FACTORING IN INDIA

CERTIFICATE

This is to certify that the project entitled Factoring in India being submitted by Sonali
Pahwa is a record of bona fide work carried out by her. She has performed the work
under my guidance and supervision in conformity with the rules and regulations of the
IFCI Factors Ltd.

Mr. Rakesh Kapoor

Mr. Vishwanathan

Managing Director

AVP Credit

IFCI Factors Ltd

IFCI Factors Ltd

ACKNOWLEDGEMENT
I would like to express sincere gratitude to my project supervisor, Mr. Vishwanathan for
giving me the opportunity to work under his supervision and guidance.

I gained immensely from the intellectual discussions with him which always provided
me with a deeper understanding of the theoretical and practical aspects of the project.
His feedback helped me develop a comprehensive insight into the project.

I would also like to extend my gratefulness to Mr. Rakesh Kapoor, Managing Director for
allowing me to be a part of IFCI Factors Pvt. Ltd

I would also like to thank all my co-workers Mr. Pawan Goyal, Mr. Ankur Singla and
Mr. Ashwin Hariharan and Mrs. Sudesh Gulati for all their help and support.

GENESIS OF IFCI
At the time of independence in 1947, India's capital
market was relatively under-developed. Although
there was significant demand for new capital, there
was a dearth of providers. Merchant bankers and
underwriting

firms

were

almost

non-existent

and commercial banks were not equipped to provide

long-term industrial finance in any significant
manner.
It is against this backdrop that the government
established The Industrial Finance Corporation of
India (IFCI) on July 1, 1948, as the first
Development Financial Institution in the country to cater to the long-term finance needs of
the industrial sector. The newly-established DFI was provided access to low-cost funds
through the central bank's Statutory Liquidity Ratio or SLR which in turn enabled it to
provide loans and advances to corporate borrowers at concessional rates.

LIBERALIZATION - CONVERSION INTO COMPANY IN 1993

By the early 1990s, it was recognized that there was need for greater flexibility to respond
to the changing financial system. It was also felt that IFCI should directly access the
capital markets for its funds needs. It is with this objective that the constitution of IFCI
was changed in 1993 from a statutory corporation to a company under the Indian
Companies Act, 1956. Subsequently, the name of the company was also changed to "IFCI
Limited" with effect from October 1999.

Corporate Strategy

IFCI has been able to achieve a financial turnaround with the consistent support
and cooperation of all its stakeholders and is now endeavoring to re-position
itself.
In addition to its core competence in long term lending to industrial and
infrastructure sectors, IFCI aims to enhance its organizational value through
better realization of its Non-performing Assets (NPAs) and unlocking of value
of its investment port-folio including unquoted investments as well as real estate
assets.

Indian Economy and IFCI

FOCUS
Until the establishment of ICICI in 1956 and IDBI in 1964, IFCI remained solely
responsible for implementation of the governments industrial policy initiatives. It made a
significant contribution to the modernization of Indian industry, export promotion, import
substitution, pollution control, energy conservation and generation through commercially
viable and market- friendly initiatives. Some sectors that have directly benefited from IFCI
include:

Agro-based industry (textiles, paper, sugar)

Service industry (hotels, hospitals)
Basic industry (iron & steel, fertilizers, basic chemicals, cement)
Capital & intermediate goods industry (electronics, synthetic fibres, synthetic plastics,
miscellaneous chemicals)

Infrastructure (power generation, telecom services)

Code of Conduct

I. INTRODUCTION
This Code of Conduct (hereinafter referred to as the "Code") shall be called "The
Code of Conduct for Board of Directors (hereinafter referred to as the "Board") and Senior
Management Personnel" of IFCI Limited (hereinafter referred to as the "Company").
Clause 49 of the Listing Agreement entered into with the Stock Exchanges requires,
as part of Corporate Governance, that the listed entities lay down a Code of Conduct for
Directors on the Board of an entity and its Senior Management. Senior Management has
been defined to include personnel who are members of its Core Management and Functional
Heads excluding Board of Directors.
The principles prescribed in this Code are general in nature and lay down broad
standards of compliance and ethics.
The purpose of this Code is to enhance ethical and transparent process in managing
the affairs of the Company, and thus to sustain the trust and confidence reposed in the Board
and Senior Management Personnel by the Shareholders of the Company. The Board and
Senior Management Personnel are expected to understand, adhere to, comply with and
uphold the provisions of this Code and the standards laid down hereunder in their day-today functioning.
II. APPLICABILITY

This Code shall be applicable to the following persons:

Board of Directors of the Company

Senior Management Personnel of the Company, being members of Core

Management Team and Functional Heads
This Code would be applicable in addition to the existing Staff Regulations of IFCI.

III. ETHICAL CONDUCT

The Board and Senior Management Personnel shall act within the authority conferred upon
them by the Company and under applicable law, keeping the best interests of the Company
in view and shall:
Act with professionalism, utmost care, skill, diligence, honesty, good faith and
integrity as well as high moral and ethical standards.
Fulfill their fiduciary obligations without allowing their independence of judgment to
be compromised.
Act fairly and transparently and not participate in any decision-making process on a
subject matter in which a conflict of interest exists or is likely to exist such that an
independent judgment of the Companys best interest cannot be exercised.
IV. NATIONAL INTEREST
The Company shall continue to be committed in all its actions to benefit the
economic development of the nation and shall not engage in any activity that would

adversely affect such objective.

V. FINANCIAL REPORTING AND RECORD
The Company shall continue to prepare and maintain its accounts fairly and
accurately in accordance with the accounting and financial reporting standards which
represent the generally accepted guidelines, principles, standards, laws and regulations of
the country. Internal accounting and audit procedures shall fairly and accurately reflect all of
the Company business transactions and disposition of assets.
VI. DISCLOSURES
The Company shall continue to abide by the Corporate Disclosure Practices as
specified by the appropriate external regulatory authorities.
The Company shall make full, fair and accurate disclosures in the periodic reports
required to be filed with the government and regulatory agencies. The Senior Management
Personnel shall initiate all actions deemed necessary for proper dissemination of relevant
information to the Board, Auditors and other Statutory Agencies, as may be required by
applicable laws, rules and regulations.
VII. APPLICABILITY
Notwithstanding that any instances of Conflict of Interest exist due to any historical
reasons, adequate and full disclosure by the interested member of the Board/Senior
Management Personnel should be made to the Company. It is also incumbent upon every
member of the Board and the Senior Management Personnel to make a full disclosure of
any interest at the time of decision-making which he or his immediate family, which would

include parents, spouse and children, may have in a company or firm which has business
dealings with the Company.
The Board and Senior Management Personnel must not deprive the Company of an
opportunity that belongs to it, for his/her own/other's advantage, if he/she is in a position of
diverting the Corporate Opportunity for own benefit or to others to the detriment of the
Company. They must not compete with the Company in respect of any business transaction.
VIII. REGULATORY COMPLIANCE
Every member of the Board and Senior Management Personnel shall, in his/her
business conduct, comply with all applicable laws, rules and regulations, both in letter and
in spirit, in all the territories in which he/she operates. Any inadvertent non-compliance, if
detected subsequently, should be rectified/reported to the concerned authorities.
IX. PUBLIC REPRESENTATION AND CONFIDENTIALITY OF INFORMATION
The information for the public constituents and stakeholders, duly approved by the
Compliance Officer or other authorized official, as the case may be, shall be disseminated
through any of the following media:

Newspaper publications

Web casting on the official website

Press handouts and press releases

Audio and audio-visuals prepared for the specific purpose.

A Director or Senior Management Personnel of the Company and their family

members shall not derive any benefit or assist others to derive any benefit from the access to
and possession of information about the Company which is not in the public domain and
thus constitutes insider information. They shall maintain confidentiality of all price sensitive
information. Unpublished price sensitive information would be disclosed only to those
within the company who need the information to discharge their duty.

X. INSIDER TRADING
Insider Trading involves the improper use of non-public price sensitive information
when dealing in securities. Employees are prohibited from engaging in insider trading as
detailed in the Code of Conduct for Prevention of Insider Trading.
XI. USE OF THE COMPANY NAME/LOGO/TRADEMARKS
The Board or Senior Management Personnel shall not use the name of the Company,
its logo or trademark for personal benefit or for the benefit of persons / entities not forming
part of the IFCI Group.
XII. CORPORATE SOCIAL RESPONSIBILITY
The Company shall continue to be committed to be a good corporate citizen not only
in compliance with all relevant regulating laws and regulations but also by actively assisting
in the improvement of the quality of life of the people in the communities in which it
operates with the objective of making them self reliant.
XIII. EQUAL RIGHTS

The Company shall continue to provide equal opportunities to all its employees and
all qualified applicants for employment without regard to their race, caste, religion, colour,
ancestry, marital status, sex, age, nationality, disability etc. Employees of the Company shall
be treated with dignity and in accordance with the Company policy to maintain a work
environment free of sexual harassment, whether physical, verbal or psychological.
Employee policies and practices shall be administered on a non-discriminatory basis in all
matters relating to recruitment, training, compensation, benefits, promotion, transfers and all
others terms and conditions of employment.
XIV. SHAREHOLDERS
The Company is committed to enhance shareholder value and shall comply with all
regulations and laws that govern shareholders' rights. The Board and Senior Management
Personnel of the Company shall duly and fairly inform its shareholders about all relevant
aspects of the organizations business and disclose such information in accordance with the
respective regulations and agreements.
XV. PROTECTION OF COMPANYS ASSETS AND RESOURCES
Each member of the Board and Senior Management Personnel has a duty towards the
Company to advance its legitimate interests while dealing with the Companys assets and
resources.
The Board and Senior Management Personnel shall not misuse, for personal gain or
otherwise, the assets of the Company.
XVI. HEALTH SAFETY AND ENVIRONMENT

The Company, Board and the Senior Management Personnel shall strive to provide a
safe and healthy working environment and comply, in the conduct of its business affairs,
with all regulations regarding the preservation of the environment of the territory it operates
in.
XVII. COMPLIANCE WITH GOOD CORPORATE GOVERNANCE PRACTICES
Each member of the Board of Directors and Senior Management Personnel of the
Company (to the extent relevant) should adhere to the following so as to ensure compliance
with good Corporate Governance Practices:

Attend Board Meetings regularly and participate in the deliberations and

discussions effectively.

Involve actively in the matter of formulation of general policies.

Be familiar with the broad objectives of the Company and the policies laid
down by the Government and the various laws and legislatio ns.

Ensure confidentiality of the Companys Agenda Papers, Notes and Minutes.

XVIII. AMENDMENTS TO THE CODE OF CONDUCT

The provisions of this Code can be amended and modified by the Board of Directors
of the Company from time to time and all such amendments and modifications shall take
effect from the date stated therein.
XIX. PLACEMENT TO THE CODE OF CONDUCT ON WEBSITE

Pursuant to Clause 49 of the Listing Agreement, this Code and any amendments
thereto shall be posted on the website of the Company.
XX. ENFORCEMENT OF THE CODE OF CONDUCT
Each member of the Board and Senior Management Personnel shall be accountable
for fully complying with this Code.
XXI. ETHICS AND COMPLIANCE COMMITTEE
The Ethics and Compliance Committee comprising the Chief Executive Officer of the
Company, Chief Vigilance Officer of the Company and the Compliance Officer and any
other officer so nominated, will oversee the compliance of this Code.
XXII. VIOLATION OF THE CODE
The Board shall have the powers to take necessary action in case of any violation of
the Code.

HISTORY OF IFCI FACTORS LTD

IFCI Factors Limited, incorporated in February 1996 as Foremost Factors Ltd,

was promoted by Mohan Group and Nations Bank Overseas Corporation of U.S.A.
along with 20th Century Finance Corporation Limited (TCFC Limited) and ICDS
Group as institutional investors.

The Company started its operations in February, 1997 with domestic factoring
activities. The Authorized Dealers license was obtained for export factoring
activities in November 1996. Export Factoring operations were initiated from the
month of June, 1997. In April 1999, IFCI subscribed to the share capital of the
Company besides acquiring the shareholding of 20th Century Group, thus
becoming the largest shareholder. Subsequently, IFCI also acquired the
shareholding of Mohan Group and in 2009 Foremost Factors was renamed as IFCI
Factors Limited. It is today a subsidiary of IFCI.
Being the pioneers in bringing International Factoring to India, IFCI Factors has a
rich experience of over a decade which enables it to understand the needs of its
clients in the context of their market and service them in the best possible way. It
provides innovative, customized solutions which are driven by a forward looking
management style, sound understanding of the key credit issues and a thorough
understanding of market practices.
A lean organization structure supported by an internationally recognized top of the
line software platform ensures operational efficiency and translates into delivery of
high quality services to clients. IFCI Factors prides itself in responding quickly to
the demands of its customers, which in turn empowers them to capitalize on the
attractive opportunities offered by an ever dynamic market.
With a strong infrastructure and efficient operations, IFCI Factors is able to
maintain high service levels related to providing timely funding, follow up for
collections, credit protection and management information.

