the project plan from the outset.
4.2.3 STRUCTURAL APPROACH AND TYPICAL ISSUES OF
PROJECT MANAGEMENT APPRAISAL:
Modern project management is generally considered to be encompassed by the integration
of eight functional areas. These include the four core or constraint functions of scope,
quality, time and cost, and four integrative and interactive functions of risk, human
resources, contract/procurement and information/communications management.
Each function tends to require a separate skill set, so that on a larger project, or in the larger
project management organization, responsibilities naturally tend to be grouped accordingly
for their proper conduct. Consequently, the investigative format of a project management
appraisal also more readily follows these functional descriptions.
The sequence in which these functions are listed above is significant because of their
dynamic relationship. The sequence parallels both the progressive flow of information as
well as the flow of work through the project management process. The information flow
represents what is managed, while the process flow reflects how it is managed. Since
projects should be planned moving progressively down the list, projects in the planning
phases might well have the first four functional areas examined first. For projects in the
implementation phases, on the other hand, the latter four functions might be given priority,
and in the reverse order.
The content of the questions to be raised will also be highly dependent upon the particular
phase of the project in which the PMA is being conducted, and therefore should be
structured accordingly.
For example, the content of technological questions under a Project Management Appraisal
(PMA) conducted early in the implementation phase of a construction project would focus
on the availability and adequacy of information to carry out detailed design efficiently, or
to commence construction activities productively. Similarly, technological issues to be
raised just prior to commissioning would likely cover quality assurance records, validation
of equipment and system check-off, dry-runs and so on.
29

The following discussion is intended to give an indication of the issues that might be looked
at, both in terms of the function under consideration, and the phase that the particular
project has reached.
4.2.4 PROJECT MANAGEMENT CORE FUNCTIONS:
As noted earlier, the first four functions: scope, quality, time and cost, are generally
considered to be the basic functions of project management. From the sponsor's point of
view, these four functions embody the project's basic management objectives, while for
those providing services to the project, i.e. designer construction, they constitute
constraints. They therefore represent a set of core parameters which are used to control the
project.
Scope and Quality
If specific technological aspects of the project such as engineering, manufacturing or
constructability, are to be reviewed, such an investigation must clearly be conducted by
those thoroughly conversant with the project's technology. In addition, most projects today
have some degree of recognizable environmental, social or safety impacts. If these have
not already been analyzed and arrangements made for monitoring and mitigation, then
persons with corresponding knowledge and experience must undertake such review.
Even so, certain general management questions can be formulated with regard to the
technical scope and quality of the project. In the case of quality: has the project's executive
given priority to building the required quality standards into the project planning and
execution process right from the outset? Is this standard consistent with production,
operation, maintenance, safety and social acceptability expectations, so that the facility will
perform economically during its life time? Indeed will the facility last for its required life
time? Have the members of the project team been selected on the basis of their
qualifications for their respective roles, and likewise will similar considerations be given
to those providing detailed design and/or construction services during project execution?
Are meeting the end-user's requirements seen as being at least as important as, if not more
important than, meeting cost and schedule targets, and will a post project review include a
critique of the project's quality attainment?
Schedule and Cost
Similarly, specific questions can be posed regarding schedule and cost. For example: Do
project plan include a milestone schedule indicating major pieces of work to be
accomplished, and who will be responsible for each?
Are project schedule time estimates and logic developed using input from members of the
project team, in order to build in commitment? Are they prepared using a structured
breakdown consistent with the work breakdown structure, such that cost and schedule can
be correlated?
Are project schedules allowing sufficient time to get the work done right the first time, and
without causing overruns? And when changes are made during project implementation, are
corresponding changes made to the schedule to accommodate these changes?
30

The cost situation should be similarly examined, and the direct impacts on the cost situation
of any changes in the schedule also recognized. Thus typical cost questions should include:
Is the estimate realistic, including both direct and indirect costs of all required resources,
or have any changes taken place since, in terms of the project's parameters or the external
environment, which might require its reevaluation?
Project Management Integrative Functions
As indicated earlier, the issues under scope, quality, time and cost only really question the
status of the project's relatively static objectives. If the answers are found to be
unsatisfactory, then it will be necessary to examine the means to influence them within the
remaining time left for the project to run.
The next set of questions therefore investigate the supporting integrative and more dynamic
functions of project management, which consist of the management of risk, human
resources, contract/procurement and information/communication management.
Each of these functions influences the success of the project through the performance of
people. They involve as much art as science, and, suitably managed can affect the course
of the project and consequent outcome. Unlike scope, quality, time and cost, which deal
with project outputs and deliverables, these four functions impact the activities, i.e. the
work involved in achieving those outputs and deliverables. Often, these areas of review
provide a much more illuminating area of investigation.
Project Risk
Questions under this heading should include: Has the project planning included a program
or study of risk identification and analysis with recommendations for mitigate actions?
Does the project's management effectively anticipate potential obstacles at each stage in a
way that avoids future hindrance?
Have adequate contingency planning and allowances been incorporated into the project
parameters to provide for major risk factors which may adversely affect project success?
Human Resources
Questions which address the issues of people and their motivations are frequently the most
significant, since essentially projects and the degree of their success are achieved through
the project's human resource element. Therefore, this area of the PMA may be quite
intensive.
For example: Does the project team enjoy the active and visible support of the project's
sponsor, and is the focus consistently on the project's stated objectives?
Has the sponsor assigned the leadership of the project the necessary level of authority for
it to execute its responsibilities, and is it held accountable accordingly? Is this process
visible and effective?
Are people resources available when needed? And do they have the required levels of
technical skills, or if not, are they encouraged or provided with suitable training? Are they
rewarded for exceptional effort?
31

Is conflict handled and used constructively, in order to sustain a highly motivated team?
Will the final project evaluation include a critique of the project team's collective
performance?
Contract/Procurement
The manner in which the project is to be facilitated or procured is an issue which should be
dealt with very early in the project planning phase, since it will have a significant effect on
the way in which the project parameters are expressed. For instance, construction which is
to be accelerated, or "fast-tracked", should require a shorter schedule but will carry
significantly higher risks. Conversely, the more time taken to improve the definition of the
project's scope, the lower should be the project risks. In each case, the form of contracting
must be tailored to suit.
Information/Communications
Information is best viewed as the data upon which the project is configured and upon which
decisions are based, while communication is the oil and grease which keeps the whole
project progressing smoothly. Questions in this area might therefore include: Does the
project sponsor keep the project manager informed on matters affecting the project, and in
turn does the project manager keep the members of his team similarly informed? Are
project team members free to voice their opinions and concerns for the project? In other
words, is information flowing satisfactorily through the organizational structure, and in
doing so, is its quality and integrity maintained?
Similarly, are the necessary mechanisms in place to inform those who are outside of the
project organization, and inform them according to their respective interests? For example,
an external stakeholders' public relations program could be very necessary where the
construction and completion of the project is politically sensitive, since adverse reaction
could have a damaging effect on the ultimate success of the project.
4.2.5 APPRAISING A PROJECT
Key issues in appraising projects include the following.
Need, targeting and objectives
The starting point for appraisal: applicants should provide a detailed description of the
project, identifying the local need it aims to meet. Appraisal helps show if the project
is the right response, and highlight what the project is supposed to do and for whom.
Context and connections
Appraisal should help show that a project is consistent with the objectives of the
relevant funding program and with the aims of the local partnership. Are there links
between the project and other local programs and projects does it add something, or
compete?
Consultation
Local consultation may help determine priorities and secure community consent and
ownership. More targeted consultation, with potential project users, may help ensure
32

that project plans are viable. A key question in appraisal will be whether there has been
appropriate consultation and how it has shaped the project
Options
Options analysis is concerned with establishing whether there are different ways of
achieving objectives. This is a particularly complex part of project appraisal, and one
where guidance varies. It is vital though to review different ways of meeting local need
and key objectives.
Inputs
Its important to ensure that all the necessary people and resources are in place to deliver
the project. This may mean thinking about funding from various sources and other
inputs, such as volunteer help or premises. Appraisal should include the examination
of appropriately detailed budgets.
Outputs and outcomes
Detailed consideration must be given in appraisal to what a project does and achieves:
its outputs and more importantly its longer-term outcomes. Benefits to neighborhoods
and their residents are reflected in the improved quality of life outcomes (jobs, better
housing, safety, health and so on), and appraisals consider if these are realistic. But
projects also produce outputs, and we need a more realistic view of output forecasts
than in the past.
Value for money
This is one of the key criteria against which projects are appraised. A major concern
for government, it is also important for local partnerships and it may be necessary to
take local factors, which may affect costs, into account.
Implementation
Appraisal will need to scrutinize the practical plans for delivering the project, asking
whether staffing will be adequate, the timetable for the work is a realistic one and if the
organization delivering the project seems capable of doing so.
Risk and uncertainty
You cant avoid risk but you need to make sure you identify risk (is there a risk and
if so what is it?), estimate the scale of risk (if there is a risk, is it a big one?) and evaluate
the risk (how much does the risk matter to the project.) There should also be
contingency plans in place to minimize the risk of project failure or of a major gap
between whats promised and whats delivered.
Forward strategies
The appraisal of forward strategies can be particularly difficult, given inevitable
uncertainties about how projects will develop. But is never too soon to start thinking
about whether a project should have a fixed life span or, if it is to continue beyond a
period of regeneration funding, what support it will need to do so. This is often thought
about in terms of other funding but, with an increasing emphasis on mainstream
services in neighborhood renewal, appraisal should also consider mainstream links and
implications from the first.
33

Sustainability
In regeneration, sustainability has often been talked about simply in terms of whether a
project can be sustained once regeneration funding stops but sustainability has a wider
meaning and, under this heading, appraisal should include an assessment of a projects
environmental, social and economic impact, its positive and negative effects.
While appraisal will focus detailed attention on each of these areas, none of them can
be considered in isolation. Some of them must be clearly linked for example, a
realistic assessment of outputs may be essential to a calculation of value for money. No
project will score highly against all these tests and considerations. The final judgment
must depend on a balanced consideration of all these important factors.
4.2.6 CHECKLIST FOR PROJECT APPRAISAL
Whether you are involved in a partnership with an appraisal system in place, or starting to
design one from scratch, these questions are worth asking.
Are appraisals systematic and disciplined with a clear sequence of activities and
operating rules?
Is there an independent assessment of the project by someone who has not been
involved with the development of the project?
Does the appraisal process culminate in clear recommendations that inform
approval (or rejection) of the project?
Is the approval stage clearly separate?
Is the appraisal process well documented, with key documents signed, showing
ownership and agreement, and allowing the appraisal documentation to act as a
basis for future management, monitoring and evaluation?
Does the appraisal system comply with any relevant government guidance
Are the right people involved at various stages of the process and, if necessary, how
can you widen involvement?
4.2.7 TYPES OF PROJECT APPRAISAL:
I. MANAGEMENT APPRAISAL:
Here the capacity and commitment of the owners and core promoters along with the top
management is judged.
o Ability to plan clearly and set realistic goals and objectives.
o Ability to organize projects.
o Ability to recruit the right kind of people.
o Ability to negotiate with different kinds of people under different conditions.
o Problem solving ability.
o Communication and human relations skills.
o Financial strength.
o Perception of market opportunities.
II. TECHNICAL APPRAISAL:
It is the study of manufacturing process, technical arrangements, size of the plant, product
mix, selection and procurement of plant & machine, plant layout, schedule of project
34

implementation and location of project with reference to availability of various inputs
required for production.
VARI OUS POI NTS TO BE EXAMI NED UNDER TECHNI CAL APPRAI SAL CAN
BE SUMMARI ZED AS UNDER:-
1. MANUFACTURING PROCESS / TECHNOLOGY:-
Selection of process depends on quality of the product required, its end use, availability of
particular raw material and cost of the process. A process should not be implemented
unless it is tested in required & available condition. It is necessary to study the backup
condition in case of failure.
2. Arrangement of Technical Know-how:-
It may be ensured that satisfactory arrangements have been made to obtain necessary
technological know-how required for the proposed manufacturing process. The technical
know-how can be procured from the following sources:-
a) Foreign Collaborators
b) Consultancy Organizations
c) Machinery suppliers
d) Promoters knowledge and experience
e) Recruitment of suitable technical personnel
3. Size of the plant:-
Size of the plant or its capacity can be expressed in one of the following terms
i. With respect to output : Pulp and paper, Cement, Mini-Steel.
(Quantity of finished product) Plant etc
ii. With respect to input : Sugar mill, Cotton-seed expeller unit,
(Quantity of main raw material) Solvent extraction plant etc.
iii. With respect to number of machines : Power Loom, Spinning mill, Textile
mill, etc.
4. Product Mix/ Product Range:-
According to market conditions product mix/product range should be decided as it will
help to grow sales. The product should be modified with the changing trends happening
in the environment and it should be eco-friendly as it will help to build brand image.
5. Selection of Plant & Machinery:-
The selection of plant & machinery should be in such a way that all the process should
give more or less same output otherwise there will be more wastage or total output will be
less than desired output thus we wont be able to reduce the cost of final output.
Example:
Stages I II III IV
Raw Material
Capacity
90 80 60 80
Here all the Stages are capable of producing 80 output except III Stage so it is better to
increase the output of Stage III to 80 so that we can have a final output of 80.
35