Introduction
IFCI Factors Limited (erstwhile Foremost Factors Limited) is a subsidiary of IFCI
Limited, which is a leading financial institution of India.
Building relationships is vital to your business prospects. For us, this means getting
to know you as a client in detail even before you appoint us. Once a relationship is
established, we keep ourselves fully up to date at all times with your business and
your customers. We become one of your main business partners and ensure highest
quality of service delivery to you thus enabling you to stay ahead in a highly
competitive global market.

IFCI Factors Limited Key Strength Areas

The key factors which help distinguish IFCI Factors Limited as one of the finest
factoring service provider are as follows:
1. Relationship:
At IFCI Factors Limited, we believe in proactively developing strong and
lasting relationships with our clients, their buyers and our correspondent
factors (for export factoring). We continuously endeavor to develop
transaction structures that best meet the needs of our clients as well as their
buyers.
2. Reliability:
Being the pioneers in bringing International Factoring to India, we have had
a rich experience of over fourteen years behind us which enables us to
understand the needs of our clients in the context of their market and service
them in the best possible way.
3. Flexibility:
We provide innovative, customized solutions which are driven by a forward
looking management style, sound understanding of the key credit issues and
a thorough understanding of market practices.
4. Service Quality:

A lean organization structure supported by an internationally recognized top

of the line software platform ensures operational efficiency and translates
into delivery of high quality services to customers.
1. Turnaround Time: IFCI Factors Limited prides itself in responding
quickly to the demands of its customers, which in turn empowers
them to capitalize on the attractive opportunities offered by an ever
dynamic market.
2. Consistency: With a strong infrastructure and efficient operations,
IFCI Factors Limited is able to maintain high service levels related to
providing timely funding, follow up for collections, credit protection
and management information.
5. Reasonable Charges:
At IFCI Factors Limited, we recognize the importance of value for money.
This means providing quality services at a reasonable and affordable cost.
The factoring charges typically comprise of the following:
1. Discount Charge: This is levied at the month end based on actual fund
utilization by the client.
2. Service Charge: This is levied at a flat rate on the gross invoice value.
It covers the cost of credit protection (where specified), sales ledger
administration, processing and collections.

Manufacturing Sector
The factoring relationship with IFCI Factors has been designed to accommodate
the business financing needs of both new manufacturing companies as well as
those that have been existing for years.
You may need to scale up operations to meet the growing requirements of your
customers. Factoring ensures that your money is not locked in net terms extended
to clients and could be invested back into your day to day operations.

Services Sector
Service providers such as EPC Contractors, Logistic Companies, Advertising
companies and outsourcing firms etc. benefit the most by factoring their accounts
receivables. Companies that are providing a service to other commercial businesses
can seldom offer tangible assets to pledge against a traditional bank loan, blocking
their access to working capital.
Factoring from IFCI Factors can provide the cash you need to bring your business
plans to life; grab new opportunities; invest in marketing, meet payroll demands,
meeting other expenses or simply negotiate better terms with your clients. With
factoring, you focus on what you do best; sales, development, customer service and
growth, and we focus on what we do best, factoring, and assuring you steady cash
flow for your financial success.

ORGANISATION STRUCTURE
Managing Director
(R Kapoor )

VP-IT &
Internatio
nal
(A Kaul)

Manage
Manage
rr
((NR
Astt.
Manager
( SP
Pandey)

VP - Operations &
Credit (J R Jain)

Legal
Legal &
Complianc
e
Astt.
Office
Manag
(V
e-

Credi
t
AVP
AVP
(Vishwa
G)(Vinay
) G)

Chief
Strategy &
Marketing

Credi
t
Regio
Regio
Head
nal
nal
offic
office
office
e
SAVP
AVP

(Mohit
(Ram
Gagneja
esh
)
Babu)

Regio
nal
office

Sr.Mg
r.
(K.v.
Sr.Mgr.
Thiru
(R.Vis
hwa
kumar

Regio
nal
office
AVP
(Venu
Tummal

Regiona
l office
Ahmeda
bda
RM
(Sutir
tha
Astt.
Mgr.
(Utpal
Nag)

Mrg
PERFORMANCE
OF IFCI FACTORS
LTD
Mgr

Manage
r

(M.
Tirou
maran

(shiva
Prasad
neeli)

Fig 1.1

Regiona
l office
Banagal
ore
RM
(Visha
l

AVP
(ven
katr
ama

Regional
office
Bhubane
shwar
AVP
(Shi
bani
shan

Fig 1.2

The above two graphs shows that the turnover and the funds
used both have increased in last 2 yrs that to by a huge difference
which states that the performance of IFCI Factors Ltd is growing
rapidly.
The turnover in the year 2008-09 was less then 500crores that
has been increased to more than 1000 crores in the year 2009-10
and which has further been increased to more than 2500 crores in
the year 2010-11 as shown in fig 1.1
Similarly fig 1.2 shows that the use in funds in the year 2008-09
was 100 crores which has been increased to 300 crores in the

year 2009-10 and has reached to more than 800 crores in the
year 2010-11.

Factoring in India

What is factoring?
Factoring is a financial option for the management of receivables. In simple
definition it is the conversion of credit sales into cash. In factoring, a financial
institution (factor) buys the accounts receivable of a company (Client) and pays up
to 80 %(rarely up to 90%) of the amount immediately on agreement. Factoring
company pays the remaining amount (Balance 20%-finance cost-operating cost) to
the client when the customer pays the debt. Collection of debt from the customer is
done either by the factor or the client depending upon the type of factoring. We
will see different types of factoring in this article. The account receivable in
factoring can either be for a product or service. Examples are factoring against
goods purchased, factoring for construction services (usually for government
contracts where the government body is capable of paying back the debt in the
stipulated period of factoring. Contractors submit invoices to get cash instantly),
factoring against medical insurance etc. Let us see how factoring is done against an
invoice of goods purchased.

Credit sale of goods

CUSTOMER

Invoice

CLIENT

Pays the amount (In recourse type

balance

Pays the
customer pays through client)

amount

Submit invoice

copy

Payment up to

80% initially

FACTOR

The above graph represents the model of factoring and the way it is being done.

First, importer places an order with the exporter

 Secondly, exporter gives the details of the transaction to the factor

Thirdly, exporter dispatches the goods to the importer and sends an invoice
well to pay the amount on due date to the factor
Exporter submits the copy of invoice to the factor
Factor pays the amount to exporter
Customer pays the amount to the factor on due date
Factor pays the balance to client
Characteristics of factoring
Usually the period for factoring is 90 to 150 days. Some factoring
companies allow even more than 150 days.
Factoring is considered to be a costly source of finance compared to other
sources of short term borrowings.
Factoring receivables is an ideal financial solution for new and emerging
firms without strong financials. This is because credit worthiness is
evaluated based on the financial strength of the customer (debtor). Hence
these companies can leverage on the financial strength of their customers.
Bad debts will not be considered for factoring.
Credit rating is not mandatory. But the factoring companies usually carry out
credit risk analysis before entering into the agreement.

 Factoring is a method of off balance sheet financing.

Cost of factoring=finance cost + operating cost. Factoring cost vary
according to the transaction size, financial strength of the customer etc. The
cost of factoring vary from 1.5% to 3% per month depending upon the
financial strength of the client's customer.
Indian firms offer factoring for invoices as low as 1000Rs
For delayed payments beyond the approved credit period, penal charge of
around 1-2% per month over and above the normal cost is charged (it varies
like 1% for the first month and 2% afterwards).

Different types of Factoring

1. Disclosed and Undisclosed

2. Recourse and Non recourse
A single factoring company may not offer all these services.
Disclosed
In disclosed factoring client's customers are notified of the factoring agreement.
Disclosed type can either be recourse or non recourse.

Undisclosed

In undisclosed factoring, client's customers are not notified of the factoring

arrangement. Sales ledger administration and collection of debts are undertaken by
the client himself. Client has to pay the amount to the factor irrespective of
whether customer has paid or not. But in disclosed type factor may or may not be
responsible for the collection of debts depending on whether it is recourse or non
recourse.
Recourse factoring
In recourse factoring, client undertakes to collect the debts from the customer. If
the customer doesnt pay the amount on maturity, factor will recover the amount
from the client. This is the most common type of factoring. Recourse factoring is
offered at a lower interest rate since the risk by the factor is low. Balance amount is
paid to client when the customer pays the factor.
Non recourse factoring
In non recourse factoring, factor undertakes to collect the debts from the customer.
Balance amount is paid to client at the end of the credit period or when the
customer pays the factor whichever comes first. The advantage of non recourse
factoring is that continuous factoring will eliminate the need for credit and
collection departments in the organization.

MATURITY FACTORING
Factor does not make any advance payment to the Client.

 Pays on guaranteed payment date or on collection of Receivables.

Guaranteed payment date is usually fixed taking into account previous
collection experience of the Client.
Nominal Commission is charged.
No risk to Factor.

CROSS - BORDER FACTORING

It is similar to domestic factoring except that there are four parties, viz.,
a) Exporter,
b) Export Factor,
c) Import Factor, and
d) Importer.
It is also called two-factor system of factoring.
Exporter (Client) enters into factoring arrangement with Export Factor in his
country and assigns to him export receivables.
Export Factor enters into arrangement with Import Factor and has
arrangement for credit evaluation & collection of payment for an agreed fee.

 Notation is made on the invoice that importer has to make payment to the
Import Factor.
Import Factor collects payment and remits to Export Factor who passes on
the proceeds to the Exporter after adjusting his advance, if any.
Where foreign currency is involved, Factor covers exchange risk also.

Factoring-A Step Ahead Towards Modernization

Factoring has a long and rich tradition, dating back 4,000 years. Almost every
civilization that valued commerce has practiced some form of factoring, including
the Romans who were the first to sell actual promissory notes at a discount. The
first widespread, documented use of factoring occurred in the American colonies
before the revolution.

With the advent of the industrial revolution, factoring became more focused on the
issue of credit, although the basic premise remained same. By assisting clients in
determining the creditworthiness of their customer and setting credit limits, factors
could actually guarantee payments for approved customers. Prior to the 1930s,
factoring in this country occurred primarily in the textile and garment industries, as

the industries were direct descendants of the colonial economy that used factoring
so specifically.

As time is passing by, and we are moving into the modern era of instant
communication and a shrinking world, factoring plays an important role in the
todays business. The increasing interest rates that marked the 1980's and 1990 are
led to an increase in the number of new companies turning to the factoring
business. Factoring is a way to raise quick capital in a manner that was called "off
the balance sheet" financing. Since accounts receivables are an asset account,
factoring is a way to raise quick cash without adding the liability of loan.

Introduction

Factoring is one of the oldest forms of business financing. It can be regarded as a

cash management tool for many companies like garment industry where long
receivables are a part of business cycle. Factoring is a service that covers the
financing and collection of account receivables in domestic and international trade.

It is an ongoing arrangement between the exporter and factor. The exporter sells
invoiced receivables at a discount to the factor to raise finance for working capital
requirement. It bridges the gap between raising an invoice and getting that invoice

paid. By obtaining payment of the invoices immediately from the factor, usually up
to 80 per cent of their value the companys cash flow is improved. The factor
charges service fees that vary with interest rates in force in the money market. The
factor operates by buying the invoiced debts from the selling company. These are
purchased, usually with credit control, collection and sales accounting work. Thus
the management of the company may concentrate on production and sales and
need not concern itself with non-profitable control and sales accounting matters.

Factoring differs from a bank loan in three main ways. First, factoring differs from
traditional bank loans because the credit decision is strictly based on receivables
rather than other factors like how long the company has been in business, working
capital and personal credit score. Secondly, factoring is not a loan; it is the
purchase of financial asset. Finally, a bank loan involves two parties whereas
factoring involves three-buyer, exporter and factor.

There is some misconception regarding factoring like people believe factors are a
lender of last resort but that is not true because exporters seeking out factoring are
often in the beginning stages of growth. At first glance, factoring appears to be
expensive but does a lot more; in essence, factoring replaces the accounts
receivables and credit department.

Advantages

Factoring helps to turn the receivables instantly into cash

It provides credit protection for the receivables
It helps the business to meet increasing sales demand and expand
Factoring helps in saving time as the invoice financing company collects the
money itself

Disadvantages

The basic disadvantage of factoring is that it may lead to ruined relations

with the customers especially if factor engages in aggressive or
unprofessional practices when collecting accounts

Cost is another disadvantage, cost involved in factoring agreement may be

more than the cost of other methods of financing available in the business

In 2008, the total world volume for factoring increased by 2 per cent, compared to
almost 15 per cent in 2007. We can see that Europe has shown an upward trend till
2007, and then a downward trend. If we see the trend of Asia, it is stagnant in
initial years i.e. till 2006 and then has shown a little upward trend till 2007. After
2007, a notable increase is seen and thus factoring volume crossed 200 billion.
Africa and Australia showed a similar and a stagnant trend. The factoring volume
of America is very similar to Asia, but after 2007, Americas factoring volume is
seen stagnant only The overall results illustrate that exporters and importers,
around the world, are becoming more and more familiar with the advantages to be
derived from a factoring arrangement: working capital, credit risk protection and
collection service for the exporter.

HOW FACTORING WORKS?

In a typical factoring arrangement, the client (you) makes a sale, delivers the
product or service and generates an invoice. The factor (the funding source) buys

the right to collect on that invoice by agreeing to pay you the invoice's face value
less a discount--typically 2 to 6 percent. The factor pays 75 percent to 80 percent of
the face value immediately and forwards the remainder (less the discount) when
your

customer

pays

From the above diagram, it is seen that till 2007, UK has shown an upward trend,
but after 2007, factoring volume decreased significantly. USA has shown a
stagnant growth in factoring volumes. India has shown a notable increase in
factoring volumes since 2005. In 2007 factoring volumes were Euro 5.20 billion in
comparison to Euro 1.99 billion in 2005. So we can say that factoring is moving
upward in India, and soon factoring will spread its wings across the length and
breadth of the country.

It is quite implied now that factoring is a very easy and fast method. Still, its
implementation is not so good. There are certain hiccups that have come up in the
way of releasing the full potential of factoring in India. One of the main reasons for
it is the legal framework of India. Generally factoring companies need legal
protection as all advances are uncollateralized, protection for the same is not
provided.

Still there is only one direction in which factoring can go in India: upwards. As the
awareness level about the benefits of factoring increases, factoring will spread its
wings across the length and breadth of the country.

PROCESS OF FACTORING
In a typical factoring arrangement, the client (you) makes a sale, delivers the
product or service and generates an invoice. The factor (the funding source) buys
the right to collect on that invoice by agreeing to pay you the invoice's face value
less a discount--typically 2 to 6 percent. The factor pays 75 percent to 80 percent of
the face value immediately and forwards the remainder (less the discount) when
your customer pays.

BENEFITS OF FACTORING

a) Stronger Sales
Factoring can give the client a significant competitive advantage in the market
place. The client can sell his products or services more aggressively, especially to
new customer and in new market, which are outside his geographical area. The
factor is staffed with credit analysts, collection specialists and skilled accountants.
Their experience allows them to spot credit problems and other trends quickly and
to develop customized programs to meet specific business needs.
b) Management of A/C Receivables

A factor performs credit analysis, keeps records, produce reports and effectively
process collection. The client effectively utilizes the services for a fee rather than
having a separate receivable department. The factor can even operate behind the
scene handling client accounts for many businesses, particularly those with limited
manpower for receivable processing.
c) Reducing Overhead Costs
Factor generally handle the processing of invoices, including mailing ,posting
invoices to a computer, depositing cheque and drafts , entering payments and
producing regular reports. The client can greatly reduce his current overhead costs
associated with processing invoices and internal handling of collection and
maintenance and analyzing accounts receivables.
d) Maintaining Customer Relations
Sending reminder and insisting that customers pay their dues can sometimes
damage the clients relationship with the customer and thereby adversely affects
sales. However, no business can run successfully if its customer does not pay in
time. Here, the role of factor is important. The factor handles collections from
customers for the client in a professional manner, thus helping in fostering and
maintaining the clients relationship with his customers.
e) Improvement in Cash Flows and Related Benefits
The financing afforded by a factor to its client is based on sales volume, rather than
on conventional credit considerations. This feature provides the client with

additional financial leverage and improved cash flows. It helps the client in getting
early payment discounts, increase sales by offering credit terms, can take
advantage of volume discounts.
f) Increased Share Value
Usually the client fulfills its working capital requirements either by selling its
equity in public or by taking loans from financial institutions or banks. By utilizing
factoring as a source to finance its working capital requirement without selling its
equity in open market, the client can maintain equity control, thereby increasing
share value.
g) Protection against Bad Debts
An optimistic approach in the extension of credit to their customers can increase
the incidence of bad debts and can lead to financial disaster. A factor provides the
client with an experienced professional approach to credit decisions and collection
operation by examining each account Debtors credit standing and determine credit
worthiness from a credit managers point of view.
h) Flexible Source of Finance for New Entrepreneurs
Raising sources from traditional sources requires credit worthiness of the
management/promoters of the business entity and additional collateral securities
which the new business entrepreneur find difficult to fulfill. Factoring will be the
primary source of finance and the key to viability.

Typical Signs That a Company Should Consider Factoring

In the Factoring industry the facility work is done incredibly well especially for
those that are in an expansionary phase. Whilst far from exhaustive, if any of the
following enclosed comments reflect the position of a firm, they should at the very
least consider Factoring as an option.
If only their customers would pay quickly
Overdraft is so restrictive
Had more cash to grow this business.
Having to turn away new business
Suppliers are restricting their growth
Partner dont allow having house as security for the overdraft
Lost money last year, but have turned the corner and need cash to grow
The Costs of Factoring
The Costs of the facility are generally more expensive than traditional bank
overdraft facilities. The key benefit to you is that you get access to more cash than
a bank would feel comfortable giving you. Banks might look towards funding a
business at 30% - 50% against a receivables ledger (if they consider it at all) but
because factoring companies are specialists they can advance more (up to 90%).

Costs are usually broken down into 2 areas:

o A service fee expressed as a % of turnover usually of the range 0.1%
- 2.5% of invoice value. In a number of cases a fixed annual
management fee can be negotiated.
o The Cost of the funds you choose to borrow these are usually in line
with overdraft facilities not secured by property.
In general the costs are dependent upon the facility chosen, the risks of the
business and the level of sales.

REASONS FOR SLOW GROWTH OF THE FACTORING

INDUSTRY IN INDIA
o Factoring is a standalone Product: Factoring is similar to Bill
Discounting - What people fail to understand is that though it is
similar only in one aspect, i.e., both provides short term finance
against receivables, factoring also provides a package of other
services.
o Non-Recourse factoring is almost missing: Recourse factoring only
provides financing but not credit covers, whereas in case of nonrecourse factoring, in the event of default of a customer, the factor

will bear the risk of bad debt. However, the facility, which will attract
more clients, is almost missing, in India
o Customers are still not aware of factoring Services: Factors have
not been successful in creating awareness about the concept of
factoring. The difference between factoring and bills discounting is
still not clearly understood. The customers are still not aware of the
extra benefits and services they can enjoy through factoring; they are
not demanding these services from factoring service providers.
o Bankers do not Permit their Customer to Shift their Business to
Factors: Every businessman invariably has dealings with a bank.
Hence, his banker does not permit him to shift his account receivables
business to a factor, but promises to meet his requirements.
o Network of branches is poor for factoring companies: Factoring
companies in India operate with very limited number of branches and
hence their business is also limited. This is also a reason for factoring
facilities not gaining popularity in the market.
o Factoring companies are treated as NBFCs:A major complaint
from factoring companies is that, since they are treated as NonBanking Finance Companies (NBFCs) with regard to the regulatory
norms of the Reserve Bank of India, access to low cost funds is ruled
out and hence the cost of funds is very high. Factoring companies will
feel free if NBFC tag is removed.
o Commercial Banks are Resistant to render Factoring Services:
Banks still follow their traditional method of financing receivables

and they are not willing to venture into factoring. They feel that it is
unnecessary to open separate factoring wing, perhaps owing the fact
that their profits through factoring may not be substantial as compared
to their overall profits. The very fact that the only players among the
public sector banks in the Indian market are SBI Factors and Can bank
Factors reveals this.
o Legal Environment not conducive for factoring: Legal recourses
that are available to the bank be it Debt Recovery Tribunals or
Securitization Act, are not available to factors. There is no separate
legal framework for factoring

SWOT Analysis
STRENGTHS
Good working capital
structure
Good reputation in
market
Superior product
Highly qualified
workforce
Strong relationships with
key industry members

WEAKNESSES
Lack of innovation in
factoring business
Funding
Absence of regulatory
framework

 Years of experience in
factoring business

OPPORTUNITIES

THREATS

Emerging markets

New competitor in factoring

Growing working capital

business

demand

Lack of access to information

Changing customer awareness

on the credit worthiness of

customer, Client or debtor,
particularly in case of unlisted
companies, Pvt. Ltd companies/
partnership firm/ proprietary firms
Competition from commercial
banks which have access to funds

at lower cost

WHAT IFCI FACTORS OFFERS

1. Domestic Sales Bill Factoring:

Instant Prepayments: Advances are made to the client based on agreed

prepayment percentages on
submission of invoices. Balance payment is made on the receipt of payment from
the buyer.
Sales Ledger Administration: Under a domestic factoring agreement, IFCI
Factors Limited manages and operates the Sales Ledger for the Clients, monitoring
the invoices issued and payments received. IFCI Factors Limited also provides you
with valuable MIS reports to enable you to take better informed credit and pricing
decisions.
Collection of Payments: IFCI Factors Limited follows up on payment with the
Buyers (Sellers Customer ) and makes the balance payment to its Client (Seller).

 Advisory Services: IFCI Factors Limited also offers advisory services to its
clients such as credit assessment for domestic buyers.

2. Purchase Bill Factoring:

Purchase Bill Factoring facilitates instant cash for purchases, made at competitive
rates and on flexible terms. It allows purchaser to bargain for cash terms, better
quality and immediate delivery
3. Export Sales Bill Factoring:
Commercial Credit Risk Management: IFCI Factors Limited facilitates open
account trading without credit risk by arranging credit protection on agreed terms.
In a highly competitive global market, this helps you to procure orders by offering
more attractive terms to your customers.
Overseas Payment Collection: IFCI Factors Limited follows up on payment
through its network of Factors with your Customer (Buyer).
Prompt Prepayments: We provide initial prepayment against your invoices at an
agreed prepayment percentage with the balance being paid on receipt of payment
from buyer.
Sales Ledger Administration: IFCI Factors Limited maintains the sales ledger for
its clients, monitoring the invoices raised and payments received and accordingly
performs the necessary follow up for collections. We also provide you with

valuable MIS to enable you to take better informed decisions related to pricing,
credit terms, and debtor quality and so on.
Opportunity for Growth: The credit protection provided by IFCI Factors Limited
enables you to build your business with international buyers (who are otherwise
unwilling to open Letters of Credit) while keeping your credit exposures covered.
Instant prepayments against your
Receivables provide you with the necessary resources required for funding your
business growth.
Advisory Services: IFCI Factors Limited also offers advisory services to its
clients including credit assessment for its overseas buyers through its own network
and that of its correspondent factors
4. Corporate Loan:
Corporate Loans / Short Term Loans are offered to the customers for general
purpose / augmenting their working capital need, and are backed by suitable
security in the form of pledge of listed shares / equitable mortgage of tangible
properties.

5. Short Term Loans:

IFCI Factors Limited offers Short Term Loans (tenure 2-3 years) to the Corporates
with good financials secured by suitable collaterals by way of pledge of shares of

listed companies or mortgage of tangible property or a mix of both, providing a

minimum asset cover of 2 times of the loan amount.

6. Factoring Of Usance Bills Drawn Under Letter Of Credit

IFCI Factors Limited offers the facility of quick cash against usance bills drawn
under letter of credit of approved banks.

7. International Factoring
IFCI Factors Limited commenced international factoring business in 1997 and is a
pioneer in bringing the international practice of factoring to INDIA.
For your export, International factoring works to your advantage by providing
funding, credit management and collection services for overseas sales.
Export factoring works on the same basic principle as domestic factoring. We
provide prepayment against your invoices up to an agreed percentage, with the
balance being paid when we receive payment. In addition, IFCI Factors Limited
offer open account trading without credit risks by arranging credit risks protection
on agreed terms. In the highly competitive global market this helps exporters to
bag orders by enabling them to offer more attractive payment terms to their
customers.
IFCI Factors Limited will show you the way to compete aggressively in global
markets without overseas credit risks. We are a member of Factors Chain

International (FCI), a group that includes nearly 200 of the worlds leading
financial institutions in around 62 countries. Our networks of correspondents
abroad go a long way in helping you to overcome any distance and language
barriers and establish an easy flow of communication with your customers. IFCI
Factors Limited gives you speedy and reliable reporting on your overseas customer
accounts, through modern electronic communication.
CUSTOMER
(BUYER)

Payment

OVERSEAS
CORRESPOND
ENT

Places Order
Delivers Goods

CLIENT
(SELLER)

Fixation of

Copy of

Prepayment

Balance

Prepayment

Invoice

up to 80%

Amount

Copy of Invoice

IFCI FACTORS

Payment

SHARPER COMPETITIVE EDGE

Turning your international accounts receivables to us means we oversee your:
Commercial Credit Risk management
Overseas Payment Collection

 Prompt Prepayments
Sales Ledger Administration

CREDIT POLICY
IFCI Factors is guided by the RBIs Prudential Exposure Norms.
Compatible with the RBIs guidelines, where applicable, the Management's goal
for the business development effort of IFCI Factors is to produce a portfolio that
approximately adheres to the following concentration standards:
By Product: Not more than 30% of exposure of the company in respect of one
product. (Applicable to products other than conventional sales bill factoring based
on assignment of receivables).
By Industry: Not more than 20% of exposure of the company in respect of one
industry.
By Client: At any point of time, the outstanding to any client shall not exceed
more than 15% of IFCI Factors net worth and 25% in case of group.
By Correspondent: At any point of time, the outstanding to any Correspondent
Factor shall not exceed more than 50% of IFCI Factors net worth.