6. Procurement of Plant & Machinery:-
The act of obtaining or buying goods & services.
The process includes preparation and processing of a demand as well as the
end receipt and approval of payment. It often involves
i. Purchase planning,
ii. standards determination,
iii. specifications development,
iv. supplier research and selection,
v. value analysis,
vi. financing,
vii. price negotiation,
viii. making the purchase,
ix. supply contract administration,
x. inventory control and stores and
xi. Disposals and other related functions.
The process of procurement is often part of a company's strategy because the ability to
purchase certain materials will determine if operations will continue. A business will not
be able to survive if it's price of procurement is more than the profit it makes
on selling the actual product. Before sending Engineer to test the equipment while
importing second hand machine you should pass the loan from the bank otherwise the cost
of sending him will go waste if the loan is not passed. The best time to send an Engineer
should be after sanction but before the disbursement of loan. For uninterrupted production,
arrangements for repairs & spare parts should be made.
7. Plant Layout:-
a) Line Layout: Machines required for series of operation are arranged in sequence in
which they are used.
b) Functional Layout: Various machines are grouped together according to the operation
they perform. It is also called as Process Layout.
c) Group Layout: Machines are grouped to produce a part or family of parts also called
as Product Layout.
8. Location of Project:-
i. Land: It should be easily accessible by road, railway & airport.
ii. Raw Material: if bulky difficult to transport, quality likely to deteriorate in
transportation, raw material should be near the source.Imported Raw Material are
those which are imported from some other place whereas Indigenous Raw Material
are the ones which are occurring naturally in a particular place.
iii. Market: The market should be in boom when the product is out for sale.
iv. Labor: Labor are the most important factor of any firm. The firm has to decide
whether to recruit from local or outside. If they hire from local they need to give
training to make them efficient or if they are hiring skilled labor than housing
facilities should be provided.
v. Utilities: the various facilities should be provided like Power, water, fuel etc.
36

vi. Effluent Disposal: Waste from sump pit pumped to a drainage system. The outflow
of disposal should be in such a way that it should be not harmful to anyone and
mostly eco-friendly.
vii. Transport Facilities: It should be well connected to roads, railways and airways. If
the company is not connected to highways than the road should be constructed. The
decision to buy or hire vehicle should be made depend on the transport conditions.
viii. Location of Industries: The location of the industries should be either in backward
areas, Growth Centres, Small Enterprise Financial centers etc.
ix. Schedule of Project Implementation: CPM & PERT
III. MARKET APPRAISAL:
Many Entrepreneurs dont have an idea about the market of particular product. There is
high possibility that the future cannot be in favor of product and the bank could be in
trouble if the firm is not able to pay back.
Hence the Bank asks the firm information about the market under five headings
1. Demand: Product, Uses, the consumers, actual consumption, likely consumption in
future & export prospects
2. Supply: Production Capacity, Actual Production, Capacity Utilization, Imports &
likely future capacity.
3. Distribution: Channels of distribution involved, cost of distribution & mode of
transport.
4. Pricing: Domestic & International price trends, control on prices, duties & taxes.
5. External Forces: Government Policies regarding industrialization, export, imports,
foreign collaboration plan outlay.
TECHNIQUES FOR DEMAND FORECASTING USED BY TERM LENDING
INSTITUTES TO CHECK
1. Import Substitution:
2. Past Trend Methods:
3. End Use Methods:
4. Correlation & Regression: Dependence of Supply & Demand
5. Export Market:
CHECK LIST FOR VERIFICATION OF VARIOUS ASPECTS OF
MARKETING
1. Market Structure in respect of Consumer Goods
2. Market Structure in respect of Industrial Goods
3. Dept of Competition
4. Pricing Policy
5. Life Cycle of the Product
6. Brand Name of Product
7. Packaging & Transportation
8. Salesman: Personal Selling. Salesman need advertising support, Drawings, Marketing,
Data, Technical Expertise, audio visual aids, demonstration, offers of installments
37

CIGARATE,
TOOTHPASTE
ETC
9. Advertising & Sales Promotion: Techniques should be decided in view of the size of
firm, competition in market, distribution channels & other relevant matters
10. Distribution Channels
























Fig. Distribution Channels
IV. FINANCIAL APPRAISAL:
It is an evaluation of profitability and financial strength of any business concern. This is
the process of making an in-depth study of the financial and operative data contained in
the profit and loss account and balance sheet. The important aspects are:
o Investment outlay and cost of the project.
o Means of financing and cost of capital.
o Projected profitability.
o Breakeven point.
o Cash flows of the project and projected financial position.
o Level of risk.
V. ECONOMIC APPRAISAL:
Economic analysis aims to assess the desirability of a project from the societal perspective.
This form of appraisal differs from financial appraisal because financial appraisal is
MANUFACTURER
S
INDUSTRIAL
GOODS
CONSUMERS
TEXTILES
WHOLESALERS
CONSUMERS

CONSUMERS

CONSUMERS

RETAILERS
CONSUMERS
DISTRIBUTORS
RETAILERS
WHOLESALERS
RETAILERS
DURABLES
38

generally done from the perspective of a particular stakeholder e.g. an investor.
Sponsoring Authority or the Exchequer. Economic analysis also considers non-market
impacts such as externalities.
CBA
The general principle of cost benefit analysis is to assess whether or not the social and
economic benefits associated with a project are greater than its social and economic costs.
To this end, a project is deemed to be desirable where the benefits exceed the costs.
However, should the benefits exceed the costs, this does not necessarily imply that a
projects will proceed as other projects with a higher net present value (NPV) may be in
competition for the same scarce resources. In addition, there are affordability constraints
which mean that projects should not proceed even if the NPV is positive.
In cost-benefit analysis all of the relevant costs and benefits, including indirect costs and
benefits, are taken into account. Cash values, based on market prices (or shadow prices,
where no appropriate market price exists) are placed on all costs and benefits and the time
at which these costs/benefits occur is identified. The analytic techniques outlined above
(i.e. NPV method, IRR method, etc.) are applied using the TDR. The general principle of
cost-benefit analysis is that a project is desirable if the economic and social benefits are
greater than economic and social costs. It is vital that cost-benefit analysis is objective. Its
conclusions should not be prejudged. It should not be used as a device to justify a case
already favoured for or against a proposal. Factors of questionable or dubious relevance
to a project should not be introduced into an analysis in order to affect the result in a
preferred direction.
Cost Effectiveness Analysis (CEA)
It is difficult to measure the value to society of public investment in social infrastructure
because the outputs may be difficult to specify accurately and to quantify, and are not
frequently marketed. In cases like these, the cost of the various alternative options should
be first determined in monetary terms. A choice can then be made as to which of the
options (if they all achieve the same effects) is preferable. CEA is not a basis for deciding
whether or not a project should be undertaken. Rather, it is concerned with the relative
costs of the various options available for achieving a particular objective. CEA will assist
in the determination of the least cost way of determining the capital project objective. A
choice can then be made as to which of these options is preferable.
Evaluating options in CEA is best done by applying the principles of the NPV method to
the stream of cash outflows or costs. The recurring costs of using facilities as well as the
capital costs of creating them should be taken into account, particularly if they differ
between alternative options. Usually, the aim will be to select the option which minimizes
the net present cost.
There is a particular need for consistency in the assumptions and parameters adopted for
CBA and CEA appraisals. CEA is most applicable to healthcare, scientific and educational
projects where benefits can be difficult to evaluate.
39

Cost Utility Analysis (CUA)
CUA is a variant of CEA that measures the relative effectiveness of alternative
interventions in achieving two or more objectives. It is often used in health appraisals. In
a CUA, costs are expressed in monetary terms and outcomes/ benefits are expressed in
utility terms e.g. outcomes are often defined in quality adjusted life years (QALYs). This
outcome measure is a combination of duration of life and health related quality of life.
Whereas in a CBA, there is a requirement to attempt to place a monetary value on all
benefits, CUA allows for a comparison of the benefits of health interventions without
having to place a financial value on health states.
Multi Criteria Analysis (MCA)
Multi-criteria analysis (MCA) establishes preferences between project options by
reference to an explicit set of criteria and objectives. These would normally reflect
policy/programme objectives and project objectives and other considerations as
appropriate, such as value for money, costs, social, environmental, equality, etc. MCA is
often used as an alternative to appraisal techniques because it incorporates multiple criteria
and does not focus solely on monetary values.
MCAs often include scoring and weighting of the relevant criteria reflecting their
relative importance to the objectives of the project. Care should be taken to try and
minimise the subjectivity of decision making in an MCA as this is a common problem
with carrying out MCAs. The relative importance of objectives and criteria to
achievement of the project will vary from sector to sector. The Sponsoring Agency should
agree these with the Sanctioning Authority.
In constructing a multi criteria analysis scorecard and determining the weightings to be
given to criteria the aim should be to achieve an objective appraisal of project options and
consistency in decision making. Judgments regarding the scoring of investment options
should be based on objective, factual information. The justification for scoring and
weighting decisions must be documented in detail. In this regard, the system should be
capable of producing similar results if the selection criteria were applied by different
decision makers.
The main steps in the MCA process include:
1. Identify the performance criteria for assessing the project
2. Devise a scoring scheme for marking a project under each criterion heading
3. Devise a weighting mechanism to reflect the relative importance of each criterion
4. Allocate scores to each investment option for each of the criteria
5. Document the rationale for the scoring results for each option
6. Calculate overall results and test for robustness
7. Report and interpret the findings
VI. ENVIRONMENT APPRAISAL:
Ecological analysis should be done particularly for major projects which have significant
ecological implications like power plants, irrigation schemes and environmental pollution
industries like bulk drugs, chemicals etc.. The key aspects of ecological analysis are:
o Likely environmental damage to be caused.
40

o Cost of restoration measures required ensuring that the damage to the environment is
within acceptable limits.
4.2.8 RATIO ANALYSIS:
a) LOAN SAFETY RATIO:
Debt safety ratio is the ratio of monthly consumer debt payments to the monthly take-
home pay, expressed as a percentage. Lending institutions such as banks and credit card
companies use debt safety ratio and other financial metrics to assess whether to approve
a loan, mortgage or a credit card. According to John Martin of financial advisory firm
Waddell & Reed, the debt safety ratio should be around 15 percent and not exceed 20
percent.
b) Profitability Ratio:
A class of financial metrics that are used to assess a business's ability to generate
earnings as compared to its expenses and other relevant costs incurred during a specific
period of time. For most of these ratios, having a higher value relative to a competitor's
ratio or the same ratio from a previous period is indicative that the company is doing
well. Some examples of profitability ratios are profit margin, return on assets and return
on equity. It is important to note that a little bit of background knowledge is necessary
in order to make relevant comparisons when analyzing these ratios.
For instance, some industries experience seasonality in their operations. The retail
industry, for example, typically experiences higher revenues and earnings for the
Christmas season. Therefore, it would not be too useful to compare a retailer's fourth-
quarter profit margin with its first-quarter profit margin. On the other hand, comparing
a retailer's fourth-quarter profit margin with the profit margin from the same period a
year before would be far more informative. Common profitability ratios used in
analysing a company's performance include gross profit margin (GPM), operating
margin (OM), return on assets (ROA), return on equity (ROE), return on sales (ROS),
and return on investment (ROI).
c) Turnover Ratio
This is a measure of the fund's trading activity, which is computed by taking the lesser
of purchases or sales (excluding all securities with maturities of less than one year) and
dividing by average monthly net assets. A turnover ratio of 100% or more does not
necessarily suggest that all securities in the portfolio have been traded. In practical
terms, the resulting percentage loosely represents the percentage of the portfolio's
holdings that have changed over the past year. A low turnover figure (20% to 30%)
would indicate a buy-and-hold strategy. High turnover (more than 100%) would
indicate an investment strategy involving considerable buying and selling of securities.
Morningstar does not calculate turnover ratios. The figure is culled directly from the
financial highlights of the fund's annual report.
41

d) Debt Equity Ratio
A measure of a company's financial leverage calculated by dividing its total liabilities
by stockholders' equity. It indicates what proportion of equity and debt the company is
using to finance its assets.

Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal
financial statements as well as corporate ones. A high debt/equity ratio generally means
that a company has been aggressive in financing its growth with debt. This can result
in volatile earnings as a result of the additional interest expense.
e) Debt Service Coverage Ratio
In corporate finance, it is the amount of cash flow available to meet annual interest and
principal payments on debt, including sinking fund payments. In government finance,
it is the amount of export earnings needed to meet annual interest and principal
payments on a country's external debts. In personal finance, it is a ratio used by bank
loan officers in determining income property loans. This ratio should ideally be over 1.
That would mean the property is generating enough income to pay its debt obligations.

In general, it is calculated by:

A DSCR of less than 1 would mean a negative cash flow. A DSCR of less than 1, say
.95, would mean that there is only enough net operating income to cover 95% of annual
debt payments. For example, in the context of personal finance, this would mean that
the borrower would have to delve into his or her personal funds every month to keep
the project afloat. Generally, lenders frown on a negative cash flow, but some allow it
if the borrower has strong outside income.
f) Gross Profit Ratio
A financial metric used to assess a firm's financial health by revealing the proportion of
money left over from revenues after accounting for the cost of goods sold. Gross profit
margin serves as the source for paying additional expenses and future savings.
Calculated as:

Where: COGS = Cost of Goods Sold.
g) Net Profit Ratio
A ratio of profitability calculated as net income divided by revenues, or net profits
divided by sales. It measures how much out of every dollar of sales a company actually
keeps in earnings. Profit margin is very useful when comparing companies in similar
industries. A higher profit margin indicates a more profitable company that has better
control over its costs compared to its competitors. Profit margin is displayed as a
42

percentage; a 20\% profit margin, for example, means the company has a net income of
$0.20 for each dollar of sales.
Also known as Net Profit Margin. Looking at the earnings of a company often doesn't
tell the entire story. Increased earnings are good, but an increase does not mean that the
profit margin of a company is improving. For instance, if a company has costs that have
increased at a greater rate than sales, it leads to a lower profit margin. This is an
indication that costs need to be under better control. Imagine a company has a net
income of $10 million from sales of $100 million, giving it a profit margin of 10% ($10
million/$100 million). If in the next year net income rises to $15 million on sales of
$200 million, the company's profit margin would fall to 7.5%. So while the company
increased its net income, it has done so with diminishing profit margins.
Things to remember
o This ratio is not useful for companies losing money, since they have no profit.
o A low profit margin can indicate pricing strategy and/or the impact competition has
on margins.
h) Return on Capital Employed
A financial ratio that measures a company's profitability and the efficiency with which
its capital is employed. Return on Capital Employed (ROCE) is calculated as:
ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed
Capital Employed as shown in the denominator is the sum of shareholders' equity and
debt liabilities; it can be simplified as (Total Assets Current Liabilities). Instead of
using capital employed at an arbitrary point in time, analysts and investors often
calculate ROCE based on Average Capital Employed, which takes the average of
opening and closing capital employed for the time period. A higher ROCE indicates
more efficient use of capital. ROCE should be higher than the companys capital cost;
otherwise it indicates that the company is not employing its capital effectively and is
not generating shareholder value.
4.2.9 BREAK EVEN POINT:
The break-even point can be defined as a point where total costs (expenses) and total sales
(revenue) are equal. Break-even point can be described as a point where there is no net
profit or loss. The firm just breaks even. Any company which wants to make abnormal
profit, desires to have a break-even point. Graphically, it is the point where the total cost
and the total revenue curves meet. Break - Even analysis is a simple tool defining the
lowest quantity of sales which will include both variable and fixed costs. Moreover, such
analysis facilitates the managers with a quantity which can be used to evaluate the future
demand. If, in case, the break-even point lies above the estimated demand, reflecting a loss
on the product, the manager can use this info for taking various decisions. He might choose
to discontinue the product, or improve the advertising strategies, or even re-price the
product to increase demand. However, the applicability of break-even analysis is affected
by numerous assumptions. A violation of these assumptions might result in erroneous
conclusions.
43

Sometimes some expenses can be counted on Fixed Cost or Variable Cost.
1. Fixed Cost (Including Semi Fixed Cost)
Includes: Salaries & Wages, Repairs & Maintenance, Administration & Miscellaneous
Expenses, Fixed portion of Selling Expense, Fixed Royalty & know how payment,
Interest on term debt, Depreciation on SLM (not to be included for cash even
calculations)
2. Variable Cost or Marginal Cost
Includes: Raw Material, Outside Purchase, Purchase of Goods for Re-Sale, Packing
materials, Power, Fuel & Water, Royalty Payment Linked to Sales, Variable selling
expense, Interest on Working Capital, Other variable expenses varying directly in
proportion to output.
3. Selling Price:
Selling price should be taken excluding excise duty. If selling price is taken as gross then
it should be included in variable cost.
4. Contribution & Break Even Point:
Selling Price Variable Cost = Contribution
The level of production at which contribution recovers fixed cost is called Break Even
Point.
Example: If fixed cost is Rs. 6000, selling price is Rs. 12, variable cost is Rs. 6 and therefore
contribution will be Rs. 6 hence BEP will be at 1000 units to recover fixed cost.