By Debtor: At any point of time, the outstanding on any debtor shall not exceed
more than 25% of IFCI Factors net worth except in case of State & Central
Government Undertakings & PSUs.

MECHANICS OF FACTORING

The Client (Seller) sells goods to the buyer and prepares invoice with a
notation that debt due on account of this invoice is assigned to and must be
paid to the Factor (Financial Intermediary).
The Client (Seller) submits invoice copy only with Delivery Challan
showing receipt of goods by buyer, to the Factor.
The Factor, after scrutiny of these papers, allows payment (,usually upto
80% of invoice value). The balance is retained as Retention Money (Margin
Money). This is also called Factor Reserve.
The drawing limit is adjusted on a continuous basis after taking into account
the collection of Factored Debts.
Once the invoice is honoured by the buyer on due date, the Retention
Money credited to the Clients Account.

 Till the payment of bills, the Factor follows up the payment and sends
regular statements to the Client.

FACTORING A MORE FLEXIBLE FUNDING

ALTERNATIVE

Factoring is a practical solution to the problems caused by slow paying customers a

flexible alternative to more traditional forms of funding , allowing you to respond
quickly to changes in the market condition with the business requirements.
Heres how you stand go gain with factoring:IFCI Factors Ltd gives you instant taxes to your earnings instead of having to wait
for the usual 30,60,90 and 120 days or longer to be paid by your customers. Your
collections and remittances will speed up, which will improve your cash flow.
The funds advanced to your business will enable you to make bulk purchases and
take advantage of quantity and early payment discounts from suppliers.
More cash will fuel more sales for you.
Factoring partners your prosperity by verifying credit worthiness of your
customers. Not only does IFCI Factors Limited perform a detailed credit

investigation of your customers in case of domestic and international services, but

also offers credit protection for international factoring. So even if your customer is
unable to pay, you will still be able to recover your money.
Whats more, credit investigation is an on-going part of the factoring service and
keeps you continually updated on your customers status.
And then, there is the convenience aspect of factoring They maintain your sales ledger for your factored services.
They take over the task of collection leaving you to concentrate on business
development.
They provide a channel to more aggressive and ambitious business pitches
even as they exercise control on your prepayments.

A Multi-Service Package
IFCI Factors Limited gives you a single source service package which includes

Funding
Credit assessment
Sales ledger administration
Faster collection of payments from customer

Reasons for factoring

Cash up-front on credit sales Improved Liquidity leading to accelerated product

cycle

Minimal security/collateral No charge on your assets

80 90% of your invoice funded Avail higher facilities than what is offered by
banks

Competitive credit terms to your clients Strengthen your business relationships

Quick appraisal and sanction Get started with your facility before your
competition

Instant cash disbursal No down-time in your working capital

Value to YOUR CUSTOMER

Better credit terms for payment Facilitates credit purchase

Save on high bank charges for credit Enhanced Business
Ability to scale up across the supply chain Ability to respond to opportunities
No documentation post acknowledgement of undertaking to pay invoices to Factor

Value to YOUR BANK

Factoring compliments services provided by banking Improves liquidity of

borrowers
Monitoring of payments by Factor Improves visibility

Factoring service in India is of recent origin. It owes its genesis to the

recommendations of the Kalyanasundaram Study Group appointed by the RBI in
1989. Pursuant to the acceptance of these recommendations, the RBI issued
guidelines for factoring services in 1990. The first factoring company SBI
Factors and Commercial Ltd (SBI FACS) started operation in April 1991. This
article highlights the important aspects of the factoring services in India.
The main recommendations of the Committee/Group are listed as follows:
(1) Taking all the relevant facts into account, there is sufficient scope for
introduction factoring services in India which would be complementary to
the services provided by banks.

(2) The introduction of export factoring services would provide additional

facility to exporters.

(3) While quantification of the demand for factoring services has not been
possible, it is assessed that it would grow sufficiently so as to make
factoring business a commercially viable proposition within a period of
two/three years.

(4) On the export front, there would be a fairly good availment of various
services offered by export factors.

(5) With a view to attaining a balanced dispersal of risks, factors should

offer their services to all industries and all sectors in the economy.

(6) The pricing of various services by factors would essentially depend upon
the cost of funds. Factors should attempt a mix from among the various
sources of funds to keep the cost of funds as low as possible, in any case not
exceeding 13.5 percent per annum, so that a reasonable spread is available.

(7) The RBI could consider allowing factoring organizations to raise funds
from the Discount and Finance House of India Ltd, as also from other
approved financial institutions, against their usance promissory notes

covering receivables factored by them, on the liens of revised procedure

under bills discounting scheme
.
(8) The price for financing services would be around 16 per cent per annum
and the aggregate price for all other services may not exceed 2.5 percent to 3
percent of the debts services
.
(9) In the beginning only select promoter institutions/groups of individuals
with good track record in financial services and competent management
should be permitted to meter into this new field
.
(10) Initially the organizations may be promoted on a zonal basis.

(11) There are distinct advantages in the banks being associated with
handling of factoring business. The subsidiaries or associates of banks are
ideally suited for undertaking this business; initially, it would be desirable to
have only four or five organizations which could be promoted either
individually by the leading banks or jointly by a few major banks having a
large network of branches.

(12) Factoring activities could perhaps be taken up by the Small Industries

Development Bank of India, preferably in association with one or more
commercial banks.

(13) The business community should first be educated through bank

branches about the nature and scope of these services and the benefits
accruing there from.

(14) Factors cannot extend their services efficiently, effectively and

economically without the support of computers, as quick and dependable
means of communication. Concurrent with consideration of various aspects
relating to commencement of factoring operations the promoters should
initiate measures for organizing network of computers /dedicated lines the
branches/agents in different parts of the country for accounting follow up
remittance and other activities involved in factoring business.

(15) The Central Government ad RBI should initiate appropriate measures

immediately for setting up specialized agencies for credit investigations;
until such agencies become fully operative, factors may have to rely on such
information about clients/customers as could be collected through banks or
other sources.

(16) Since the suppliers would be able to obtain financial services from both
banks and factors, it is necessary to provide for proper linkage between
banks and factoring organizations
.
(17) The factoring of Small Scale Industrial (SSI) units could to be mutually

beneficial to both factors and SSI units and the factors should make every
effort to orient their strategy to crystallize, the potential demand for this
sector.

Factoring in India has not been as common as in Europe due to a number of factors
but the industry has recently started to grow. As India is the second fastest big
emerging economy and the tenth largest economy in the world it is expected that
the factoring industry will now start to grow very quickly.
Factoring Solutions has a relationship with one of the more innovative factoring
companies in India and we can help arrange factoring facilities for not only UK
companies exporting to India and vice versa but for domestic Indian companies
too.
In addition to factoring we can also arrange trade finance to companies importing
from India if the company if purchasing goods against firm customer order.
As with any other type of factoring arrangement there is no charge for our services
so please do not hesitate to contact Factoring Solutions for an informal chat
without any obligation whatsoever.

Factoring company selection process

Factoring and invoice discounting companies' marketing

material is generally very similar no matter which factoring company is conducting
the sales pitch. They will all tell you that you should sign up with them as they
offer a fast, flexible solution including unrivalled personal service.
How likely is that to be true? Does a clearing bank offer a service that is either fast,
flexible or personal to the SME sector? If not, why would it's factoring subsidiary
differ. Selecting a factoring partner isn't as easy as it first appears as they all offer

the same product on the surface but in reality there are fundamental operating
differences between the various factors which is where we come in.
Factoring Solutions is a specialist broker with probably more years of industry
experience than any other. We know which factors are unable to make decisions
quickly, which ones are so understaffed that their sales ledger management and
credit control is appalling and which ones despite claiming to operate a flexible
and personal service are actually governed by a strict rule book.
Our years of industry experience are available free of charge as we make no
charges for either advice or for introducing companies to the most appropriate
factoring company for their particular circumstances.
Potential factoring and invoice discounting clients looking for the cheapest deal
can be easily mislead as the real cost of the facility can end up being very different
to the original forecast.
Some factors including many of the major bank owned names have a credit control
service that is so poor (one is actually outsourced to India) that the debtors end up
taking much longer to pay and therefore the cost of factoring will end up
significantly higher than first thought as the interest element will be much higher.
Another factor might have quoted a slightly higher commission rate but will end up
cheaper in practice as their credit control is more effective. We have explained the
financial cost penalties of signing up with the wrong factor in our factoring cost
comparison
factoring cost comparison

A factoring cost comparison using a company with an annual turnover of 750,000

who's customers take an average of 60 days to pay and are looking at factoring
their invoices have had quotes from two factoring companies.
The first is from a well known bank owned factoring company with thousands of
clients and a buy the business at all costs philosophy whilst the second is from an
independent factoring company with a good reputation in the market place for the
quality of their service

Both have quoted the same interest rate of 2.5% over

Base for the cost of money but whilst the independent factor has offered their
facility at 1.25% of turnover the big bank owned factor has undercut that by
offering their facility at 1% of turnover which on the surface seems to be a
substantial saving.
Reality is different however as the independent factoring company has an effective
and professional credit control policy with sufficient staff to carry it out properly
and they manage to reduce the average period that the customers take to pay their
debts from 60 days to 50 days.
The large bank owned factoring company has a very inefficient sales ledger
management policy with individual staff carrying a much higher workload than the
independents with very little credit control done by telephone, relying instead on
computer generated letters and tightly crossed fingers. It is no surprise that if the

customers arent asked to pay, they wont and it doesnt take long before the
original average credit period of 60 days has slipped to 70 days.
The decrease in the time taken to pay by customers will reduce the cost of
borrowing from the independent factoring company whilst the increase in the
average time to pay that will be seen with the large bank owned factor will result in
the client having to pay a higher cost than originally forecast.
In the example shown above, whilst both factors have quoted the same rate of
2.5% over Base the actual borrowing cost from the bank owned factor will end up
2,704 more than the independent, which if expressed as a percentage of turnover
will be 0.36%
The original offer from the bank owned factoring company was tempting as the
factoring commission was 0.25% cheaper but as can be seen, appearances can be
very deceptive and what on the surface appears to be the most cost effective route,
frequently isnt
Other side effects of poor sales ledger management include the factor reaching the
recourse date when they ask for their money back, the imposition of re-factoring
fees which can run at 0.5% to 1% per month on overdue debts and of course the
increased risk of suffering even larger bad debts.
factoring companies offer such a poor service
Factoring companies don't often achieve the levels of service that they advertise
and a good many of our enquiries are from companies that are unhappy with their
current service levels asking us to place their business with one of the factoring
companies that actually deliver on their promises.