Fig. Break Even Point
Benefits of Break-even Analysis:
The main advantage of break-even analysis is that it explains the relationship between cost,
production volume and returns.
It can be extended to show how changes in fixed cost-variable cost relationships, in
commodity prices, or in revenues, will affect profit levels and break-even points.
Break-even analysis is most useful when used with partial budgeting or capital budgeting
techniques. The major benefit to using break-even analysis is that it indicates the lowest
amount of business activity necessary to prevent losses.
44

Limitations of break-even analysis:
It is best suited to the analysis of one product at a time. It may be difficult to classify a cost
as all variable or all fixed. There may be a tendency to continue to use a break-even analysis
after the cost and income functions have changed.
Utility of BEP for Appraisal:
BEP indicates level of production needed to avoid losses.
BEP called Bread Earning Point because unit earns profit above BEP and indicates
the Margin of Safety available to unit.
BEP should be low for units likely to have difficulties in achieving utilization of full
capacity, regarding marketing or non-availability of raw material or shortage of power.
A private entrepreneur will prefer to close his plant when variable cost is more than
sales & situation is not likely to improve in future since he will loose only fixed cost.
Whenever banks or financial institution consider any proposal for rehabitation of a sick
unit, they must ensure future sales are more than variable cost & contribution available
to recover fixed cost.
It can be calculated using sensitive analysis.
4.2.10 IRR:
The discount rate often used in capital budgeting that makes the net present value of all
cash flows from a particular project equal to zero. Generally speaking, the higher a project's
internal rate of return, the more desirable it is to undertake the project. As such, IRR can
be used to rank several prospective projects a firm is considering. Assuming all other
factors are equal among the various projects, the project with the highest IRR would
probably be considered the best and undertaken first. IRR is sometimes referred to as
"economic rate of return (ERR)."
You can think of IRR as the rate of growth a project is expected to generate. While the
actual rate of return that a given project ends up generating will often differ from its
estimated IRR rate, a project with a substantially higher IRR value than other available
options would still provide a much better chance of strong growth. IRRs can also be
compared against prevailing rates of return in the securities market. If a firm can't find any
projects with IRRs greater than the returns that can be generated in the financial markets,
it may simply choose to invest its retained earnings into the market.
4.2.11 AVERAGE RATE OF RETURN:
The amount of profit, or return, that an individual can expect based on an investment made.
Accounting rate of return divides the average profit by the initial investment in order to get
the ratio or return that can be expected. This allows an investor or business owner to easily
compare the profit potential for projects, products and investments.
Rate of Return is calculated as follows
ROR = Original Investment + Average Investment
Average Profit
45

This method does not take into account the differential life of project. PBM & ARR does
not consider the time value of money. The initial amount & income received from project
are given equal importance.
Compounding increase of present value in future is given as
Future Value = Present Value * (1 + r)
n
r = Rate of Interest
n = No. of Periods
4.2.12 PAYBACK PERIOD:
The length of time required to recover the cost of an investment. The payback period of a
given investment or project is an important determinant of whether to undertake the
position or project, as longer payback periods are typically not desirable for investment
positions. It is Calculated as:
Payback Period = Cost of Project / Annual Cash Inflows
All other things being equal, the better investment is the one with the shorter payback
period. For example, if a project costs $100,000 and is expected to return $20,000 annually,
the payback period will be $100,000/$20,000, or five years. There are two main problems
with the payback period method:
1. It ignores any benefits that occur after the payback period and, therefore, does not
measure profitability.
2. It ignores the time value of money.
Because of these reasons, other methods of capital budgeting, like net present value,
internal rate of return or discounted cash flow, are generally preferred. This method can be
used where emphasis is avoidance of long term risk & liquidity value of investment.
4.2.13 NET PRESENT VALUE:
The difference between the present value of cash inflows and the present value of cash
outflows. NPV is used in capital budgeting to analyze the profitability of an investment or
project. The following is the formula for calculating NPV:


where:
Ct = net cash inflow during the period
Co = initial investment
r = discount rate, and
t = number of time periods
Determining the value of a project is challenging because there are different ways to
measure the value of future cash flows. Because of the time value of money, a dollar earned
in the future wont be worth as much as one earned today. The discount rate in the NPV
formula is a way to account for this. Companies have different ways of identifying the
discount rate, although a common method is using the expected return of other investment
choices with a similar level of risk. For example, if a retail clothing business wants to
purchase an existing store, it would first estimate the future cash flows that store would
46

generate, and then discount those cash flows into one lump-sum present value amount of,
say $565,000. If the owner of the store was willing to sell his business for less than
$565,000, the purchasing company would likely accept the offer as it presents a positive
NPV investment. Conversely, if the owner would not sell for less than $565,000, the
purchaser would not buy the store, as the investment would present a negative NPV at that
time and would, therefore, reduce the overall value of the clothing company.
4.2.14 SENSITIVE ANALYSIS:
A technique used to determine how different values of an independent variable will impact
a particular dependent variable under a given set of assumptions. This technique is used
within specific boundaries that will depend on one or more input variables, such as the
effect that changes in interest rates will have on a bond's price. Sensitivity analysis is a way
to predict the outcome of a decision if a situation turns out to be different compared to the
key prediction(s). Sensitivity analysis is very useful when attempting to determine the
impact the actual outcome of a particular variable will have if it differs from what was
previously assumed. By creating a given set of scenarios, the analyst can determine how
changes in one variable(s) will impact the target variable.

For example, an analyst might create a financial model that will value a company's equity
(the dependent variable) given the amount of earnings per share (an independent variable)
the company reports at the end of the year and the company's price-to-earnings multiple
(another independent variable) at that time. The analyst can create a table of predicted price-
to-earnings multiples and a corresponding value of the company's equity based on different
values for each of the independent variables.
47


































48

CASE STUDY
The case study is about a company XYZ wanted to set up six clinics in Mumbai (Chembur,
Malad, Colaba, Andheri, Vile Parle, Ghatkopar, Navi Mumbai), two in Pune (Baner & Kalyani
Nagar), shifting of 2 premises in Mumbai at Peddar road & Bandra and Shifting of its clinic at
Juhu to Lokhandwala, Andheri (West) in the leased premises.. Total cost of the proposed
project is 4700.00 lakh which is to be funded with a debt equity ratio of 2:1, i.e. debt of 3133.33
lakh & equity of 1566.67 lakh.

49

RH (West I)

Business
Vertical
Location

Sol ID CC- II
Meeting Date
Item No

Mid
Corporate
Group
(MCG)
Nariman Point
Branch
004

IDBI Bank Limited
Memorandum to WRCC
Proposal for renewal of Working Capital Assistance

COVERING SHEET
Name of the Company / Borrower XYZ

Working Capital Facilities for which sanction is
sought [Renewal / enhancement/ reduction]
Limits (` lakh)
Existing Proposed
Fund based:
i) Overdraft
-- 25.00
A] Total Fund based -- 25.00
Non- Fund based:
B] Total Non- fund based -- --
C] LER facility (Proposed as Inner limit to overall
facility)
-- --
D] CMS (Interday/ Intraday limit) * Nil Nil
Grand Total (A+B+C+D) W=0.00 X =25.00
*Amount to be excluded while taking total if facility is 'Intra day'.
Term loan Assistance Amount
Rupee Term Loan 1880.00
Total Y =1880.00

50

II. Existing facilities for
Review
Original
sanction
Outstanding
(As on date)
Existing exposure (O/s +
undrawn/ unutilized)
Term Loan 0.00 0.00 0.00
Total Nil Nil Nil
III. Existing facilities other than I & II, if any
WC FB (Total) - - -
WC NFB (Total) - - -
LER - - -
CMS (Intra/ Interday) * - - -
Term loan (Total) - - -
Total - - -
Grand Total 0.00 0.00 Z=Nil
* Amount to be excluded while taking total if facility is 'Intra day'
Total existing exposure Proposed exposure
(X + Y + Z)
Sanction sought (X
+ proposed CMS intraday limit
@+ Y) (` lakh)
Nil (As it is New
Relationship)
1905.00 1905.00
@ While intra-day limit would be excluded for arriving at exposure amount; it would be included in
the sanction amount.
Indirect exposure, if any sought
(Not reckoned as Company Exposure)
Existing Proposed
Nil Nil Nil
51

I. EXECUTIVE SUMMARY
A] Background of the proposal:
XYZ (XYZ), promoted by Mrs. X, a renowned, internationally trained cosmetic dermatologist, was
incorporated on January 2009. The Company is a branded cosmetology clinical chain providing an
entire gamut of medical cosmetology, aesthetic dermatology and aesthetic surgery services. Total
cost of the proposed project is ` 4700.00 lakh which is to be funded with a debt equity ratio of 2:1,
i.e. debt of ` 3133.33 lakh & equity of ` 1566.67 lakh. Brief details of the proposed project are as
under:
Setting up of 6 new clinics at Mumbai (Chembur, Malad, Colaba, Andheri, Vile Parle,
Ghatkopar, Navi Mumbai) & 2 at Pune (Baner & Kalyani Nagar).
Shifting of existing 2 clinics, both presently on rent, at Peddar road and Bandra by purchasing
new premises in same location.
Shifting of its clinic at Juhu to Lokhandwala, Andheri (West) in the leased premises.
B] Reference of Flash Report to WRCC/CC meeting: Not applicable
C] Compliance with Company/ Group Exposure norms: As mentioned in Compliance with
exposure norms on Page No. __.
D] Funding Arrangement made by the Company:
Total cost of the proposed project is ` 4700.00 lakh which is to be funded with a debt equity ratio of
2:1, i.e. debt of ` 3133.33 lakh & equity of ` 1566.67 lakh. The Company has approached 2 banks
for tying up for its debt portion of ` 3133.33 lakh, hence promoter contribution stands at 33.33%.
It has requested IDBI to take up 60% share of its term loan requirement aggregating ` 1880.00 lakh
along with overdraft facility of ` 200.00 crore, while for the balance amount of ` 1253.33 lakh it has
approached Saraswat Bank, which is presently under process.
E] Marketing Arrangement
The Wellness industry in India has been continuously evolving in India and has a tremendous
growth potential with market for wellness services stands at ` 11,000 crore growing at an annual
rate of 30-35%. The growth is expected on the back of favorable market demographics,
consumerism, globalization, changing lifestyles, increasing availability across regions and rising
awareness among people as per report of Federation of Indian Chambers of Commerce and Industry
(FICCI) and Ernst and Young. These factors hereby provide a huge potential for the captioned
Company. Further the market standing of the company consequent to the proposed project would
be significantly boosted with increased brand identity, reach and revenue base.
F] Rating
The Company has not been externally rated by any agency. However the internal rating by our Risk
Departments is yet to be assigned.
G] Financial Analysis
The cost of the project is pegged at ` 4700.00 lakh with DER of 2:1, i.e. i.e. debt of ` 3133.33 lakh
& equity of ` 1566.67 lakh. The promoters would undertake to meet the shortfall/ delay, if any. The
project parameters are satisfactory (Average DSCR- 1.53 & IRR- 13%). The financial viability of
the Company mainly depends upon execution of the proposed capex activity and curtailing of its
expenses (Being in the service sector most of its expenses are fixed in nature).
52

On account of this 2 parameters have been taken into consideration during the tenor of the loan as
under: i) A decline of 10% in revenue will leading to a DSCR of __ times & ii) An Increase of 10%
in indirect expenses leading to a DCSR of ___ times. It may be noted that both these lie within the
financial condition stipulated of minimum DSCR of 1.25 times. Hence the project may be
considered financially viable.
H] Proposed assistance by IDBI
The Company has approached IDBI to take up 60% share of its term loan requirement aggregating
1880.00 lakh along with overdraft facility of ` 25.00 lakh, while for the balance term loan amount
of 1253.33 lakh it has approached Saraswat Bank, which is presently under process.
I] Recommendation
WRCC may please sanction aggregate assistance of ` 1905.00 lakh, comprising Rupee Term loan
of 1880.00 lakh and Overdraft limit of ` 25.00 lakh on terms and conditions as per the Terms Sheet
appended and also as per general terms and conditions applicable to sanction of such types of
assistance by the Bank, taking the Company exposure to ` 1905.00 lakh.
53

II. SUMMARY SHEET
1. Branch Name:
SOL ID:
Nariman Point, Mumbai (004)
2.
Date of Receipt of
Completed
Application
17.05
.2
0
1
2
3. ARN / Loan
Origination
No.

4. a) Name of the
Borrower/
Company
XYZ (XYZ)
b) Relationship
with IDBI
Bank
New Relationship
5. Address:
Office/ Clinics
Registered Office: Bandra West Mumbai -52.

Clinics: Presently 3 Clinics are situated at the following
locations:

Bandra Bandra West Mumbai 52
Peddar
Road
Peddar Road, Mumbai 26
Juhu Juhu Mumbai 49.

6.
a)
Nature of
Business/
Products
Medical Cosmetology, Hygiene, Skin-care, Hair and Weight-loss
treatments.
(b) Industry Healthcare, Wellness & Beauty-Care
7. Constitution Private Limited Company
8
a)
Name(s) of the
Promoter(s)
- Mrs. X (Chairman & MD)
- Mr. Y (Director)
b) Name of the
Promoter
Group
Mrs. X
(c) Name(s) of the
Directors
- Mrs. X (Chairman & MD)
- Mr. Y (Director)
54

(d) Name of Director,
if any, who is
on Board of
other Bank(s)

N.A.

N.A.
9. Listed/ Un-listed Un-Listed Stock Price (52 week) N.A.
High: - Low: - Face Value: -
-10.

(a) Shareholding
:as on
31.12.2011

Name of Shareholder Share (%)
Mrs. X 90%
Mr. Y 10%
Total 100%

(b) Promoter
shares
pledged (%)
Nil
11. Company/
Customer ID
Nil 12. BSR Code with
description
85102- Other Business activities
(Medical & dental practices
including consultation treatment
activities of general physicians &
medical specialists).
13. PSL / Non PSL Non-PSL
14. (a) Date of last
sanction/
renewal
Not Applicable
(b) Directions, if
any, given by
the
Committee
and status of
compliance
thereof.
Not Applicable
15. Internal Rating
(Risk Dept.)
Rating to be assigned by our Risk Department.
16. External Rating
(Agency name: -)
The Company has not been externally rated.
17. Banks RM
Mr. RM (RM) / Mrs. RO (RO)
55

18. Date of Visit/ Call
:
21.05
.2
0
1
2
19. Name & Designation
company official
visited:
Mrs. X (Promoter
Director)
20. Observations of
visit
To be incorporated

21. Bankers Report &
Comments
thereon
No Working Capital or Term loan relationship. The Company is
maintaining deposits with HDFC Bank, Kotak Mahindra Bank
& Corporation Bank. Report on credit opinion of Company
has been sent to captioned banks and the same is awaited.
22. Nominee Directors
observations, if
any
Not Applicable
23. Credit History No Credit Relationship in past.
24. Conduct of
account and
adverse
observations,
if any, as per
the credmin
sheet
Not Applicable since it is a new relationship.
25. Proposed
Arrangement
The Term loan facility aggregating ` 3133.33 lakh to be availed is
proposed under Multiple Banking Arrangement.
(` lakh)
Name of Bank
Proposed
Exposure
Status of Sanction
IDBI Bank 1880.00 Under Process
Saraswat Bank 1253.33 Under Process
Total 3133.33


26. Facility: Existing & Proposed: (` lakh)
Facilities

Date of
sancti
on

Present
O/s

Overdue Exposure Proposed Pricing
& Tenure
Present Proposed
(Includ
ing
present
)
Term Loan Facility:
56

Rupee Term
Loan
Nil Nil Nil Nil 1880
BBR + 400 bps
(Min)
(Present Effective
Rate is 14.50%)
Total [A] 0.00 0.00 0.00 0.00 1880



57

Working Capital Fund Based Facility:
(Overdraft): Nil Nil Nil Nil 25
BBR + 400 bps (Min)
(Present Effective
Rate is 14.50%)
Total Fund Based [B] 0.00 0.00 0.00 0.00 25

Total Fund Based [C] Nil Nil Nil Nil Nil
Nil
LER
[
D
]
Forex
Forward
O/s
- - - Nil Nil


MTM
Derivatives
O/s - - -
Nil Nil

MTM
CMS Line Intra-day Nil Nil Nil Nil Nil

27. Total Exposure to
Company (TE) -
excld CMS
[A +B +C +D]
0.00 0.00 0.00 0.00 1905.00

28.
Total Group
Exposure (TGE)
0.00 0.00 0.00 0.00 1905.00

29. Compliance with
Banks Credit
Policy
Yes
30. Cross Sell (CMS/ Salary account/ Tax Collection/ Excise/ Dividend distribution/ CPA-CP issues/
Forex/ LER/ Carbon Credit/ Syndication/ Corporate Advisory Services etc)
Present
Arrangeme
nt
Total
Volu
me
Our Share
(%)
Income
Earn
ed
Likelihood of Shifting to our Bank
CMS Line Nil -- -- -- N.A.
Salary HDFC Bank -- --
Potential for Salary and savings bank
account of 129 employees of
existing as well as new clinics to be
opened
Tax
Collecti
Nil -- -- -- N.A.
58

on/
Excise
Dividend Nil -- -- --
N.A.

3
1
a
)
Account Profitability:

Account Profitability Interest Income Non-Interest Income ROC (%)
Existing [For FY 2011] -- -- N.A.
Expected [For FY 2012] 0.85 0.18 60%

3
1
b
)
Details of Deposits

Bulk = Nil Non-bulk = Nil
3
2
.
Current & Proposed Borrowing Arrangements: (` lakh)
Working
Capital
Banks

(%)
Current Limits
Outstanding as
on date
(%)
Proposed Limits
FB NFB Total FB NFB Total FB NFB Total
1. IDBI Bank -- -- -- -- -- --
100%
25 -- 25
Total
0.00 0.00 0.00 0.00 0.00 0.00 25 0.00 25
Proposed Term Borrowings: (` lakh)
Term Lenders Sanctioned Outstanding ROI (%) Proposed term loan
1. IDBI Bank -- -- BBR + 400 bps 1880.00
2. Saraswat Bank -- -- - 1253.33
Total 0.00 0.00 3133.33
3
3
.
Security
59

Security
Existing

Proposed

Asset Cover
Primary

N.A. Term Loan
Pari-passu first charge on project assets [a per project cost.
Projects assets of ` 4457 lakh include the following:
1. Premises to be purchased at Bandra & Peddar Road (`
950 lakh)
2. Furniture & Fixtures (` 334.10 lakh)
3. Medical equipments (` 3088.40 lakh)

1.42 times









4. Other Electrical/ Office equipment/ machinery/
computers (` 44.80 lakh)
5. Deposits placed with lessors (` 40 lakh).
Overdraft
1
st
Pari-passu charge entire current assets, both present & future
(Current asset comprising cash & cash equivalents
aggregates to ` 196.91 lakh as on 31.03.2013).

0.98 times
Collateral

N.A. Term Loan
2
nd
pari-passu over current assets (Both present & future).
Current assets comprising cash & cash equivalents
aggregate to ` 196.91 lakh as on 31.03.2013.
Overdraft
2
nd
Pari-passu charge on project assets (As per project cost)
aggregating ` 1324 lakh after providing for proposed term
loan of ` 3133 lakh.
Common for both TL & Overdraft
Pari-passu charge on existing Plant & Machinery (` 279.39
lakh).
Mortgage of residential flat in the name of Mrs. X (` 1000
lakh as Valuation report dated 10.01.2012 by M/s Bapat
Valuers & Consultants Pvt. Ltd.)







Over 6 times





Guarantees N.A. Personal Guarantee of Mrs. X and Mr. Y (Networth of Mrs.
X aggregates to ` 1425.43 lakh as on 31.03.2011).

60

3
4
.
Insurance (Coverage,
validity & adequacy
Insurance with Bank clause to be obtained for fixed assets of Company. A
pre-disbursement condition for the same may be stipulated.

3
5
.
Inspection (Last
inspection date &
observations)
Inspection was carried out on May 21, 2012 to the Companys clinic at Peddar
Road.

36.
Name of the group
company(ies) where
IDBI has exposure
Exposure
(FB, NFB)
Credit rating Asset category
Whether supported by Corporate
Guarantee of proposed company
(Yes/No)
Nil Nil Nil Nil Nil
37. Check List of Enclosures:
(1) Analysis of Latest Audited Financial Statements Yes
(2) YTD performance Yes
(3) Credmin sheet (duly signed copy to be attached) N.A.
(4) LER Deals sheet N.A.
(5) Profitability & cash flow projections Yes
(6) Rating Report along with clarifications (duly signed copy only
to be attached)
Rating to be assigned.
(7) Others, if any Nil
38
.
List of modifications/ conditions: Nil
39
.
List of relaxations/ waiver proposed: Nil

I. COMPANY & BUSINESS ASSESSMENT
1. Company Background
XYZ (XYZ) was incorporated in January 29, 2009 by Mrs. X, a renowned, internationally
trained cosmetic dermatologist. The Company is known to be one of the first Branded
Cosmetology clinical chain providing an entire gamut of medical cosmetology, Aesthetic
Dermatology and Aesthetic Surgery services.
Earlier, the promoter of XYZ had launched its first clinic at Bandra by incorporating Mrs. X
Skin Care Private Limited (DPSCPL) in July 2007. During FY 2008, DPSCPL expanded by
opening 2 more clinics at Juhu and Peddar Road, Mumbai. Later in FY 2009 the promoter
decided to establish its Brand identity under the name of Gorgeous and subsequently XYZ
was incorporated. The assets of DPSCPL were sold, which are now held by XYZ, and its
operations have been discontinued. The existing 3 clinics now function under the umbrella of
XYZ. Brief history of the Company over the year of incorporation is as follows:
2007
61

o Incorporation of Mrs. X Skin Care Private Limited & Opening of Bandra Clinic.
2008
o Opening of Juhu and Peddar Road Clinic
o Tie up with Pantaloons Femina Miss India 2008
o Official Beauty & Cosmetology Expert for Grazia Ford Models Super Model &
o Accreditation by ISO 2002 for quality practices at Clinic.
2009
o Incorporation of XYZ
o Sold the assets of DPSCPL which were held by XYZ
2010
o Tie up with Pantaloons Femina Miss India 2010
2011
o Corporate Tie up with Kingfisher Airlines, Kotak Mahindra Bank, Axis Bank, Future
value Retail, Novotel for Corporate Health Program, which leads to brand building of the
Company.
2. Present Setup
The Company is presently operating through 3 clinics at Bandra, Juhu, and Peddar Road in
Mumbai. The Company function as a one stop service provider for all derma-care and beauty
aesthetics. It has the latest equipment and systems at its clinic. Each clinic operates as an
independent business unit comprising of a team of doctors, therapists, client coordinators under
the supervision of a clinic manager. The Company is now proposing to expand further through
a chain of own 8 new clinics. Going forward, it plans to have 2 clinics per metro to be opened
over the next 4-5 years.
3. Product & Services
Core offering of Company comprises of dermatology & aesthetic/cosmetology services. The
Company also produces natural cosmetic & personal care products for in-house customers at
its Bandra clinic. As informed to us, since these products are only used for in-house production
and not commercial production, it does not require any license or certification of the same.
Brief details of the major offerings of the company are as follows:-
Services: This forms the core business of XYZ. The Company provides cosmetology
services with focus on non-surgical treatments backed by specialization in skin & beauty
treatments like autologous fat transplant, laser hair removal, hair transplant, aesthetic
procedures, weight loss treatment, particularly liposuction of thighs, buttocks, arms, double
chin etc and various other specialised treatments under supervision of trained doctors. Each
clinic acts as a one stop solution provider for entire cosmetic & aesthetic procedure requirement
being addressed by experts. Each clinic has dedicated doctors to provide customized and
personalized treatment. The Serviceoffering of the company includes:






Skin & Beauty
treatment like face/
eye/ body
rejuvenation, acne/
hair removal, laser
resurfacing

Weight loss
treatment like
liposuction,
ultra lipolysis,
Breatlift &
augmentation
Hair
Treatment like hair
rejuvenation &
hair transplant
Aesthetic
procedures like
botox,
dermaroller,
melia/ mole/
skin tag
removals, etc.
62




Products: The promoters have developed various treatment materials/ products in-
house based on research and experience over years. All the products of the company are herbal/
ayurvedic in nature and have been formulated as per requirement of various skin and hair types.
Products are presently a premium offering exclusively for in-house customers during treatment
and for internal consumption. XYZ is manufacturing around 75-100 kg of products per month
to cater to the existing customers. It has in-house capacity to manufacture upto 50 kg per day
of base creams at its Bandra clinic. It does not have any separate set-up for manufacturing these
products and assets being utilized in the production process are gas stove, vessels, mixers,
weighing scales, refrigerator and an assistant. Products are duly tested before being offered to
the clients. However, as the products are produced from natural oils, waxes, herbs and
ayurvedic ingredients, the chance of any adverse reaction are minimal. The product offering of
the company includes acne packs, various varieties of facial packs, anti-wrinkle creams, skin
whitening products, hair packs, body lotions, moisturizers, and herbal shampoos. Going
forward, after establishing pan-India presence, the Company proposes to explore market for its
own branded products over the counter.
4. Clientele
The clientele of the Company constitutes of middle class, HNIs, working professionals, house-
wives, celebrity, aspiring models and corporate customers. The Company reportedly has a
client-base of approximately 10,000 registered customers, out of which 5,000 are reported to
be active customers. Retail clients (both walk-ins and referrals), presently contribute towards
majority of its revenue. The age group of the customers majorly range from 15 to 50 years
requiring various treatments like acne to face-lifts, weight loss etc. It has entered into tie-ups
with Corporates like Kingfisher Airlines, Novotel Hotel, Axis Bank, Kotak Mahindra Bank
and Future Value retail and associated itself with fitness clubs such as Khar Gymkhana, Juhu
Club Millennium, Fitness First Club, Classique Club, Skyz which has helped boost the brand
building of the Company.
5. Business Model/ Process
XYZs business model revolves around providing customized solution for the entire range of
Dermatologic and cosmetology related needs under one roof. As against the individual
surgeons and large private hospitals, it has envisioned itself as a specialised pan-India clinic
and targets potential customers, comprising HNIs, housewives, working professionals,
celebrity and aspiring models and corporates, through referrals, advertisements and
participation/visibility in various social events, corporate seminars/conferences, clubs etc.
The business process involved may be broadly summarised as follows:
Business Promotion:
It undertakes business promotion for brand building and visibility by running attractive referral
incentives campaign, which forms the major chunk of new business generation. The
credentials, visibility and participation of promoter in various show-biz events like Femina
Miss India 2008 & 2010 etc have helped XYZ to continually attract new customers. Further it
63

uses various mass communication media like print, hoardings, internet etc as a part of its brand
promotion exercise along with tie-ups with Corporates, hotels, media, banks, retail malls &
airlines as mentioned under the clientele section.
Customer Footfall
The Company tries to increase customer footfall through various promotion strategies and then
convert them into active customers. It maintains database of all converted and non-converted
customers for generating fresh business in future. Also, the database of target customers is
acquired through interaction in corporate seminars, conferences. Various SMS campaigns are
also run with special offers on various products and services to increase awareness and
footfalls.
Consultation
The doctor examines the needs of the customer and advises about the available treatment to
achieve the desired results. Thereafter a fee is quoted to customer. The customer is facilitated
on phone for any further follow up questions and for 2
nd
consultation to enable him to make an
informed decision before opting for the recommended treatment/package being offered by the
company. Thus agreement is entered with customer on the treatment along with quantum of
advance fees.
Terms of Treatment
The customer is given a schedule and prior appointment for treatment sittings. The laser
treatments are carried out by doctors & non-laser treatments are done by the therapists. Progress
of the patient is reviewed at each sitting and further treatments are prescribed accordingly.
Invoicing:
The fees quoted to the customer during consultation and the fees charged by the customer for
the considered treatment is normally based on the number of sittings & is payable one time or
in agreed instalments. Although most of the costs in any treatment are standardized, the same
varies depending upon the complexity of the treatment.
Follow up Visits & Customer Care
Name of
Director
Designation Profile
Mrs. X Chairman &
Managing
Director
Mrs. X is the key promoter of XYZ and is international
trained medical dermatologist and dermo-surgeon. All the
clinics work under her direct clinical supervision. She is
presently involved in brand building, devising future
strategy and business development of the Company. She
has received advanced training in skin care, lasers as well
as in advanced methods for anti-ageing from Canada.
Mrs. X has developed her own Eco-friendly bio herbal
products based on her experience & research that are
presently being offered only to in-house customers.
64