Most companies, having read the marketing material expect that the "professional
approach" of the factor's credit control department would decrease the amount of
outstanding invoices and they become understandably concerned when the
opposite happens.
In many cases the professional approach of the factoring company consists of
sending out computer generated credit control letters and very little else.
The factoring company's profit relies on generating a higher level of factoring
commission income than it pays out in overheads with the major overhead being
staff salaries. The more clients that one person can handle, the more profitable the
account becomes for the factor but conversely the more ineffective the credit
control.
Most factoring companies will only finance an invoice for a finite period, typically
until it becomes 90 days overdue then they will require the client to repay their
investment in the debt back to them.
They will still keep the debt on their books (without financing it) in exchange for a
re-factoring fee, which is typically 0.5% to 1% per month
This can be a lucrative business for some factors, and certainly is no incentive to
collect the outstanding debts in quickly.
Our final concern is the way that some factoring companies restrict the levels of
funding by imposing artificially low credit and concentration limits
Unapproved debts and concentration limits

Recourse factoring is where all debts are at the clients risk in the event of
customer failure. One would have thought that as the factoring company is taking
little risk they would not be so restrictive on whom their client sells to, but
unfortunately that is not the case and frequently they impose credit limits and
concentration limits on their clients' customers with the sole aim of restricting the
funding.
As an example; a company with a turnover of 1.5m and total debts outstanding of
250,000 may probably have a blanket individual customer limit of 20,000 with
the factoring company refusing to fund any balance in excess of this figure
irrespective of whether they are taking the credit risk or not.
Some factors can be even more miserly than that as we were approached by a
company turning over 2m per annum where the bank owned factor was refusing
to fund any account in excess of 5,000 until they had at least two months trading
experience with that customer, irrespective of their creditworthiness.
Our most recent experience is with a small manufacturing company who despite
being offered a facility of 80% of invoices from one of the major independents
found that once the ink on the agreement was dry the factor was restricting the
funding on his major customer to 20,000 despite the average balance being in
excess of 30,000 and the customer itself being a 50m turnover concern.
At least in those cases where the factoring company is assuming the credit risk in
the event of a bad debt loss one can understand their cautious approach to setting
credit limits but unfortunately in many cases the client loses out even worse as the
factor has more reason to set restrictive credit limits

The statistics published by the factors' trade body show the total debts outstanding,
and the total payments made against these debts listed by factoring company.
Careful examination of these figures indicate that too many members of the
Association show payments of under 50% averaged over all of their clients

The factoring solution

Most people are looking for a factoring company with an agreement written in
plain English with none of the "notwithstanding" clauses that effectively allow the
factor to do what they want, when they want.
This should be coupled with a facility where the factoring company actually
performs as promised in the marketing material, where the service is as flexible
and efficient as promised and where any potential problems with large debtor
balances and concentration limits are fully explained beforehand, where there are
no artificial funding restrictions generated by meaningless credit limits and where,
if the factor does not collect the debts efficiently the client is not penalised with
excess interest or punitive re-factoring fees.
Unfortunately whilst this perfect facility does not exist there are a few factoring
companies that offer a facility approaching "perfection" and where a genuine
personal approach is part of the standard package.
One of our favourite factoring companies is actually willing to back their service
with a guarantee that if any client is unhappy with the service within the first three

months they may terminate the facility without penalty, receiving a refund of all
factoring commission charges paid within the period in the process.
It's difficult to fault that kind of self belief in a world where most factors would
either allow an unhappy client to leave on payment of a hefty premium or would
continually put obstacles in the way of unhappy clients leaving, so that they don't
lose the income stream.
There are no charges for our services and you therefore have nothing to lose but
much to gain as we only introduce people to one of the few factoring companies
that actually perform.

WORK DONE BY ME
Methodology:

1. Check the financial statements of the firm

Used the most recent annual reports available on the company website
2. Calculate financial ratios
The following ratios were used:

 Liquidity Ratios: A class of financial metrics that is used to determine a

company's ability to pay off its short-terms debts obligations. Generally, the higher
the value of the ratio, the larger the margin of safety that the company possesses to
cover short-term debts.

Profitability Indicator Ratios: 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.

where COGS: Cost of Goods Sold

Debt-to-Equity Ratio: It compares a company's total liabilities to its total

shareholders' equity. This is a measurement of how much suppliers, lenders,
creditors and obligors have committed to the company versus what the
shareholders have committed.

Operating Performance Ratio: This ratio is a rough measure of the productivity

of a company's fixed assets (property, plant and equipment) with respect to
generating sales. For most companies, their investment in fixed assets represents

the single largest component of their total assets. This annual turnover ratio is
designed to reflect a company's efficiency in managing these significant assets.

Comparison to industrial standards

Average values of 4-5 top firms of various industries were used as industrial
standards for comparison

3. Work out cause for variations

Companies Analyzed:
1. Bodol Chemicals Ltd
Bodal Chemicals, formerly known as J K Pharma incorporated in 1989, is a
producer in Dye & Dye Intermediates. They manufacture over 25 varieties of Dye
Intermediates and around 150 variants in Dyestuff that are principally used as raw
materials in Textile, Leather, Plastic, Paper & other dye consuming industries.

2. Glodyne Technoserve Ltd

Glodyne Technoserve is an IT Services company, headquartered in Mumbai, India

with presence across India and US. Glodyne offer's technology led business
solutions across two SBUs i.e. Technology Infrastructure Management Services
(Technology IMS) and Application Software Services.

3. Impex Ferro Tech Ltd

The company is involved in the manufacturing of Silico Manganese and Ferro
Manganese. The use of Ferro Manganese and Silico Manganese in the production
of carbon steel is primarily for refining and de-oxidation of steel.

4. Unitech Ltd
Established in 1972, Unitech is today a leading real estate developer in India.
Known for the quality of its products, it offers the most diversified product mix
comprising residential, commercial/IT parks, retail, hotels, amusement parks and
SEZs.

5. Elder Pharma Ltd

Elder Pharmaceuticals principal activities include the manufacturing and marketing
of prescription pharmaceutical brands, surgical and medical devices. Shelcal
Elders No.1 brand is one of the top brands in the Indian Pharmaceutical industry.
They are one of the leading players in the pharmaceutical formulation market in
India, being a market leader in three therapeutic segments - Womens Healthcare,
Wound Care and Nutraceuticals.

6. GEI Industrial Systems Ltd

It is one of the leading Engineering and Manufacturing Company dealing
with heat transfer equipments with a major thrust in Air Cooled Heat
Exchangers and Air Cooled Steam Condensers. The Air Cooled Heat
Exchangers are used for cooling of hot fluids using atmospheric air in the
Oil and Gas Exploration, Production, Refining and Petrochemical Industry
and also in the power plants as dry cooling tower as a replacement of
conventional wet type cooling towers.

RESULTS:
1. Bodol Chemicals Ltd

 The company has high debt-to-equity ratio due to recent purchases of fixed assets
worth Rs 8791.89 lacs and investments in capital work in progress
The liquidity ratios of the firm are good in comparison to industrial standards
Profit margins are good

2. Glodyne Technoserve Ltd

The liquidity of the company is mainly constituted by debtors, cash and cash

equivalents and loans and advances. Since they are above the sector standards the
company can easily meet short term liabilities
The profit margins of the company show it is a good competitor in the sector
The assets are being put to good usage in comparison to sales
The slight increase in the ratio is due to the increase in debt for the financial year
2008-09 for purchase of intangible assets worth 7935.15 lacs and about 3,198.78
lacs in the year 2009-2010 .

4. Impex Ferro Tech Ltd

The company has good liquidity but this is mainly in the form of inventories &
loans and advances.
The Gross Profit margins are well above industrial standards but the lower value
of remaining margins point to poor management of funds leading to high
operational costs and admin costs

 The usage of fixed assets is good in respect to standards pointing to efficient and
cyclic usage in a financial year
Debt undertaken by the company is above industrial standards this can be pointed
to the increased secured loans in the two years

4. Unitech Ltd
Though the current and quick current ratios reflect good liquidity conditions but
the cash ratio highlights the fact that most of the money is stuck in the form of
projects in progress and advances to subsidiary companies
The growth margins are way above industrial standards and are a positive sign for
the company's future prospects
Good usage of assets is taking place by the firm
The high debt to equity ratio in the year 2008-09 can be attributed to the fact that
a large amount of fixed assets and investments were made

5. Elder Pharma Ltd

The liquidity of the company is good to meet any current liabilities. A cause of
concern for these high ratios can be due to an increase of 38% in the amount of
inventories and 25% in the number of debtors. But still the cash ratios are good
enough to meet current liabilities
There has been an increase of expenses in Staff by 9% and in interest cost by
39% because of this the operating and net profit margins are less.

 Employee cost was higher due to commissioning of Rural Marketing team Elvista
and due to increment in manpower in R & D
The company is in the process of shifting its manufacturing facilities to excise
free zones as well as current plants are being upgraded to meet increasing demands
The company though in the process of expanding will find it very difficult to get
future long term creditors due to such a high debt-to-equity ratio in comparison to
industrial standards
6. GEI

Industrial Systems Ltd

The company has good liquidity and that also in the form of cash and cash
receivables.
The profit margins of the company are comparable to industry standards
The low asset turnover ratio is attributed to the fact that some assets have been
acquired recently and have not become functional
The debt-to-equity ratio is close to one which show good management of funds
by the firm

CONCLUSION:
1. Bodol Chemicals Ltd
A problem that the company might face is that it would find it difficult to get future
loans as most of its fixed assets are under collateral of secured term loans apart

from this the shareholder's share are also under pledge to some creditor thus inorder to get any future loan the bank must wait for some asset to be freed from
collateral but since the company has a good profit it may be able to pay off loans
soon.
The reasons for loans point to the setting up of a new sulphuric acid plant in
July'10 and the launch of a new product 'Bodactive' in Aug 10. Apart from this a
new plant of single Super phosphate plant is also coming up so further debt might
be sorted out by the company.
The company is expanding and has a lot of long term debts but the profitability and
liquidity of the firm is good as well. As a factoring service provider, one can
finance this firm but at a higher interest since it has the ability to meet all current
liabilities.

2. Glodyne Technoserve Ltd

The company can be made a client for factoring purposes chiefly owing to its
strong liquidity assets to meet any short-term fund shortage.
3. Impex

Ferro Tech Ltd

Such a company is not good for factoring as the liquidity (i.e working capital) of
the company will be impacted by its increasing interest on long term loans. Weak
profitability points to delayed time in recovery from these debts. Hence, factoring
services should be avoided if possible or provided at a higher rate.

4. Unitech

Ltd

The company has good future prospects and is expanding at a good rate. From
factoring point of view it should be noted that the company has a lot of long term
liabilities to pay for and the liquidity of the firm is mainly stuck in the form of
ongoing projects. So either the factor wait for the ongoing projects to finish or
some of the long term liabilities to be paid off before thinking of giving service to
this firm or else provides service at a higher rate.
5. Elder

Pharma Ltd

This company cannot be given long term debt owing to the already mounting long
term liabilities and also due to the low profit margins in comparison to industrial
performance. The liquidity is also influenced by stock piles of inventories and
debts. Therefore, this company is not safe for factoring but if made a client larger
discount rates should be charged owing to the firm's risky stats.
6. GEI

Industrial Systems Ltd

The liquidity and debt-to-equity ratios of the firm are strong and show good fund
management in comparison to industrial standards. This company can be made a
client for factoring services.

ANALYSIS OF CREDIT PROPOSALS

SYNOPSIS

1) Client Details:
a) Name

A.Navinchandra Steels Ltd (ANSL)

b) Facility

Domestic Factoring INR 5.0 Cr

c) Names of Promoter / Director

Mr. Alpesh Gosalia, Mr. Bhavin R

Gosalia, Ms. Rita A. Gosalia, Mr.
Navinchandra C Gosalia, Mr. Tejas B.
Gosalia, Mr. Amit Gosalia, Mr. Piyush
Sheth

d) Address

of

the

Corporate Office

e) Constitution
f) Date of Incorporation

Registered

& Regd.
Office:
201,
Hindustan
Kohinoor Complex, L.B.S. Marg,
Vikhroli West, Mumbai 400083.
Corp.
Office:
201,
Hindustan
Kohinoor Complex, L.B.S. Marg,
Vikhroli West, Mumbai 400083.
Public Limited (Closely Held)
30th June 2000

g) Line of Activity / Products of the Trader of TMT Bars, Ingots, Billets,

Sponge Iron MS scrap
Company

2) Client rating (if any) Not available

Rating Assigned
Date of rating

Name of rating agencies

3) Company & Promoter Profile

A.Navinchanda Steel was established in 1986 as a proprietory concern by Shri.
Alpesh Gosalia with business objective of supplying TMT bars.

A.Navinchandra Steels (Group) earlier had 10 firms, which considering the

operational difficulties have got merged with the limited Company
A.Navinchandra Steels Ltd (the assets of the firms are been taken over by the
limited Company) in FY2010-11. The March 2011 is a consolidated balance
sheet post-merger.
Mr. Alpesh Gosalia, a commerce graduate, is the founder of the group. He hails
from a business oriented family, which was into manufacturing if paper bags till
1986. Alpesh formed A.Navinchandra & Co in 1986 with a capital of Rs. 1 Lac.
The firm started taring in TMT Bars. He has worked in Iron & Steel industry at
various positions prior to setting up A.Navinchandra & Co.
ANSL today deals in TMT bars, ingots, billets, sponge iron and MS scrap.