Qualification:
MBBS from Shivaji University (Ranked top 10 in
University). The same is on our record.
Diploma in Cosmetology
Past Experiences:
Assistant to renowned surgeon Dr. Padma Jain at
Fairview Cosmetic Surgery Centre, Canada
Worked as the Chief Consultant at Criticare
Hospital & Research Centre, and at Kasturba Hospital of
Infectious Diseases.
Designated as the Chief Medical Officer for
Oberoi Flight Services and Holy Spirit Hospital, Mumbai
Worked as Medical Consultant at Dr. Trasis
Dermatology & Laser Centre, Mumbai.

Key Assignments/ Achievements:
Appeared on & interviewed by various news &
entertainment channels including Star Majha, Zee
Business & News, NDTV 24x7, Mee Marathi, DD
Sahyadri, Star Pravah, Zoom, MTV.
Awarded with Rashtriya Chikitsak Ratna Award
in 2012
Chosen as the official beauty and wellness expert
for Pantaloons Femina Miss India 2008 and 2010.
Chosen as the official Beauty & Cosmetology
Expert for Grazia Ford Models Super Model of the World
India 2008
Chosen as the official Skin Expert for Scooty Teen
Diva India International 2008.
Mr. Y Promoter &
Director
Mr. Y, husband of Mrs. X, is a Consulting nutritionist and
weight loss/gain consultant. He along with Mrs. X has
worked in Canada and has a total work-experience of
more than 20 years. He has also published various
research articles in international publications. He is
involved in administrative control at corporate level,
development of treatment products for XYZ along with
financial management and marketing functions for the
Company.
Qualification:
MBBS from Shivaji University (Ranked top 10 in
University) The same is on our record.
Diploma in Nutrition and Diet Planning (Tulip
School of Nutrition, Mumbai)
65

After the treatment gets over, frequent follow up visits are scheduled to gauge the progress of
the patient and assess further needs, if any. During follow-up visits, the potential for customer
referrals is harnessed.
II. PROMOTER & MANAGEMENT ASSESSMENT
1. Promoters Assessment
GPSL is closely held with 90% of the equity held by key Promoter viz. Mrs. X and remaining
10% being held by Mr. Y. The administrative and management control lies with the two
promoters under their Directorship. Both the promoters of XYZ are well experienced and have
renowned recognition in their area of operation. Brief details of promoters credentials are as
follows:-
2. Organizational Set-up
XYZ presently has a total of 41 employees. Each clinic runs as an autonomous unit comprising
of therapeutic and administration staff. The therapeutic staffs consist of senior doctors, assistant
doctors & therapists. The Clinic level admin staffs which includes Clinic Manager, clinic co-
ordinator, assistant clinic manager and office boys are involved in the operation & planning of
each clinic. In addition it has Corporate clinet head, marketing manager, accounts manager &
HR manager. The detailed organisational structure is as follows:-


Overall Promoter & Management Assessment:
The key promoter, Mrs. X, is a renowned cosmetic dermatologist in the Indian Beauty and
Wellness industry, and has international exposure from Canada in the area of operation. The
Gorgeous Skin Care Pvt Ltd
Director
(Dr. Purnima Mhatre d'Souza)
Clinic
(Bandra, Juhu, Peddar
Road)
Clinic Manager
Client
Coordinator
Junior
Accountant
Office Boy
Senior Doctor
Asst. Doctor
Therapist
Director
(Dr. Savio D'Souza)
Treatment
Formulation
Marketing
Manager
Accounts
Manager
HR Manager
Past Experiences:
Worked at the Department of Health, Mumbai
Municipal Corporation & worked as the Medical Officer,
Kasturba Hospital for infectious diseases, and Holy Spirit
Hospital, Mumbai.
66

Company is the managed by qualified & experienced medical professionals, employing latest
technology equipments and systems. Mrs. X is well recognized across the industry. She has
been roped in by various national beauty contests as official and wellness partner and her
articles had been widely covered by media. The overall assessment of the promoters and their
capability to carry our business growth and expansion may be considered satisfactory.
67

III. INDUSTRY & MARKET ASSESSMENT
The Wellness industry in India has been continuously evolving in India and has a tremendous
growth potential. The market for wellness services stands at approximately ` 11,000 crore and
is expected to grow at a CAGR of 30-35%, while the wellness products industry stands at
`16,000 crore. This growth is expected on the back of favorable market demographics,
consumerism, globalization, changing lifestyles, increasing availability across regions and
rising awareness among people as per the joint report carried out in 2008 by Federation of
Indian Chambers of Commerce and Industry (FICCI) and Ernst and Young.
The Wellness industry comprises two segments viz. i) Wellness Services and ii) Wellness
Products. The Wellness Services comprises of five segments with regards to the various
services which may be classified as follows:

Wellness offerings are usually segmented along hygiene, curative or enhancement needs of the
consumer, which mainly includes-
Segments that meet both curative and enhancement needs Spas, Slimming services and
products, Fitness services and equipment
Segments that address enhancement needs Colour cosmetics and fragrances, Cosmetic
treatments.
Segments that meet hygiene and enhancement needs Salons, Hair care and skincare
products.
Segments that address curative needs Alternate therapy services & products, health and
wellness, food and beverages, dietary supplements.
XYZ offers services in the beauty and fitness segment, including Skin & Beauty treatment,
Weight & Corrective Aesthetics treatment, Hair Treatment and Procedures which partially
addresses all of the above needs.
68

1. Indian Scenario
(i) Market Overview: The Indian Wellness industry, traditionally being an unstructured
industry, is widely perceived as the Sunrise industry of the 21
st
century. According to FICCI
and Ernst & Young, the Indian Wellness industry has the potential to grow at a CAGR of
approximately 30-35%.


Wellness Industry Market size

Wellness Market Distribution

Across segments, on an average more than 50% of the market is unorganized and highly
segmented with several small and regional players. Wellness services currently employ one
million people and the total employment potential is expected to be around 3 million by 2015.
(ii) Growth Factors: Potential rise in this industry is a result of the growth drivers as
shown below:
Young population: The target segment for the Wellness industry in India constitute the youth
in the age group of 15 to 40 years. This age bracket comprises of 35% of the total population
of our country. It is estimated that about 99.5 million of the population in the state of
Maharashtra is above 7 years of age. Of this about 8.3 million of the population in Pune and
11.33 million of that in Mumbai is above 7 years of age. Also the highest population growth
rate in the state in 2010-11 was observed in Thane region (35.94%) followed by Pune (30.34%).
Growing Middle Class: The middle income class, which earns between Rs.1 lakh to Rs.2 lakh
per annum, comprises approximately 50 million people currently. The middle class is estimated
to grow to 583 million by 2025 and will be attributable for approximately 60% of the total
consumption in India.
I ncrease in Discretionary Spending: An increase in income levels has resulted in an increase
in the discretionary spending in India.
Lifestyle Diseases: The disease pattern in present century is shifting towards lifestyle related
diseases as a result of increasing pollution, unhealthy eating habits and increasing stress. As a
result of this people are opting for various weight loss and skin treatment.
High Awareness level: There has been an increase in awareness and detection of chronic
ailments, which leads to increase in growth of products and services.
Peer pressure: With peoples obsession towards different on-screen celebrity, the pressure to
look good and similar to their favourite celebrity is leading to growth in the wellness industry.
Wellness
Industry
Market
Size, 2008,
11000
Wellness
Industry
Market
Size,
2010P,
21550
Wellness
Industry
Market
Size,
2012P,
42258
Wellness Industry Market Size
(Rs. Crore)
Wellness
Market
Distribution
,
Unorganize
d Market,
64%, 64%
Wellness
Market
Distribution
, Organized
Market,
36%, 36%
Wellness Market Distribution
69

(iii) Challenges
Despite the tremendous potential for growth in the Indian Wellness industry, challenges exist
for the various stakeholders as follows:
Challenges faced by users:
Substandard facilities & poor
infrastructure, especially in the
unorganized sector
Unresponsive staff and poor
ambience
Doubts over the availability and skill
of the service provider, thereby
hampering credibility
Usage of sub-standard, ineffective
and harmful products by service
providers with a view to regulate costs
Over-promise and under-delivery by
service providers leading to unmet
expectations of the clients
Challenges faced by providers:
Inherent cost and locational advantages
of unorganized players leading to competition
Price sensitivity of Indian customers, affected
by limited knowledge of wellness service
offerings
Significant investment costs and long payback
periods due to a lag in creating brand credibility.
Shortage of skilled manpower and rising
costs
of inputs, rentals, advertising and promotions
Regional differences in the expected wellness
service offering, leading to a non-standardized
approach for offerings.
However in may be noted that though the favorable market demographics, consumerism,
globalization, changing lifestyles, increasing availability across regions and rising awareness
among people
Peer Comparison:
XYZ provides treatments for i) Hair, ii) Skin & beauty & iii) Weight & corrective aesthetic
services. In view of the services offered, it faces competition from the following industry
players:
i) Instasculpt: Promoted by Dr. Manjiri Patankar, poses direct competition to XYZ by
offering services like hair therapy, anti-ageing and face sculpting, skin treatments, laser
treatments, hair removal face, providing body peels and obesity management.
ii) Kaya Clinic: Promoted by Dr. Anjali Mukherkji, poses indirect competition to XYZ
by offering services like health and energy treatment, skin improvement, detoxification, weight
loss/gain, treating cholesterol, curing acidity & joint pain.
iii) VLCC: poses indirect competition to XYZ by offering services like skin care treatment
by anti-aging treatment, skin polishing, skin rejuvenation and hydration, acne treatment,
pigmentation removals, ayurvedic hair treatment and weight treatment solutions.
iv) Slim Sutra: Promoted by Ms. Shelly Khera, poses indirect competition to XYZ by
offering services like weight reduction therapies and providing skin solutions like acne
purifying, pore refining, body polishing.
In view of the competition faced by other organized established players who have expertise in
specific service domains like Kaya Skin Clinic (Beauty care), VLCC & Slim Sutra (weight-
loss) etc, these players are also offering other services like skin solutions, anti-aging treatment,
hair therapy, etc. Further XYZ also faces competition from various local unorganized players
in the industry.
70

Overall Market Assessment:
Presently XYZ is focussing on establishing its brand as a solution provider for all aesthetic and
dermatological needs. It proposes to have standardisation in its operating procedures,
infrastructure and ambience giving high-end look and feel. It has developed quality products
in-house and treatment procedures are done under the supervision of experienced doctors and
staff and its prices are competitive with industry standards. Though there is competition faced
by Company by established players as well as unorganized players, various tie-ups,
associations, participation by promoters would further help it to enhance its reach to consumers.
Further its market standing consequent to the proposed project would be significantly boosted
with increased brand identity, reach and revenue base.
71