4) Key Financials
Rs. in Crores
As on 31.03

2008

2009

2010

Audited

Audited

Audited

Net sales

55.23

56.75

68.56

PAT

0.12

0.14

0.14

0.21%

0.24%

0.20%

Tangible
Net
Worth (TNW) -@

1.02

1.17

1.31

TOL/TNW (#)

3.98

6.19

Latest financials
up to Mar 2011
(Provisional)

Sales

PAT

PAT / Sales

174.99

0.49

0.3%

PAT / Net Sales

@ Tangible net worth = Equity Capital + Reserves and surplus + Share

application money Revaluation reserve + deferred tax liability deferred tax
assets
(#) TOL/TNW =Total liability Tangible net worth / Tangible net worth
Comments on financials for any abnormal change: There are no abnormal changes
in the financial of the company.
Turnover For the FYE March 2011, ANSL clocked a topline of Rs. 174.99
Crores. This is on account of takeover of assets of all the 9 firms in the group by
ANSL during FY2010-11. Now, all the business will be routed through ANSL
alone. During current year, ANSL estimates to touch a topline of
Profitability The profitability had been always under pressure and had been
always less than 0.5%. For the FYE march 2011, the net profitability was at Rs.
0.49 Crores.
TNW The authorized capital during the last FY was been increased from Rs. 75
Lacs to Rs. 13.77 Crores. The Issued & Paid-up capital has increased from Rs.
64.70 Lacs to Rs. 2.50 Crores. With increase in capital & retention of profits the
TNW stood at around 2.90 Crores.
5) Financial Projections
Crores
Particulars
Net Sales
PBT
PAT
Networth

Amt- Rs in
FYE March 2012
450.00
1.40
0.99
4.08

FYE March 2013

600.00
2.20
1.51
5.58

6) Banking details Working Capital

Sole Banker
Borrowings Arrangements
Name of the Lead Bank /
Abhudhaya Co-operative Bank Ltd
Major bank
Borrowing limits
Rs. in Crores
Name of the
Banks

Fund Based WC
Limit

Non Fund based

WC limit

Total

45.00
(ROI-12.50%)

15.00

60.00

45.00

15.00

60.00

Abhyudhaya CoOperative Bank

Ltd (CC-Rs. 30
Cr + STL Rs. 15
Cr).
TOTAL

Name of the factors

-

7) Proposed Facility
Facility
Domestic Factoring

Limits

Discount rate &

Factoring charges

FIU Limit (INR in Cr)

5.00

Prepayment Percentage
80%

Name of debtor

Credit
Line
propo
sed

Relation
ship
(Years)

6.50

Expecte
d sale
during
Current
Year

Rs. in Cr

(Rs.
In Cr)
Bhuwalka
Steel
Industries Limited

Sale
during
Last
Year

5 years

63.52

90.00

Credit
period

NOA/
Escro
w/
Silent

In
days
60

NOA+
PDCs

Other major debtors of the Client:

1) All major Realty Companies & Infrastructure companies and TMT
manufacturers.
8) Transaction Structure for factoring
1) ANSL on receipt of firm orders from the debtor M/s. Bhuwalka, procure &
supply the material as per the schedule. ANSL also makes purchases from the
proposed debtor also, but have never done knocking-off of sales against the
purchases invoices. There had been always payment received and made
against sales and purchases. Also the transaction under the proposed facility
is backed by due date debtor PDCs. Hence, the risk involved/chances of
knocking off sales against the purchases is mitigated.
2) ANSL will submit the invoices along with the corresponding PO copies and
the LR copies / dispatch proof for factoring.
3) The prepayment percentage under the facility will be 80% of the invoice
value.
4) The transaction will be secured by way of Accepted NOA and Due Date
Debtor PDCs.
Debtor Financials - Bhuwalka Steel Industries Ltd

Amt in Crores
Particulars/
FYE
Net Sales
PBT
PAT
Networth

March 2010

March 2011

477.63
3.11
2.09
24.91

526.41
5.16
3.29

9) Expected Pricing
(Amt. Rs. In Cr)
Nature of
Amount
facilities
proposed
Domestic
Factoring

5.00

Discount rate

Factoring
charges

Facility setup
charges

13.50% p.a.

0.20% per
invoice sub to
a min of 250/-

1%

10) Security
FIU PDCs
Personal Guarantee
Tangible collaterals i.e. equitable
mortgage of immovable properties /
pledge of equity shares if any

YES
YES
NA

11)Rationale for the proposal

1. The proposed overall facility of Rs. 5 Crores constitutes to 166% of the TNW
as on 31st March 2011.
2. The turnover of the company had been growing Y-O-Y.
3. The accepted NOA & Due Date PDCs, will be available from the proposed
debtor M/s.Bhuwalka Steel Industries Ltd.
4. The DF facility will be secured by FIU PDCs and Transaction Backed PDCs
dated 30 days past due date from Client.

SYNOPSIS

12) Client Details:

h) Name
i) Names of Promoters/Directors

j) Address of the Registered &

Corporate Office

AMW Auto Components Limited

1) Mr. Anirudh Bhuwalka
Director
2) Mr. Anand Mimani CEO &
Director
3) Mr. M S Johar Director
4) Mr. N B Vyas - Director
Registered:
Ground Floor, Admin Building, AMW
Compound, 34 KM Milestone, Bhuj
Bhachau Road, Village Kannaiyabe,
Kachchh.

Corporate Office:
7th Floor, Tower 1, Equinox Business
Park, Peninsula Techno Park, Off
Bandra Kurla Road, L.B.S. Marg,
Kurla (W), Mumbai - 400070
k) Constitution

Public Limited Closely Held

l) Date of incorporation

16/06/2009

m)Line of Activity / Products of the

Manufacturing Auto components

Company

13) Client rating (if any)

Rating Assigned

Date of rating

Name of rating agencies

Summary:
AMW Auto Component Limited (AACL) was promoted by Asia Motor Works
Holding Ltd. (AMWH) which is 99.88% owned by the promoter Mr. Anirudh
Bhuwalka. AACL was incorporated on June 16, 2009 to acquire the assets of Auto
Component Division of M/s. Asia Motor Works Ltd. (AMW), which is in the
business of manufacturing of Heavy Commercial Vehicles and Auto Components,
through a slump sale transaction. The Company is in a process of executing this
slump sale transaction.
Asia Motor Works Ltd (AMW) headquartered in Mumbai, India is in the
business of manufacturing of Heavy Commercial Vehicles and Auto Components
and has two major divisions, namely, Heavy Commercial Vehicle (HCV) Division
and Auto Component Division (ACD). AMW was established in the year 2002 and
is promoted by Asia Motor Works Holding Ltd (AMWH).
Considering the robust growth potential of Auto-component industry, AMW
management believed that the auto component business can be a dominant player
if rolled out into an independent business entity with a dedicated management
team. To achieve this objective AMWs management has proposed to execute a
Slump Sale of the auto component division into the newly formed entity, AMW
Auto Component Limited (AACL).

AACL has currently taken the auto component division of AMW on lease and is
involved in manufacture of products such as Wheel Rims, automotive panels,
compressor shells, crash barriers and cable trays through its Wheel Rim, Press
Shop and Roll Forming facilities at its plant in Bhuj. The Wheel Rim facility is the
largest revenue stream of AACL and manufactures wheel rims for Commercial
Vehicles and Passenger Cars and caters to some of the largest OEMs, both
domestically and globally. The wheel rim facility of has commenced its
commercial operation (initially as a division of AMW) with full installed capacity
in December 2009, and it has sold ~1.3 million Wheel Rims till January 2011.
Wheel Rim plant has an installed capacity of 15 million units. It has bagged orders
from international OEMs including Fiat and GM and has domestic auto majors like
Maruti Suzuki, Mahindra & Mahindra, General Motors and International Tractors
etc. as its customers. The Company production facility has been approved by
Volkswagen and selected as development and production supplier for wheel rims.

AMW currently has a net worth of Rs. 397.87 Crs as on 31.03.2011 (Provisional).
The company has made a turnover of Rs. 1,342 Crs (FY 10-11 Prov), and a post
Tax loss of Rs. 48.43 Crs. The company expects to breakeven by FY 11-12 with a
TO of Rs. 4,845 Crs, and a PAT of Rs. 100 Crs. Net worth as on 31 March 2012 is
projected at Rs. 772 Crs.

AACL has started supplies under its name from the month of January 2011. As per
the Provisional Financials for the FY 2010-11, the company has made a turnover of
Rs. 38.28 Crs and PBT of Rs. 0.73 Crs. Net worth as on 31 March 2011 is Rs. 0.78
Crs. Net worth is less than the client selection criteria set in the credit policy, and
the amount required exceeds the maximum permissible exposure based on net
worth of AACL on a standalone basis however, considering the backing of AMW

in terms of corporate Guarantee for the facility amount and FIU PDCs for 50% of
the limit, in addition to the PG of promoter, debtor profile being strong with
availability of NOA/Escrow acceptance, along with paripassu charge on non
factored receivables, the facility is proposed for in principle approval.

AACL has approached us for DF facility of Rs.15 Crs and the facility to be backed
by CG of AMW, Personal Guarantee of Mr.Anirudh Bhuwalka, and FIU cheques
of AMW up to 50% of the sanctioned limit besides DPN and Transaction PDCs
from AACL.

All the approved debtors will provide NOA/Escrow acceptance.

Free receivables to be escrowed and paripassu charge to be provided to IFCI
Factors and if any other WC banker/factor tied up before disbursement from IFL;
availment of further WC facilities from any other lender would require NOC from
the lenders including IFL who have paripassu charge on receivables.

14)
Shareholding Pattern of AACL & Asia Motor Works Ltd:
Mr. Anirudh Bhuwalka holds 98.88% in Asia Motor Works Holding Ltd which
holds 100% shares in AMW and AACL.

3.1) Share Holding Pattern of AMW Holdings Ltd

Category

Name
Mr. Anirudh
Bhuwalka
Mr. Girish K. Sathe

Promoter
Nominee of Mr. Anirudh
Bhuwalka

No. of
shares

Percentage

49940
10

99.88%
0.02%

Mr. B. Shiva Kumar

Nominee of Mr. Anirudh

Bhuwalka

10

Mr. S.
Shankaranarayanan

Nominee of Mr. Anirudh

Bhuwalka

10

Mr. Siddharth Kedia

Nominee of Mr. Anirudh

Bhuwalka

10

Mr. Kailash
Daualtani

Nominee of Mr. Anirudh

Bhuwalka

10

Mr. Santosh Purohit

Nominee of Mr. Anirudh

Bhuwalka

10

0.02%
0.02%
0.02%
0.02%
0.02%

3.2) Financials of AACL:

AACL has commenced its operations from January 2011. In the three months
operation, the company has made a turnover of Rs. 38.28 Crs, PBT of Rs. 0.73 Crs.
Net worth as on 31 March 2011 is Rs. 0.78 Crs.

3.3) Projected financials of AACL: (INR Crores)

31.03.12

31.03.2013

31.03.2014

(Estimated)

(Projected)

(Projected)

Net sales

552.69

669.26

888.32

Gross Profit

31.67

49.48

132.55

(24.81)

(10.73)

50.54

(16.56)

(7.17)

33.36

PBT
PBT/Sales (%)
PAT

PAT/Sales (%)
Cash Accruals
Tangible Net Worth
(TNW) -@
Total
Outside
Liabilities
TOL/TNW (#)

10.67

25.22

67.44
203.91

169.13

161.99
700.75

662.80

692.01

3.91

4.27

3.44

@ Tangible net worth = Equity Capital + Reserves and surplus + Share

application money Revaluation reserve + deferred tax liability deferred tax
assets
(#) TOL/TNW =Total liability Tangible net worth / Tangible net worth

Comments on financials for any abnormal change:

First year of operation (FY 2010-11) was effectively for 3 months
Turnover is expected to grow from Rs. 38.28 Crs (FY10-11) to Rs. 552 Crs
in FY 11- 12 and Rs. 669 Crs in FY 12-13. The company is expected to
breakeven by the FY 13-14
Net worth as on 31/03/2011 is Rs. 0.78 Crs however, the promoters plan to
infuse additional equity of Rs. 228 Crs during the current year, which would
enable purchase of the auto component division as well as to fund for the
working capital.

3.4) Financials of Asia Motor Works Limited (AMW)

(in Rs. Crores)

31.03.11

30.06.2010

31.03.2009

31.03.2008

(Provisional
)

(15 Months)

(12 months)

(12 Months)

(Audited)

(Audited)

(Audited)

1286.96

1078.75

557.34

479.46

Gross Profit

88.35

89.68

54.31

23.41

PBT/(Loss)

(48.36)

(58.62)

0.44

3.75

PBT/(Loss) to
Sales (%)

(3.76%)

(5.43%)

0.07%

0.78%

PAT/(Loss)

(48.43)

(52.82)

1.60

1.13

PAT/(Loss) to
Sales (%)

(3.76%)

(4.90%)

0.29%

0.24%

Cash Accruals

2.44

8.60

13.94

10.70

386.38

305.65

1209.51

611.72

3.13

2.00

Net sales

Tangible Net
Worth (TNW)
-@

397.87

455.86

Total Outside
Liabilities

1870.70

1507.46

TOL/TNW (#)

4.70

3.30

3.5) Projected Financials of AMW:

31.03.12

31.03.2013

(Estimated)

(Projected)

Net sales

4497.24

6510.29

PBT/(Loss)

129.17

393.26

PBT/(Loss) to Sales (%)

2.87%

6.04%

PAT/(Loss)

100.07

322.22

PAT/(Loss) to Sales (%)

2.22%

4.95%

Cash Accruals

202.95

430.10

Tangible Net Worth (TNW)

-@

772.87

1195.10

Total Outside Liabilities

2925.50

3066.84

3.78

2.57

TOL/TNW (#)

4. Banking details (AACL)

Nil
Borrowings Arrangements
Name of the Lead Bank /
Major bank
Borrowing limits
in lakh
Name of the
Banks

Rs.
Fund Based WC
Limit

Non Fund based

WC limit

Total

Name of the factors

-

5. Proposed Debtors:

Limits

Discount rate &

Factoring charges

Name
debtor

of

Credit
Line
proposed

Sale
during
Last
Year

Expected
sale
during
Current
Year

(Rs. Crores)

Credit
period

NOA / Escrow
/ Silent

In days

General
6.00
Motors India
Pvt Ltd

7.09

23.24

90

NOA/Escrow

Tractors
& 4.00
farm
Equipment Ltd

1.83

13.11

90

NOA/Escrow

International
Tractors Ltd

5.00

3.25

19.30

Force Motors 1.00

Ltd

0.38

2.29

New Holland 2.00

FIAT (India)
Ltd

0.11

6.70

90
90
90

NOA/Escrow
NOA/Escrow
NOA/Escrow

Other major debtors of the Client:

1)
2)
3)
4)
5)

Essar Group (Steel, Oil, Power, Projects)

Emerson
Deepak Diesel Pvt Ltd
Tecumseh
Indofarm Equipment Ltd

*The company also supplies to Asia Motor Works (AMW)

6. Transaction Structure for factoring

The proposed debtors under the Domestic Factoring facility will provide
NOA/Escrow Acceptance
Under the Paripassu charge arrangement on the companys receivables, the
companys sole banking account would be escrowed and charge to be share
between IFL and another Factoring company (which is likely to sanction
limit of Rs. 10 Crs), on a paripassu basis. As and when due dates occur, the
available funds in AACLs sole banking account would be transferred to
IFLs account in proportion to the charge and only such balance amount,
after dues are met, shall be utilized by the company for normal working
capital & statutory payments;
In case of receipt of payment from the debtor after due date, seller cash
liquidated through the Paripassu charge arrangement would be released to
the client post adjustment of applicable charges. Separate escrow account to
be maintained for receipt of payment from approved debtors.

The clients primary account would continue to offer withdrawal/cheque

book facility to the client to enable withdrawal/payment to creditors.
Availing any other facility would be subject to NOC from IFL, and opening
any other current account would be subject to NOC from the Sole Banker.

The non factored receivables (after excluding the proposed debtors with IFL
and another factoring company which is likely to sanction Rs. 10 Crs limit)
are estimated to be at around Rs. 35 Crs every month
As understood from the client, the value of individual invoices at times may
be as low as Rs. 50,000 hence stipulation of minimum flat charges of Rs.
250 per invoice may become too costly for the client; therefore, it is
proposed for a uniform percentage of 0.1%.
The following are the trade documents to be submitted at the time of
funding

1)
2)
3)
4)

NTR
Copy of Purchase order
Certified copy of invoices drawn on the respective debtor
Accepted delivery challans/LR/GRN

7. Expected Pricing
Nature of
Amount
facilities
proposed
Domestic
Sales
Factoring

Discount rate

Factoring
charges

Facility setup
charges

14.00%

0.1%

1.00%

15 Crs

8. Security
Security PDC/Transaction PDCs

Personal Guarantee

(no minimum
flat charges)

1) FIU cheques of AACL for 100%

of the sanctioned limit
2) FIU cheques of AMW up to 50%
of the sanctioned limit.
Yes Personal Guarantee of Mr. Sanjay
Bhuwalka

Corporate Guarantee

Yes CG of Asia Motor Works Limited

(AMW)

Tangible collaterals i.e. equitable

mortgage of immovable properties /
pledge of equity shares if any

No

Others

Paripassu charge on entire receivables

of the company under water fall
mechanism wherein receivables flowing
into the sole banking account would be

appropriated to IFLs account in

proportion to the charge, as and when
invoices fall due.

9. Rationale for the proposal

1) The debtors proposed under the DF facility are top corporates and well
established companies. By virtue of the clients strength as part of an OEM
group, and a reliable supplier of components, they have obtained consent
from the debtors regarding acceptance on the NOA/Escrow arrangement.
The quality of receivables is at acceptable level and hence receivables may
get liquidated without strains
2) The recourse profile of the client may not fit into our criteria on a
standalone basis as the company is in full fledged operations for less than a
year, currently loss making, and net worth as on 31.03.2011 is less than Rs.
1 Crore however, the proposal derives strength and comfort from the
following mitigants
a) The company has taken on lease, the erstwhile Auto component division
of AMW, the required capacity is in place. During the current year, the
entire auto component division of AMW (which is currently on lease by
AACL) will be transferred to AACL through a slump sale exercise.
Additional equity of Rs. 228 crs would be infused in to AACL during the
current FY by the promoters.
b) The facility is secured by paripassu charge on the non factored
receivables of the company apart from NOA/Escrow acceptance from the
approved debtors, Corporate Guarantee of AMW, Personal Guarantee of
Mr. Anirudh Bhuwalka - the Promoter, and FIU cheques of AMW to the
extent of 50% of the sanctioned FIU limit, FIU cheques from AACL.
3) In view of the quality of receivables being at acceptable level, availability of
NOA/Escrow acceptance from the debtors, available paripassu charge on
non factored receivables, support from the group company AMW (which
has made a turnover of 1,286 Crs(FY 10-11), with a net worth of Rs. 404
Crs) in the form of Corporate Guarantee, and FIU cheques to the extent of
50% of the sanctioned limit, and other securities like DPN, Transaction
PDCs and the promoters personal guarantee, the DF facility of Rs. 15 Crs is
proposed for M/s. AMW Auto Components Limited

SYNOPSIS
15) Client Details:
n) Name:

Plastene India Ltd (Ahmedabad) PIL

o) Boards of Directors :
Mr. Champalal G. Parekh Chairman
Mr. Prakash H. Parekh Managing Director
Mr. Parvesh Chander Suri Director
Mr.Mahesh Bhandari S Director

p) Address of the

Registered /Corporate Office:

Registered &

Plastene India Ltd.

Corporate Office H.B. Jirawla House, Opp. Panchshil Bus Stop,
and other details Usmanpura,
Ahmedabad- 380 013. INDIA.
Phone :- +91 - 79 - 27550764 / 27561000
Fax :- +91 - 79 - 27551764
E-mail :- info@champalalgroup.com,
exports@champalalgroup.com
Website :- www.champalalgroup.com
Works:
:
Unit 1 : Survey No. 317, Nani Chirai - 370140, Kutch,
Gujarat
Unit 2 : Survey No. 1551, Village Rajpur, Kadi - 38 ,
Gujarat
Subsidiary Details:
Oswal Extrusion Ltd
(100 % subsidiary of Plastene India Ltd)
Unit 1 : Plot No. 73-74, KASEZ, Gandhidham - 370230,
Gujarat
Unit 2: Plot No 828, Ambica Industrial Estate, Village
Santej,Ta: Kalol,Dist: Gandhinagar 382721, Gujarat

Oswal Extrusion LDA,Portugal

(100%Subsidiary of Oswal Extrusion Ltd)
EDF COPENHAGA 8-H PARQUE IND.
780-341 VENDAS NOVAS
PORTUGAL

q) Constitution
r) Date
incorporation

Public Limited Company (Closely Held- Draft Red

Herring Prospectus Filed with SEBI)
of
1998

s) Line of Activity /
Products of the
Company

1) Plastene India Ltd (PIL) is a mega project started

by Champalal Group in 1998, currently operating
with production capacity of 55000 MTPA per
annum and the same would be expanded up to
69000 MTPA by 2012.
2) The company is on the verge of becoming the
largest manufacturer of Flexible Intermediate Bulk
Container (FIBC), Tarpaulin and Woven Bags in
India.
3) PIL is also manufacturing Flexible Packaging
Products with most advanced technology.
4) Besides this, PIL also manufactures laminates,
multifilament yarns, Master batches, fillers,
flexible
packaging
for
food
grains,
pharmaceuticals, chemical, fertilizers, cement etc.
Today Plastene India Ltd. is India's biggest Plastic
Packaging House to provide packaging solution;
5) PIL cater to a variety of packaging solution
requirements of customers across various industry
segments and can manufacture packaging products
for products ranging from 5 gram to 3,000 kg.
6) The process is approved by ISO 9001:2008. And
client base includes top 10 manufacturers of
Fertilizer & Cement.
7) Company rated by Business World Magazine as
Indias best performing Mid-sized company during
2006-07
8) Export Excellence Award by Kandla Special
Economic Zone (KASEZ) for top export
performance during 2002-03 under SSI, agro/

16)
Key Financials in INR Cr
Particulars
Mar-11
Mar-10
Provisional
Audited
Net sales
%Growth
PBDT
PBDT Margin %
Depreciation
PBT
PBT Margin %
PAT
PAT Margin %
Share Capital
Tangible Net
worth
Net Fixed Assets
(Including CWP)
TOL/TNW
Current Ratio

Mar-09
Audited

Mar-08
Audited

387.55
33.02%
22.65
5.84%
5.29
17.36
4.48%
12.01
3.10%
25.26
96.28

291.35
39.50%
18.35
6.30%
4.82
13.53
4.64%
8.03
2.76%
45.16
83.69

208.84
21.45%
9.62
4.61%
3.17
6.45
3.09%
3.06
1.47%
29.32
50.39

171.95
13.75
8.00%
2.21
11.54
6.71%
7.61
4.43%
22.32
38.13

109.13

100.35

91.25

73.26

1.11
1.12

0.97
1.11

1.95
1.07

1.76
1.13

@ Tangible net worth = Equity Capital + Reserves and surplus + Share

application money Revaluation reserve + deferred tax liability deferred tax
assets
(#) TOL/TNW =Total liability Tangible net worth / Tangible net worth
2.2 Estimates and Projections in INR Cr (Will Provide shortly)
Particulars
Net sales

Projected March 12

Projected March 13

PBT
PAT
Net worth
Comments on financials :
Sales:
The turnover of the Company has been increasing by 30% in last two
years and has reported healthy growth in last three years.
Profit: The bottom line of the Company is satisfactory with PAT standing at INR
8.03 Cr expected to reach INR 12 Cr in March 2011.
Gearing/Liquidity: Both gearing and liquidity of the Company is satisfactory

17)

Banking details

Borrowings Arrangements
Name of the Lead Bank /
Major bank

Multiple Banking Arrangement

State Bank of India

Borrowing limits
in Cr

INR

Name of the
Bank

Fund Based WC
Limit

Term loan o/s

March 11

Non Fund based

WC limit

State Bank of
India

22.00

5.48

24.00

State Bank of
Hyderabad

10.00

4.70

9.00

State Bank of
Indore

8.00

1.80

State Bank of
Patiala

7.00

18.80

10.50

Kotak Mahindra
Bank

10.00

25.00

Bank of Baroda

8.00

12.00

Standard
Chartered Bank

8.00

16.50

Royal Bank of
Scotland

15.00

73.00

30.78

112.00

Total

18)

Sanctioned Factoring Details

PIL has availed INR 10.00 Cr from India Factoring, the details of the
sanctioned facility is as under:
Facility Details
India Factoring
IFCI Factors Proposed
deal
Facility Name
Sales Bill Factoring on Sales Bill Factoring on
Silent platform
Silent platform
Currency of funding
INR
INR
Amount
INR 10.00 Cr
INR 15.00 Cr
Prepayment %
80%
90%
Credit Period
Up to 90 days
Max up to 120 days
Purpose
Trade
Finance Trade
Finance
requirement
requirement
Discount Charges %
12.00% p.a. as per 13.25% p.a. or matching
sanction letter
dated the rate offered by India
December 28, 2010. (As factoring
informed by the client the
present rate has been
increased to 13.00% p.a.)
Facility Set up fees
1.00% p.a.
Client has requested to

give
best
possible
concession on the one
time fees. We propose
0.30% p.a. for first three
years with a commitment
of utilizing a minimum
80% of the sanctioned
FIU limit or a penal
charge to be stipulated.
Commitment Fee
To be charged on the Same as explained above
unutilized amount being
under 50% in the month
and at 0.10% of the
unutilized
facility
amount. The said fee was
waived till March 2011.
Factoring Charges
0.25% per invoice subject 0.20% per invoice subject
to minimum INR 500 per to minimum INR 450 per
invoice
invoice
Debtor Assessment fee
INR 2000 per debtor
Nil
Contravention Fees
0.10 % of o/s invoice Same
amount value (Charged
on instances of goods
damaged , return )
Overdue Interest
Nil
2.00% of the o/s value
Security
and PG of Champalal G Same
Documentation
Parekh and Prakash H
Parekh along with CA
certified
Net
worth
statement and latest IT
returns of each Personal
Guarantors
DPN
DPN
Transaction backed PDC Transaction backed PDC
Factoring Agreement
Factoring Agreement

DIL (Not applicable for POA for collection of

silent factoring) and POA debts
for collection of debts
Transactional requirement NTR
NTR
Invoices assigned in Invoices assigned in
favour of India Factoring favour of IFCI Factors
Proof of movement of Material dispatched proof
goods
/ LR
On receipt of paymentSame and if RTGS made
1) Copy of payment by client then PDC to be
instrument or Bank returned to client post
statement
credit of payment along
2) Copy of debtors with margin money of
payment advice
applicable.
Additional covenants
From March 2011 PIL to No covenants as such
maintain TOL/TNW of (however should be less
3.5:1
than 6:1)
Tangible
Net
worth No covenants as such
should be more than INR (however should be more
76.40 Cr
than INR 20 Cr )
U/T for unsecured loan
Can be taken
Client is dissatisfied with the services offered by India factoring and has
requested us to sanction factoring facility of INR 10.00 Cr on similar
transaction structure with few concession of the rates. PIL has agreed to
provide a closure letter from India factoring prior to disbursement.