IV. PERFORMANCE/ FINANCIAL ANALYSIS
Year Ended March
31
st


2009-10
(Audited)
2010-11
(Audited)
2011-12
(Estimated)
2012-13
(Projected)
2012-14
(Projected)
I ndicate Yearly /
Qtrly / HY
12 Months 12 Months 12 Months 12 Months 12 Months
Net Sales
403.23 537.19 590.91 1170.00 1977.30
Other Income 0.62 0.23 0.28 0.47 0.56
PBDIT 6.09 143.67 152.66 472.13 1057.39
PAT 2.75 87.21 91.93 23.20 278.88
Cash Profit 3.13 110.90 117.43 181.34 529.26
Paid Up Capital 1.00 1.00 700.00 700.00 700.00
TNW 3.75 90.96 881.89 905.09 1183.96
TNW including Quasi
Equity (QE)
12.24 336.72 1031.89 1415.09 1843.96
Net Working Capital 9.87 65.64 263.96 42.66 36.92
Net Cash From Opns. 66.19 103.33 223.68 523.73 869.63
Contingent Liability Nil Nil Nil Nil Nil
PBDIT as a % of
Sales
1.51% 26.73% 25.81% 40.35% 53.46%
NP as a % of Sales
0.68% 16.23% 15.54% 1.98% 14.10%
TOL/TNW 20.37 3.35 2.03 4.55 3.55
TOL/TNW(including
QE)
5.55 0.18 1.59 2.55 1.92
Current Ratio 1.15 2.29 6.12 1.21 1.09
Interest Coverage -- -- -- 1.67 2.30
DSCR (for TL/CL) -- -- -- 1.64 1.62
CFDSCR -- -- -- 2.43 1.63
* The unsecured loans under projections are proposed to remain in business. Hence TNW with Quasi
equity may be considered for gearing calculation.
Observations /Comments
Revenue:
During FY 2011, the company registered growth in top line by 33% on back of its quality
service and aggressive marketing efforts which resulted in attracting new customers along with
revenue from repeat customers. During 9-Month period ending December 2011, the company
has already achieved 77.5% of the projected revenue for FY 2012.
Assumption:
Revenue for FY2013, comprise full year operations of existing 3 clinics and 7 month operations
of 8 new clinics proposed to be opened while the revenue for FY2014 is projected based on
72

full year of operations of 11 clinics. Average Revenue per existing clinic (ARPC) stood at
Rs.1.8 cr. during FY11 which is projected to reach Rs.2.4 cr. per clinic in FY13 and Rs.2.7 cr.
per clinic in FY14. ARPC for new clinics is assumed at Rs.0.58 in FY13 (7 month operation)
and Rs.1.45 cr. in FY14 (full year).
Profitability:
During FY2010, the company registered low PBDIT & marginal net profit (NP) mainly due to
relatively higher repair & maintenance cost and professional fees. However, the expenses are
rationalised w.e.f FY2011. The companys NP margin stabilised at 16.23% by the end of
FY2011 and 17.4% at the end of 9-month period ending Dec 31, 2011. The co. has been able
to command premium on its services with the reputed promoter standing. Margins are projected
to improve during FY2013 & FY2014 due to increased scale of operations, foray into high
growth and low cost territory. As at the end of 9-month period ending December 31, 2011, the
companys profit margin stood better than estimates with achievability of 86% of the projected
PBDIT for FY12.
Current Ratio:
Given the nature of industry (Services), the Current Ratio stood comfortable at 2.29 at the end
of FY11. It is expected to increase to 6.12 by the end of FY12 due to increase in Cash & Bank
balance from the financing activities for the proposed project. However, the same is expected
to show declining trend due to internal accruals funded future expansion. The current ratio of
the company in FY2013 & FY2014 is projected to be low due to significant amount towards
instalment of term loan due within 1 year.
Gearing:
Gearing (TOL/TNW) of the company, considering unsecured loans as Quasi-equity, stood
comfortably low at 0.18 at the end of FY2011, as it does not have any long term liabilities.
During FY2011, the promoters have further infused unsecured loans to the extent of Rs.237
lakh approximately, part of which (Rs.95.76 lakh) has been converted into equity during current
financial year. Additionally, the company has already infused equity to the extent of Rs.103.24
lakh in line with the proposed capex. Further by the end of current financial year, the company
proposes to take up the core equity base from Rs.200 lakh presently to Rs.700 lakh to augment
capital base and for utilisation towards proposed capex. Internal accruals to the extent of Rs.116
lakh are proposed to be utilised towards the proposed capex programme. Gearing, however, is
expected to go up slightly (2.55 in FY2013) as a result of term loan availment for the proposed
capex. However going forward over the next 2-3 years, the same will improve as a result of
retention of profits.

73

YTD Performance
(` lakh)
Particulars
Period ended
31.12.2010
Period ended
31.12.2011
Sales 457.78 591.19
PBDIT 131.43 152.73
PBDIT % 28.71% 25.83%
PAT 79.44 91.98
PAT % 17.35% 15.56%
Cash Accruals 91.15 117.48
Paid up Equity 200 700

Comments o the above has been already provided under financial analysis.
Peer Comparison:
As mentioned in Market assessment, Chapter IV.
Group Company Financials:
The Company does not have any group company. The operations of erstwhile Mrs. X Skin
Clinic Private Limited (DPSCPL) have been discontinued. The entire business is presently
being carried under XYZ (XYZ) only.
EOD Status
Particulars Status
(Latest FY)
EOD Triggered?
(Y/N)
Current Ratio < 1 N.A. N.A.
Minimum DSCR of 1.25 times N.A. N.A.
Negative variation of more than
10% between provisional &
audited results (in the stipulated
parameters)
N.A. N.A.
Cross default N.A. N.A.
Change in management N.A. N.A.



74

V. ASSESSMENT OF CURRENT PROPOSAL
1. Assessment of Working Capital Facility
Overdraft Facility of ` 25.00 lakh
The Company proposes to avail Overdraft Facility of ` 200.00 lakh for the purpose of temporary
working capital requirement in view of the proposed capex and expanded operations.
As informed to us this facility would mainly be utilized for the following purposes:
a) To meet cash flow mismatches in order to meet its commitments on account of salary,
operational expenses and monthly rent for the clinics etc. The funds would be required initially
in the year 2012-13 till all the clinics are stabilized in their operations. Being service sector
unit, the entire infrastructure needs to be set upfront in all the clinics including manpower for
the customer offerings.
b) Moreover, the funds would also be required to support the seasonal requirements like
marriage season, summer and festive vacations etc. Generally this period runs from August to
November and January to Mid-March. Thus in order to procure the consumables, inventory for
the preparations of the medicines and also to outsource some renowned experts in the field to
serve the requirements of HNI clients, and Celebrities etc during this period.
However in view of the working capital requirement of the Company we may propose OD
facility to the extent of ` 25.00 lakh while the balance may be availed from the other bank under
discussion. Further in our projections, OD facility of ` 200.00 lakh has been considered.
2. Assessment of Term Loan Requirement
I. PROJECT ASSESSMENT
Brief details of the proposed project are as under:
Setting up 6 new clinics at Mumbai

(Colaba, Vile Parle, Chembur, Malad, Ghatkopar, Navi
Mumbai) and 2 new clinics at Pune

(Baner, Kalyani Nagar).
Shifting of existing 2 clinics in the new premises to be purchased at Bandra and Peddar
Road, Mumbai
Shifting of existing Juhu clinic to Lokhandwala, Andheri (W) in leased premises.
A. Expansion Project Rationale:
Having established successful & profitable operations with standardization in services at its
existing 3 clinics (Bandra, Juhu & Peddar Road) in Mumbai, XYZ is now proposing to further
expand operations in high growth areas of Mumbai and Pune region by opening new clinics.
Also, in order to expand customer reach and revamp existing operations with a long term
perspective, operations of existing clinics 2 having sizable customer base are proposed to be
shifted in the owned premises to be purchased at Bandra & Peddar Road. The other existing
Juhu clinic is proposed to be shifted in leased premises at Lokhandwala, Andheri as a part of
dissemination of operations across high growth areas of Mumbai. As the clinics are proposed
to be shifted within the same vicinity, no impact on its existing customer base is expected. The
critical activities involved in the current project are as follows:-
Acquisition of owned Premises: Lease Rentals and Employee/doctor cost forms the
major component of expenses for XYZ. Rent for existing 3 clinics aggregated to ` 95.33 lakh,
i.e. 17.75% of revenue of FY 2011 and ` 103.21 lakh, i.e. 16.94% of revenue for FY 2012.
75

Given the exisitng customer base, stabilized operations, expected escalation in future rentals,
uncertainty w.r.t. to lease renewal etc, XYZ proposes to shift clinics in owned premises. Given
the significant cost involved in interiors, furniture and fixtures, shifting in owned premises is
expected to provide more stability to its business operations. The future growth plan of the
Company envisages a mix of owned and leased premises.
Procurement of high end medical equipments: XYZ is providing gamut of derma and
aesthetic care solutions. It thus proposes to procure high-end equipments for the proposed new
clinics as well as further equip existing clinics with additional equipment/machinery. Given the
area of operation, the proposed equipments to be procured are expected to give the company
competitive advantage over its peers.
B. Total Project Cost & Means of Finance:
Total cost of the proposed project is ` 4700.00 lakh which is to be funded with a debt equity
ratio of 2:1, i.e. debt of ` 3133.33 lakh & equity of ` 1566.67 lakh. The project debt is proposed
to be shared by 2 banks viz. IDBI & Saraswat Bank in the ratio of 60:40 respectively.
Details of the project debt & equity are as under in Table # 1:
(` lakh)
Sr. No. Particulars Total Amount
Share in Total
Project cost
I. Total Project Cost 4700.00 100%
II. Means of Finance
i) Equity 1566.67 33.34%
- Equity Capital 500.00 10.64%
- Unsecured Loans (Quasi-equity)
1066.67

22.70%
- Internal Accruals

ii) Debt 3133.33 66.66%
- IDBI Bank (60% of Total Debt) 1880.00 40.00%
- Saraswat Bank (40% of Total Debt) 1253.33 60.00%
The components of project cost are envisaged as follows in Table # 2:
(` lakh)
Sr. No.
Particulars Cost
% Share of Total
Cost
1. Shops 950.00 20.21%
2. Interiors/ Furniture and Fixtures 334.10 7.11%
3. Medical Machinery and Equipments 3088.40 65.71%
4.
Electrical/ office Equipments/ Air conditioners/
Computers
44.80 0.95%
5. Deposits 45.00 0.96%
6. Preliminary and Pre-operative Expenses 40.00 0.85%
7. Contingencies [4.39% of (1+2+3+4+5+6)] 197.65 4.20%
Total Cost of Project 4700.00 100.00%
76


The above capex includes expenses for purchase of 2 premises for shifting of Peddar
road and Bandra clinic, expenses on furniture and fixtures for new clinics as well as for existing
clincs to be shifted, expenses on weight loss and laser equipment to be purchased for existing
clinics, varios equipments & machinery for new clinics and other expenses.
As per estimates approx. 66% of the above capex would be utilised towards capex
requirement for branch expansion and approx 29.5% for capex for revamping existing clinics.
Approx. 4.21% of the total project cost is assumed at Provision for contingencies. Provision
for contingencies would take care of unexpected escalation in costs of machinery, forex,
property price, unexpected other costs etc.
Each clinic of the company would have an area of approx 800-1000 sq. ft. The clinics
to be opened on leased premises are estimated to make rental deposit of Rs.5 lakh each which
has been considered as a part of above project cost.
Bifurcation of capex between old clinics and new clinics is as follows in Table # 3:
(` lakh)
Sr.
N
o
.
Particulars
Per Clinic
Capex
Total
Estimate
d Cost
% of Total
Capex
1. Capex on existing Clinics 3 Nos. -- 1452.06 30.89%
2. Capex Per New Clinic 8 Nos. 387.79 3247.94 69.11%
Total 4700.00 100%

a) Details of proposed changes in Existing 3 Clinics:
Project detail: The Company proposes to procure its own property and shift its existing
2 clinics at Bandra and Peddar Road to its owned premises. Further, it proposes to shift Juhu
clinic to Lokhandwala, Andheri (West) to diversify its clinical base & make its presence across
the potential customer base. Further, the existing Andheri clinic is proposed to be equipped
with Laser Hair Removal and Weight Loss Machine while Bandra clinic with a Weight Loss
Machine. The components of project cost to be incurred on the existing clinics are summed up
as under in Table # 4:
(` lakh)
Particulars Total Capex
Purchase of Properties Bandra & Peddar Road (As per table
mentioned below)
950.00
Interiors & Civil Works Bandra, Peddar Road, Andheri 70.00
Medical
Equipments
Andheri- Laser Hair
Removal
97.00
(Cost for 1)
371.00
77

Andheri & Bandra- Weight
Loss
274.00
(Cost for 1)
Total 1391.00
Contingency @ 4.39% 61.06
Total (For Bandra, Peddar Road and Andheri Clinic) 1452.06

Location: The exiting Bandra and Peddar road clinic are proposed to be shifted on the
premises to e purchased within the same locality of the existing setup. Juhu Clinic is proposed
to be shifted to Lokhandwala, Andheri (W) in the leased premises to spread its reach to the
client base. The promoters have already identified and they are in the advanced stage of
finalisation of the properties to be purchased and leased. Brief details of Owned Premises
Locations proposed to be purchased by Company are mentioned below in Table # 5:
(` lakh)
Location Address
Carpet
Area
(Sq.
Ft.)
Super Built-
up Area
(Sq. Ft.)
[A]
Rate
(Rs per
Sq. Ft.)
[B]
Cost
[A * B + 5%
provision
for duties
etc.]
Khar (West),
Mumbai
Linking Road, Prabhu
Kutir, 2
nd
floor
800 1040 37,500 409.50
Peddar Road,
Mumbai
Shanti Apartment No-
102, Near Jaslok
Hospital
990 1287 40,000 540.50
Total Cost

950.00
b) Details of proposed New 8 Clinics: (Mumbai 6 & Pune 2)
Each clinic of the Company would have an area of approx 800-1000 sq. ft. The cost of
setting up each clinic is estimated at around Rs.387.79 lakh.
The summary of components of project cost for the proposed new clinics is as under in Table
# 6:
(` lakh)
Particulars
Cost per
Clinic
Total
Capex
% of
Total
Capex
1. Interiors & Civil Works 33.02 264.16 8.10%
2. Medical Equipments 339.67 2717.36 83.70%
3. Electric Equipment 5.10 44.80 1.40%
4. Deposit for Rent 5.00 45.00 1.20%
5. Pre-Operative Expenses 5.00 40.00 1.20%
78

Total 3111.32
6. Contingency @ 4.206% 0.00 136.62 4.20%
Total (Mumbai -6 clinics: Pune-2
clinics)
387.79 3247.94 100.0%

Components of Project Cost for New clinics:
Interiors & Civil Structure (Point No.1 in Table # 6): Each clinic is proposed to be
set up on an area of 800-1000 sq. ft. Interiors of each clinic would be standardized and proposed
to have same ambience and feel. Per clinic cost of interiors is estimated to be ` 33.02 lakh (As
mentioned in table below) with majority of the cost being incurred on civil works and carpentry.
The estimates are based on the quotations submitted by Vishwakarma Furniture, Vidyavihar,
and Mumbai. XYZ has estimated cost of ` 70.00 lakh on the interiors of existing Bandra, Juhu
and Andheri (W) clinic proposed to be shifted. The detailed bifurcation of interiors is as
follows:
(` lakh)
Sr
No.
Description
Total
Amount
% of
Total Cost
1. Civil Work 7.93 24.0%
2. Plumbing 2.81 8.5%
3. POP work 1.53 4.6%
4. Electrical 4.05 12.3%
5.
Painting, Polishing, wall paper, Curtain & Bed
Mattresses
3.70 11.2%
6. Carpentry 7.56 22.9%
7. Fitting of Air Conditioning 0.53 1.6%
8. Loose Furniture & Chairs & Sofas etc. 1.67 5.1%
9. Hot plates & Crockery & Cutlery 0.12 0.4%
10. Neon signs & Banners etc. 2.07 6.3%
11. Art & Idols 1.05 3.2%

Total cost per clinic [A] 33.02 100%
Total cost for 8 clinics [A x 8] 264.16

Medical Equipments (Point No. 2 in Table # 6): Medical equipments are estimated
to form more than 84% of the proposed capex per new clinic.
(` lakh)
Sr.
No
.
Medical Equipments
Unit/
Clinic
Approx.
Cost
*
(%)
1.
Laser Equipment Set (Hair reduction,
Vascular treatment, skin rejuvenation)
2 194.00 57.1%
2. Laser Machine (Weight Loss, massaging
etc.)
1 7.00 2.1%
3. Microdermabrasion machine 1 0.50 0.1%
4. Electroporation Machine 1 1.00 0.3%
79

5.
Other Equipments (Hi frequency machine,
Radiofrequency Cautery, Sterilizer)
1
Each
0.17 0.1%
6. Maximus Weight loss system 1 137.00 40.3%

Total Cost per clinic [B] 339.67 100%
Total Cost of 8 clinics [B x 8] 2717.36
* Including Custom Duties and taxes, Transportation, and Installation Cost
The brief details of the above mentioned equipments to be procured are as follows:-
- Laser equipment set (` 97 lakh x 2 Nos.): XYZ proposes to procure Laser Equipment set
from Cutera Inc., which runs on the Coolglide platform. Coolglide supports three technologies
namely Coolglide Laser (for Hair reduction), Excel Laser (for Vascular treatment), and Laser
Genesis (for skin rejuvenation). It has been approved by FDA for permanent hair reduction for
all skin types, treatment for a wide range of vascular conditions, and for gentle skin
rejuvenation of all skin types. The estimated cost is based on the quotation submitted by Leader
Healthcare, New Delhi.
- Weight Loss Machine Maximus System (` 137 lakh): The Maximus system uses a
combination of TriLipo RF technology (anti-ageing radiofrequency technology) and TriLipo
Dynamic Muscle Activation technology (DMA), and provides holistic solution for a wide
variety of aesthetic applications including fat reduction, body sculpting, stretch marks
reduction, skin tightening and facial contouring within a single compact system. The system
would be customized by the manufacturer Pollogen Ltd., US, based on the requirement of the
Company. The cost estimate is based on quotation submitted by Biotex, Mumbai.
- Laser Machine (` 7 lakh): The equipment finds application in non-invasive treatments
including facial wrinkles, skin rejuvenation, body weight loss, toning & firming, massaging,
cellulite removal & mind relaxation. It offers options to the treatment provider to select the
treatment time, mode, and intensity. Compared to other similar equipments it occupies less
space, and can treat 5 clients at a time. The Company would be procuring the equipment from
the Jodhpur based Johari Digital Healthcare Ltd.
- Microdermabrasion Machi (` 0.50 lakh): The microdermabrader is used in a wide range
of treatments for face and body skin from a light peeling to an intensive skin abrasion. The
Company would be procuring the microdermabrader from Careoline Health Tech.
- Electroporation Machine (` 1 lakh): Dermetron, an electroporation machine, which is used
for pushing treatment product into the deeper layer of the skin. It is used in the treatment of
hyper-pigmentation, acne, fine lines & wrinkles, hand rejuvenation, hair regrowth etc. The
Company would be procuring the Dermetron electroporator from Careoline Health Tech.
- Other Equipments (` 0.17 lakh): The Hi-frequency Machine (` 0.04 lakh) finds application
in anti-aging, anti-wrinkle, skin tightening and other skin treatments. The Company would be
obtaining high frequency machine manufactured by Clarol Beauty Products from a local
suppplier. The Company would be procuring Radio-frequency (RF) cautery (` 0.1 lakh), used
to destroy abnormal tissue by burning, searing, or scarring from the local supplier. The RF
Cautery is used in the removal of Skin Tags, Moles, Warts, and Keratoses etc. It would also
80

procure sterilizers (Rs.0.03 lakh) used for disinfecting the medical equipments, from local
supplier.
- Electrical Equipments (Point No. 3 in Table # 6): Electrical equipments are estimated to
forms around 1.4% of the capex per new clinic. ACs form the major components of electrical
equipment purchase followed by Laptop, PC, and LCD/LED TV etc. The cost estimation is
broadly based on the quotations obtained from reputed suppliers like Croma, Infinity etc.
(` lakh)
Sr.
No.
Electric Equipments
No of
Clinics
Total
Amount
1. LCD/LED TV 1
0.45

2.



A.C.


Reception area 2
8 2.00 Consultation 1
Treatment Room 5
3. P.C. With Internet Connection 2 0.50
4. Printer With Scanner & Fax 1 0.20
5. Telephone Lines 2 0.20
6. Refrigerator 1 0.18
7. Coffee Machine 1 0.02
8. Music System 1 0.50
9. Micro Wave Oven 1 0.12
10. Laptops 1 0.50
11. Security System 1 0.25
12. RO Water Treatment 1 0.18
Total cost per clinic [C] 5.10
Total cost for 8 clinics [C x 8] 40.80

Deposit for Rent ((Point No. 4 in Table # 6): The rental deposit for the 9 new clinics
proposed stands at ` 45 lakh, i.e. ` 5.00 lakh per clinic.

C. Location of new leased clinics:
The new clinics are proposed to be shifted to posh localities providing ample business
opportunities and to further increase its reach to end customers. Each clinic would be setup on
an area ranging between 800-1200 sq.ft. Average lease rental for new clinics is assumed at `
130 per. sq.ft per clinic, which may be considered satisfactory keeping in view the present
market rates in the below mentioned areas.


81

Rented Premises Locations as under in Table #7: (` lakh)
Location Address
Area
(sq.ft.)
Monthly
Rental
Rental
Deposit
MUMBAI
Chembur 4
th
floor, Omprakash Arcade. 800-1200 1.00 5.00
Malad (W)
B Wing, 1
st
floor, Sangeet Building,
S.V. Road
800-1200 1.00 5.00
Colaba
1
st
Floor, Saideep Building, 17, Cuffe
Parade
800-1200 6.00 5.00
Ghatkopar (W) M.G. Road. 800-1200 1.00 5.00
Vile Parle Indira Nagar, S.V. Road. 800-1200 1.50 5.00
Navi Mumbai
Vashi Station, Near Centre One
Shopping Complex.
800-1200 1.00 5.00
Andheri Lokhandwala 800-1200 1.00 5.00
PUNE

Baner
Near Four Seasons Hotel, Parihar
Chowk.
800-1200 1.00 5.00
Kalyani Nagar Marigold Complex, Near Big Cinema. 800-1200 1.00 5.00

D. Implementation Schedule:
The implementation schedule for the said project as under in Table # 8:


Mar-
2012
Apr-
2012
May-
2012
June-
2012
July-
2012
Au
g
-
2
0
1
2
Sept-
2
0
1
2
Oct-
2
0
1
2
Nov-
20
12
Dec-
2012
Purchase of Property
Deposit for Leased
Properties

Machine/ equipment for
existing clinics

Machine Equipment for
new clinics

Interiors for shifting
clinics

Interiors for new clinics
Electrical installation at
New clinics

82

Office machinery at new
clinics

Other Office Equip. at
new clinics


The above implementation schedule is based on the physical implementation. However, the
Company requires to make advance payment to suppliers to ensure timely execution. The
Company has informed us that the Commercial Date of Operations (COD) of the proposed 8
new clinics would be 01.11.2012. However on a conservative basis we are assuming the COD
to be 01.12.2012, thereby leading to revenue from the 8 new clinics for period of 4 months for
FY 2013 where as existing 3 clinics would generate revenue for full FY 2013. Thereafter from
FY 2014 onwards all clinics would be running for the entire year.
E. Present status of Means of Finance:
The promoters have already initiated the project. The Company has to bring equity to the extent
of ` 1566.67 lakh as against debt of ` 3133.33 lakh As informed to us by the Company, it has
incurred capex of ` 250.82 lakh till date by way of payment to suppliers of medical equipments
& machinery. This capex has been met through fresh equity infused of ` 123.24 lakh and
internal accruals of ` 127.58 lakh. The remaining promoter contribution would be brought-in
by way of equity infusion and quasi-equity (Unsecured loans) and balance partially out of
internal accruals in line with the capex and implementation schedule. Unsecured loans will
remain subordinated to the proposed term loan.
II. PROJECT FINANCIAL ASSESSMENT
A. Projected Financials:
The Company has informed us that the Commercial Date of Operations (COD) of the proposed
8 new clinics would be 01.11.2012. However on a conservative basis we are assuming the COD
to be 01.12.2012, thereby leading to revenue from the 8 new clinics for period of 4 months for
FY 2013 where as existing 3 clinics would generate revenue for full FY 2013. Thereafter from
FY 2014 onwards all clinics would be running for the entire year.
The projected financials of the company are as under in Table # 9:
Particulars FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20
No. of Clinics 3 11 11 11 11 11 11 11 11
Revenue/Sales 5.92 11.70 19.78 23.05 26.16 26.69 27.22 27.75 28.28
EBITDA 1.53 4.72 10.57 13.11 15.48 15.60 15.76 15.91 16.04
EBITDA% 25.8% 40.4% 53.5% 56.9% 59.2% 58.5% 57.9% 57.3% 56.7%
PAT 0.92 0.23 2.79 4.92 7.04 7.41 7.87 8.42 9.07
PAT% 15.5% 2.0% 14.1% 21.4% 26.9% 27.8% 28.9% 30.3% 32.1%
Cash Profit 1.17 1.81 5.29 7.62 9.98 10.65 11.43 12.30 13.25
Current Ratio 6.12 1.21 1.09 0.86 0.82 0.74 0.63 0.55 1.83
Current Ratio# 6.12 4.89 3.69 3.04 2.63 2.52 2.32 2.14 1.83
83

TNW* 10.32 14.15 18.44 23.36 30.40 37.82 45.69 54.10 63.17
TOL/TNW* 1.59 2.55 1.92 1.42 0.96 0.64 0.41 0.22 0.07
ICR -- 1.67 2.30 3.05 4.07 4.92 6.45 9.96 25.67
DSCR -- 1.64 1.62 1.63 1.64 1.65 1.64 1.62 1.62
* Unsecured loan are projected to remain in business and hence treated as Quasi-equity.
# after netting off TL instalment from current Liabilities.
Key Assumptions are given in Appendix- I I (Page-92).
Observations:
The revenue has been considered to grow conservatively at a CAGR of 6.1% between
FY 2014 and FY 2020.
The profit margins are projected to improve as a result of relative decrease in Selling,
distribution and Administrative expenses. The Net profit margin is projected to reflect an
increasing trend as a result of decrease in interest expenses due to repayment of term loans.
The current Ratio is projected to fall below unity due to significant instalment of term
loan due within 1 year. Netting off such term loan instalment due within 1 year, the adjusted
current ratio reflect a comfortable position. Given the nature of industry, the same may be
considered acceptable.
Gearing is projected high at 2.55 during FY2013 due to term loan availment for Capex.
However going forward, the same is projected to come down as a result of retention of profits
and repayment of term loan.
DSCR is projected in the range of 1.62 to 1.65 times in future, which may be considered
acceptable.
Given the area of operation and business model, the company need to expand in future while
opening new clinics in new geographies, hence, the company has proposed to undertake
expansion out of internal accruals from FY2014 onwards. Such expansion may further add up
to the cash flows of the company. Such expansion may be considered acceptable for stable
growth and standing of the company to cope up with the competition that is likely come up in
future being incentivised by high margin and untapped market potential.
Breakeven Analysis
Particulars FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Revenue 5.91 11.70 19.77 23.04 26.15 26.67 27.20 27.74 28.27
Variable Cost 1.07 2.12 2.67 2.87 3.09 3.19 3.26 3.33 3.41
Contribution 4.84 9.57 17.10 20.17 23.06 23.49 23.94 24.40 24.85
Fixed Cost 2.93 8.18 12.09 12.33 12.42 12.35 12.19 11.92 11.52
BEP 3.57 10.00 13.98 14.09 14.09 14.02 13.85 13.55 13.09
Cash BEP 3.38 8.23 11.25 11.17 10.93 10.53 10.00 9.35 8.57
84

Breakeven 61% 86% 71% 61% 54% 53% 51% 49% 46%
Cash
Breakeven
57% 70% 57% 49% 42% 39% 37% 34% 30%
Majority of the expenses of the company are fixed and semi-variable in nature. The company
is projected to achieve breakeven in the first year of operations itself.
Overall Financial Assessment
The company operates in a high margin and high growth segment wherein it can command
premium on the back of quality service and service differentiation. The revenue projections
have been taken on a conservative manner, the same may be considered acceptable and
achievable. Future capex out of internal accruals may be accepted on the back of likely threat
of competition in future. Given the nature of industry and business model, the company would
breakeven in first full year of operations. Overall projected financials may be considered
reasonable.
85

VI. COMPLIANCE WITH EXPOSURE NORMS




1. Cap in Absolute Terms (` lakh)
Particular
s
Existing Proposed Pre-defined limits
Company 0.00 2080.00
3,500 (5,000 crore for infrastructure
projects)
Group 0.00 2080.00
10,000 (12,000 crore for infrastructure
projects)
2. As a percentage of IDBIs capital funds: (` 31,278 crore as on March 31, 2012) (` lakh)
Total proposed
Exposure
0.00
TE as % Bank
Capital Funds
0.00%
Pre-defined limit is 15%
+ (5% for Infra.
Projects) + (5% with
Board/ EC
approval)
Total Group
Exposure
after
proposed
exposure
2080.00
TGE as % Capital
Funds
0.06%
Pre-defined limit is 40%
+ (10% for Infra.
Projects) + (5% with
Board/EC approval)
3. To Individual industry (` lakh)
Existing
Exposur
e to the
industry
in which
Compan
y
belongs
% Of IDBI's total
industry
portfolio
(` 3,76,446 crore as
on March 31,
2012)
Proposed
Exposure
(Incremental)
Total
exposur
e after
propose
d
exposur
e
% Of
IDBI
's
total
indus
try
expo
sure
Pre-
defined
limit
2032.81 0.54% 2080.00 2080.00 0.06%
Restricted
to 10% of
IDBIs
industry
portfolio
86

VII. COMPLIANCE WITH LENDING NORMS/ PARAMETERS
Following are the indicative norms for soliciting new business/ preliminary scrutiny of new clients:
Parameter Benchmark Compliance
Profitability/
Performance
Profits for last 2 years. Complied
The Company posted net profit of ` 2.75 lakh during FY
2010, ` 87.21 lakh during FY2011 and ` 1.02 lakh during
FY 2012.
Hence Complied.
Credit
Rating
Minimum I - A or
facility rating of
minimum I-BBB
where adequate
mitigates are in place,
subject to limit of 25%
of outstanding
corporate finance
portfolio.
Rating of P 2 at Level-II. Rating Validation under
process at Risk Department.
Hence not Complied.

Promoter
Contribution
:
Minimum 25% Total cost of the proposed project is ` 4700.00 lakh
which is to be funded with a debt equity ratio of 2:1, i.e.
debt of ` 3133.33 lakh & equity of ` 1566.67 lakh. Hence
the promoter contribution stands at 33.33%.
Hence Complied.
DSCR Minimum 1.20 with
average of minimum
1.50 times
During the 8 year tenor of the proposed loan, the
minimum DSCR works out to 1.34 times with an average
DSCR for the said tenor works out to 1.53 times.
Hence Complied.
Leverage Maximum TDE (TOL:
TNW) = 3:1 times
TOL/TNW of the Company stands at 0.18 as on
31.03.2011 & 31.03.2012 and is projected to stand at
1.84 times as on 31.03.2013.
Hence Complied.
Current
Ratio
Minimum 1.25 times Current ratio of the Company stood at 1.47 times as on
31.03.2012 and projected to stand 1.50 times as on
31.03.2013.
Hence Complied.
Credit
History
No known default by
Company or Group
No known default by the promoter.

87

VIII. RECOMMENDATIONS
1. Certification
(In case of non-compliance, give details / reasons & justification for recommending the limit
despite non-compliance)
a. There are no un-rectified irregularities in the account, except for: _____
b. All formalities regarding documentation and security creation for existing facilities have
been completed
c. All other terms, including EODs, for existing exposures are in compliance,
d. The company / directors / group companies / guarantors do not figure in RBI defaulter list
(as on________) or CIBIL defaulter list (as on _________) and the company's/promoter's
name(s) does not appear in the caution advice list (as on________). There are no litigations
pending against borrowers, other than those in the normal course of business. Certificate to this
effect has been obtained by the company and kept on record.
e. Neither directors of the Bank nor their relatives are interested in the proposal nor do they
hold substantial interest in the borrowing entity. Further, none of the directors of other banking
company and their relatives are interested in the proposal.
f. None of the relatives of any senior officers of the Bank holds substantial interest or is
interested as a partner or guarantor / director or guarantor of the company. Certificate to this
effect has been obtained from the company and kept on record.
g. The borrowing entity complies with the relevant environmental norms.
h. There are no deviations from the credit policy (including policy on Bill Finance), RBI
policy, FEMA and other related regulatory provisions, except for: ______
i. There are no cases pending against the borrower / guarantor in any court in respect of any
dues to banks/ financial institutions
2. Terms of Sanction (as per Appendix)
3. Recommendation
In view of the above, RCC may please sanction aggregate assistance of Rs.23.15 cr.
comprising Rupee Term loan of Rs.21.15 cr. and OD limit of Rs.2.00 cr. on the terms and
conditions as per the Terms Sheets appended and also as per general terms and conditions
applicable to sanction of such types of assistance by the Bank, taking the company exposure
to Rs.23.15 cr.
88

The Committee is also requested to approve following waivers/deviations/modification/
relaxations of standard conditions, clauses / norms / parameters sought in the proposal in view
of the justification given in the memorandum (Chapter No., page No. & para No. may be
indicated against each type of waivers/deviations/modification/ relaxations).

(i)
(ii)
(iii)
The Committee is also requested to take note of the review of existing facilities
under Chapter V and approve the following (mention approval(s), if any, being sought)

Signature (with date) Signature (with date) Signature (with date)
Name Name Name
RM BH /DGM RH /GM
Date of Memorandum:


89

Appendix - I
TERM SHEET FOR WORKING CAPITAL
Facility I
Limit

Over Draft Limitof Rs.200 lakh
Purpose To meet seasonal temporary working capital requirement
Pricing BBR + 225 bps (Effective-13%)
Tenor/Validity 1 year.
Repayment / Due date To be regularized at the end of every financial year.
Margins Nil
Security

Primary
- First pari-pass charge on Current Assets of the company.
Collateral - Pari-passu second charge on fixed assets of the company.
- Pari-passu second charge on mortgage of residential flat
in the name of Mrs. X valuing Rs.10 cr
Third Party Guarantees - Personal Guarantee of Mrs. X and Savio DSouza
Events of Default

Financials
Variation of more than 10% in revenue vis--vis projections
Others

Processing charges
0.50 % of proposed exposure.
Other Conditions
As applicable for sanction of such facilities.
Due Date of next
renewal/ review
1 year from the date of first sanction.
Waivers if any proposed
Documents:
Insurance
Assets to be Insured Risks to be covered Remarks
A pre-disburement condition may be stipulated to obtain Insurance
as per Bank clause
Inspection Frequency
Location of Unit/s
Proposed Frequency Reasons for relaxation, if any,
proposed.

Every year before renewal.


90

Appendix - I (Contd.)

TERM SHEET FOR TERM LOAN
i Amount RTL of Rs.2115 lakh
ii Purpose Capex for expansion
iii. Rate of
Interest
BBR + 225 bps (Effective- 13%)
(or as decided by the sanctioning authority)
iv Liquidated
Damages
A charge of 2 % p.a. over and above the applicable interest rate by way
of liquidated damages will be levied for defaults in principal, interest
and other moneys payable under the loan agreement. Arrears of
liquidated damages shall also carry interest at the applicable rate for
loan.
v Up - front fee 0.15% of the facility + service tax.
vi Legal Fees
and other
Charges
As per actual.
vii Security Security
Primary
Security
Term Loan
Pari-passu first charge on project assets* which
includes Premises to be purchased at Bandra & Peddar
Road (Rs.9.5 cr.), Furniture & Fixtures (Rs. 3.34 cr.),
Medical machinery & equipments (Rs.30.9 cr.), Other
Electrical/office equipment/machinery/computers
(Rs.0.45 cr.) and Deposits to be placed with lessor
(Rs.0.40 cr.). [Total-Rs.44.6 cr.]
* as per Project Cost
Overdraft
Pari-passu first charge entire current assets,
both present & future (Rs.2.02 cr.). * as at
the end of FY13.
Collateral*
Term Loan
Pari-passu second charge over Current Assets.
(Rs.2.02 cr. excluding deposits considered above)
* as at the end of FY13.
Overdraft
Pari-passu second charge over entire fixed
assets both present and future.(Rs.47.8 cr.) *
as at the end of FY13.
Common for both TL & Overdraft
Pari-passu charge on existing Plant &
Machinery (Rs.2.6 cr.) * as at
the end of FY12.
91

Mortgage of residential flat in the name of Mrs.
X (Rs.10 cr.) * as per Valuation Report.
Guarantees
Personal Guarantee of Mrs. X and Mr. Y(Total
NW-Rs.___cr.)
*all charges on reciprocal basis with other project lender.

viii Repayment Door to door tenure of 96 months which includes moratorium of 18
months (6-8 months) and monthly installments of principal and
interest payable each month for 78 months.


Year Interest Principal
Total
Repayment
2012-13 167.0 -- 167.0
2013-14 269.1 90.0 359.1
2014-15 251.6 180.0 431.6
2015-16 221.9 276.0 497.9
2016-17 183.7 312.0 495.7
2017-18 140.0 360.0 500.0
2018-19 89.3 420.0 509.3
2018-20 31.0 477.0 508.0
Total 1353.6 2115.0 3468.6
ix Pre payment The facility maybe prepaid with prior approval of the lender by paying
pre-payment premium as applicable for such facilities.

x Financial
covenants
To be stipulated.

xi Last date of
drawal
9 months from the date of first disbursement
xii Other

Insurance of fixed assets of the clinics.
Keyman Insurance to be provided.
Negative Lien over Brand Gorgeous
As deemed fit and decided by the respective lender(s).



92

ANNEXURE II
Assumptions underlying profitability and cash flow projections
1. Revenue Assumptions
The revenue consists of Gross professional Receipts from the customers for treatments
offered and other income from activities including consulting services provided by the promoter.
The existing average revenue per clinic for existing as well as the average revenue per clinic for the
new clinics is as under:
(` lakh)
Financial Year
FY
2012
FY
2013
FY
2014
FY
2015
FY
2016
FY
2017
FY
2018
FY
2019
FY
2020
Revenue from
existing clinics
203 234.7 273.1 303.2 327.1 330.4 333.7 337.1 340.4
Revenue from
new clinics
-- 38.8 144.7 174.3 215.0 220.0 220.3 225.0 230.0

FY 2014 would be the first full year of operations for the new clinics with projected revenue ` 145
lakh per clinic going up to ` 230 lakh per clinic in FY 2020. The expected growth in revenue is as
under:
(` lakh)
Financial Year
FY
2012
FY
2013
FY
2014
FY
2015
FY
2016
FY
2017
FY
2018
FY
2019
FY
2020
Revenue growth
of existing
clinics
-- 15.6% 16.4% 11.0% 7.9% 1.0% 1.0% 1.0% 1.0%
Revenue growth
of new
clinics
-- -- 273.2% 20.4% 23.3% 2.3% 0.1% 2.1% 2.2%
Other Income
82.6% 60% 15% 15% 15% 15% 15% 15% 15%
The growth assumptions been taken on a conservative basis. The Company would be
undertaking expansion out of internal accruals by way of accretion to its fixed assets from FY 2014
onwards. The same has been considered to the extent of 50% while its corresponding revenue which
would accrue from the capex has not been considered.
The Revenue is projected to grow at a CAGR of 6.3% between FY 2014 and FY 2020.
93

2. Expense Assumptions
Material Consumption expenses have been assumed to be 7% of the total revenue as against
4.47% cost in FY 2012 and 4.42% cost in FY 2013.
Corporate level employees consists of Corporate Client Head, Marketing Manager,
Accounts Manager, HR Manager, while Clinic level employees consist of Doctors, Assistant
Doctors, Therapists, Clinic Managers, Client Coordinators, Junior Accountant, Office Boy etc. The
employee details are given below:

Employee Staff Strength Monthly Salary
(Rs. Approx.)
Corporate Level Staff:
Corporate Client Head 1 Employee 1,00,000
Marketing Manager 1 Employee 1,00,000
Accounts Manager 1 Employee 50,000
HR Manager 1 Employee 50,000
Clinic Level Staff:
Clinic Manager 1 per Clinic 20,000
Client Coordinator 1 per Clinic 15,000
Senior Doctor 1 per Clinic 45,000
Assistant Doctor 2 per Clinic 25,000
Therapist 4 per Clinic 10,000
Junior Accountant 1 per Clinic 12,000
Office Boy 1 per Clinic 5,000
Professional fees (for doctors & assistant doctors) comprise of fixed salary and incentives.
Fixed component has been assumed to grow at 10% per annum, while incentives have been assumed
to be 1% of the total sales of the corresponding year.
For FY 2013, the doctors would be recruited 2 months prior to commencement of operations
and hence 6 months salary has been considered.
Personnel Cost (constituting remaining employees, i.e. clinic level & corporate level
employees) comprise of fixed salary and incentives. Fixed salary has been assumed to grow at 10%
per year, and incentives have been assumed to be 2% of the total sales of the corresponding year.
For FY 2013, the staff will be recruited and trained 2 months prior to commencement of
operations and hence 6 months salary has been considered.
Other Direct Expenses have been assumed to be 2.50% of the total revenue from FY 2013
onwards.
94

Average monthly rental per clinic has been assumed to be Rs.1.3 Lakh, and the rents for the
new clinics would commence from 1st July 2012. An annual increment of 5% has been considered
every year.
The growth in expenses has been assumed to be as follows:
Particulars FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Directors
Remuneration
10% 1% 2% 2% 2% 2% 2% 2% 2%
Office & Admin
Expenses
10% 70% 10% 10% 10% 5% 2% 2% 2%
Selling & Distri-
bution Expenses
17% 150% 20% 5% 5% 2% 2% 2% 2%

The above projections have been taken on a conservative Basis. The company would be expanding
by opening new clinics from FY2014 onwards in line with its growth & expansion strategy and to
keep pace with the competition. Owing to the increased scale of operations and brand visibility, the
new clinics would further add up to the revenue base, which have not been considered in the
projections.

3. Working Capital Assumptions
The company does not require any working capital.
Inventory consists of raw materials for in-house products and consumables. Holding
Period is assumed to be 1 month.
Outstanding Payable Period for Creditors has been assumed to be 2 month.
Days Payable Outstanding for expenses incurred internally has been assumed to be 15
days in FY12, and 21 days from FY13 onwards.
The salary would be paid on monthly basis.

4. Breakeven Assumptions
The Breakeven analysis has been performed considering fixed, variable and semi-variable costs
separately as follows:
Fixed Expenses: Clinic Rent & Business Conducting Fees, Interest on term loan
Variable Expenses: Medical Purchases, Interest on cash credit
Semi-Variable
Expense
Fixed Variable Semi-Variable
Expense
Fixed Variable
95

Semi-Variable Expenses: Semi-variable expenses constitute of the following
expenses having a fixed as well as variable component.
Professional Fees 86% 14% Office & Admin
Expenses
45% 55%
Directors
Remuneration
50% 50% Personnel Cost 79% 21%
Other Direct
Expenses
5% 95% Selling & Distribution 10% 90%
96







97

CONCLUSION
The mechanism of project appraisal followed by IDBI is sound. The process is elaborate and
comprehensive. The bank is taking initiating to ensure prompt decision with respect to project
financing at the same time not diluting the quality of the decisions. Project monitoring is done
both during implementation and post operation period through periodical progress reports or
annual reports furnished by the assisted unit, follow visits, nomination of IDBI officers or
outside professional on the board of assisted company, periodic interaction with Chief
Executive officer or Senior Executive of the Companies and discussions with bankers of the
company. The system enables IDBI to monitor the progress of the project, diagnose problem
areas, if any, and work out remedial measures where needed. Thus, enabling IDBI to actively
participate in determining the future direction for the borrowing company.
98







99

BIBLIOGRAPHY
BOOKS REFERED
1. Handbook on Project Appraisal & Follow-up: A Practical Guide
2. Project Finance: Appraisal & Follow-Up by D P Sarda
3. IDBI Project Appraisal Manual

WEBLIOGRAPHY
1. www.google.com
2. www.rbi.com
3. www.moneycontrol.com
4. www.idbi.com
5. www.investopedia.com
6. www.managentparadise.com