19)
Product parameters as per the New Credit policy 2011-12 (Silent
Factoring)
Particulars
Minimum Net worth

Stipulated Parameters
INR 20 Cr

Max TOL/TNW

6:1

Compliance
Complied- Net worth as
at March 2010 is above
INR 80 Cr
Complied Has remained

Min Current ratio

Company Existence
Profit Making Entity

1.1:1
Min 3 years
At least for 2 years

less than 2:1 in last three

years
CompliedCompliedComplied-

All the parameters as per Credit Manual 2011-12 for Silent Factoring is
Complied with.
We proposed silent platform as all the debtors are blue chip companies
wherein PIL is not in position to get NOA or Escrow account. The basic details
of the debtors is given under Para 6.
20)

Proposed debtor for factoring under silent platform

Sr. Name of debtors

Particulars
No
1
Cargill
India Cargill is a MNC and maintains a number of
Private Limited
businesses in India, with operations including the
handling and processing of a wide range of products,
including refined oils, grain and oilseeds, sugar,
cotton and animal feed. In addition, Cargill develops
flavour systems and operates a value investing
business. Their presence in India has been growing
since a joint venture operation in 1987
2
GHCL Limited
Listed on BSE and reputed Company in the state of
Gujarat. Had past relationship with IFCI Ltd. GHCL
India was commissioned in March 1988. Over the
years it has evolved as a premiere Global Chemical
and Textile Company. Today, GHCL is distinguished
by its growth, financial performance and outstanding
people and processes.

Jubiliant
Industries Limited

Lifelong Meditech
Limited

Rashtriya
Chemicals
&
Fertilizers Limited

Sanghi Industries
Limited

Listed Company. Jubilant Industries Ltd. is the

flagship Company of Agri and Performance
Polymers business of the Jubilant Bhartia group. The
Company s diversified portfolio includes a wide
range of Crop Nutrition, Crop Growth and Crop
protection Agri products and Performance Polymers
products comprising consumer products like
adhesives, wood finishes; food polymers and latex
such as Vinyl Pyridine, SBR and NBR latex.
Lifelong group is a diversified group with interests in
manufacturing of auto components and medical
devices and services in the areas of investments,
education, software and event management. The
group's annual revenues are in excess of $100
million. The Lifelong group is led by Mr. Atul Raheja
whose initial foray was a successful career in
manufacturing and marketing of domestic appliances
under the brand name of "Lifelong".
RCF as a corporate body and Government of India
undertaking listed on BSE. Till 1992, the Company
was a wholly owned PSU. During 1992 and 1993,
7.5% of the equity has been disinvested to Financial
Institutions, Public etc.
Listed on BSE. The company has developed worldclass infrastructure facilities for captive use at the
Cement Plant, viz., Captive Power Plant 55 MW,
Captive Jetty, large Captive Desalination Plant &
Road Network.

8
9
10

11
12
13

14

Shree
Ganesh The enterprise is a co-operative Sugar Factory
Khand
Udyog registered under the Co-operative Sugar Societies
Sahakari Mandali Act-1961 (Regd. No. SE-42, dt.22-04-1985). The
Limited
plants installed in production unit have the capacity
of 4200 TCD owing to the same, around 3000 to
3200 MT of Sugarcanes is crushed per day with
capacity utilization of around 120%. Shree Ganesh
Khand Udyog Sahkari Mandli Limited was
founded in the year 1985 in Gujarat, India. The
Company is a manufacturer and exporter of diverse
range of Agricultural and other products. All the
affairs of the company are managed under the
guidance of Mr. Banesinh S. Dodia, the managing
director.
Tata
Chemical Listed on BSE , A TATA Group Company
Limited
Ultratech Cement Listed on BSE. Birla Group Company
Limited
Triveni
Listed on BSE. Caters in the areas of sugar, turbines,
Engineering
& gears & gearboxes and water & wastewater
Industries limited treatment. One of the leading sugar manufacturers in
India and also the market leaders in engineering
businesses, having a global footprint.
Elite Polytrade
Trading Firm in Ahmedabad. All KYC and financial
details will be produced.
Dwarikesh Sugar Listed on BSE. Dwarikesh Sugar Industries Limited
Industries Limited is an integrated conglomerate, primarily engaged in
manufacture of sugar and allied products
Ankur Chemfood ANKUR CHEMFOOD PRODUCTS (GUJ.) LTD is
Products (Gujarat) INDIA's leading salt company engaged in
Limited
manufacturing, marketing & exporting of Triple
Refined Free Flow Iodised and Industrial salt,
situated at Chopadava village near Kandla Port,
Gujarat. The company belongs to a reputed group
having stake in diversified industries, with group
turnover of more than $50 m.
Bajaj Salt Private Products manufacturing and exporting, industrial &
Limited
edible salt

15

16

17

18
19

Indo
Brine An ISO-9001 certified company catering to the
Industries Limited worldwide market with the Kohinoor, INDO
brand of refined free flow iodized salt and various
grades of industrial salt
Shree
Ram Shreeram Chemfood Private Limited established
Chemfood Product in 2008 with an aim to manufacturing and supplying
Pvt. Ltd
all types of edible and industrial salt that matches the
international quality and standards
Laxmi Chemfood Manufacturer of Tripple Refined Free Flow Iodised
Product Pvt. Ltd.
Salt, High Purity Industrial PVD Salt, Low Sodium
Iodised Salt, Double Fortified Salt, Iodised Salt with
Iron, Water Softener Table Salt,
Kutch Brine Chem Trading Firm in Gandhidham. All KYC and financial
Industries
details will be produced.
Maxroth
Trading Firm in Ahmedabad. All KYC and financial
Chemicals
details will be produced
1) Max cap on the overall FIU Limit will be kept at INR 15.00 Cr.
2) The entire proposed facility is under silent platform wherein the client i.e.
PIL will provide us the remittance proof along with the payment made to
us.

21)

Transaction Structure for factoring

Domestic Factoring facility backed by Transaction backed PDC from the
client which will be returned once the payment is made by client along with
necessary proof.
Silent Platform from all the proposed debtors wherein client will remit the
payment due along with necessary remittance proof.

22) Expected Pricing

Nature of
Amount
facilities
proposed
DF (Silent
Platform)

INR 15.00 Cr

Discount
rate

Factoring
charges

Facility setup
charges

13.25%
p.a.

0.20 % per
invoice or
Flat 450 per
Invoice

0.30% p.a. for first

three years with a
commitment of
utilising at least 80%
of the sanctioned FIU
limit.

23) Security
Security PDC and others

We will obtain transaction backed PDC from

the client and will return the PDCs once the
payment is made by the client along with all
necessary remittance proof.

Personal Guarantee

PG from the key promoters will be obtained

Tangible collaterals i.e. equitable

mortgage of immovable
properties / pledge of equity shares
if any

No

24)

Rationale for the proposal

1) Company with overall satisfactory financials and reputed name in the
business industry
2) The quality of the proposed debtors is satisfactory and
relationship/location of the proposed debtors is acceptable to us.
3) One of the most reputed name in the Plastic Industry in Gujarat and Group
Company of Champalal Group of Gujarat.
4) PIL is already enjoying INR 10 Cr factoring facility with India Factoring.
However, client is dissatisfied with their service and has approached IFCI
Factors to take over the said facility. Further, as explained by client as on
date the FIU o/s is Nil with India factoring and client has expressed its
willingness to start relationship with us before end of this month.

ANNEXURE
IFCI FACTORS LTD
BALANCE SHEET AS AT MARCH 31, 2011
Schedule

SOURCES OF FUNDS

As at march 31, 2011

As at march 31, 2010

Rs.

Rs.

Shareholder funds
Share Capital

Reserves and Surplus

79,35,77,000

79,35,77,000

43,20,13,769

29,55,61,815

1,22,55,90,769

1,08,91,38,815

7,07,70,93,855

1,91,96,33,278

Loan Funds
Secured Loans

Unsecured Loans

4
50,00,00,000

7,57,70,93,855

1,91,96,33,278

8,80,26,84,624

3,00,87,72,093

1,98,97,775

2,16,01,856

1,19,92,777

1,48,13,202

79,04,998

67,88,654

2,00,000

3,39,299

TOTAL
APPLICATION OF FUNDS
Fixed Assets
Gross Block

Less: Accumulated Depreciation

Net Block
Advance for Capital Goods

Deferred Tax Assets (net)

Investments

1,83,16,975

94,70,833

18,00,00,000

Current
Assets,
Advances

Loans

and

Current Assets
Sundry Debtors

Cash and Bank Balances

Liabilities

3,84,49,31,297

24,38,31,374

1,66,68,122

2,61,53,24,368

66,00,824

10,53,13,10,881

3,86,82,00,243

1,82,13,97,141

85,99,49,926

11,36,51,089

1,60,77,010

1,93,50,48,230

87,60,26,936

8,59,62,62,651

2,99,21,73,307

8,80,26,84,624

3,00,87,72,093

Loans and Advances

Less:
current
Provisions

7,67,21,55,139

and

10

Current Liabilities
Provisions

Net Current Assets

TOTAL

IFCI FACTORS LTD

PROFIT AND LOSS A/C FOR THE YEAR ENEDED MARCH 31, 2011
Schedule
As at march 31, 2011

As at march 31, 2010

Rs.

Rs.

79,93,95,889

31,14,61,934

16,77,032

49,28,679

80,10,72,921

31,63,90,613

3,68,70,480

2,47,28,103

3,41,94,158

2,45,17,063

36,77,34,415

8,16,36,390

18,15,901

9,99,983

44,06,14,954

13,18,81,539

36,04,57,967

18,45,09,074

Income
Income from operations

11

Other Income

12
TOTAL

Expenditure
Personnel Expenses

13

Operating, Administrative and other

expenses

14

Financial charges

15

Depreciation
TOTAL
Profit Before Provisions & Write off

Bad Debts Written off

Reversal of provision for doubtful
bebts

2,66,52,962

(14,49,997)

Provisions:
-standard Assets
2,75,79,558

1,47,04,442

48,42,570

77,98,253

30,28,32,864

16,20,06,379

11,06,65,000

6,44,10,500

(88,46,142)

(83,27,010)

20,10,14,006

10,59,22,889

12,46,30,333

3,98,92,022

32,56,44,339

14,58,14,911

-Bad and Doubtful Debts

Profit Before Tax
Provision for taxation
Current Tax (net of Rs. 15,15,152
(previous year inc Rs. 4,61,058)
relating to earlier years)
Deferred Tax (Net)
Profit After Tax
Balance
Brought
previous year

forward

from

Profit Available for Appropriation

Appropriations

Statutory Reserve fund

4,02,02,801

2,11,84,578

Proposed Dividend
5,55,50,390

90,11,662

Tax on Distributed Profits

Profit Carried to balance sheet
22,08,79,486

12,46,30,333

CASH FLOW STATEMENT FOR YEAR ENDED MARCH 31,2011

A.
CASH
ACTIVITIES

FLOW

FROM

Year Ended march

31, 2011

Year ended march

31, 2010

Rs.

Rs.

OPERATING

Net Profit Before Taxation

30,28,32,864

16,20,06,379

18,15,901

9,99,983

Adjustment for:
Depreciation/Amortization
Unclaimed Balances written back
-

(4,21,497)

Bad Debts
2,66,52,972

(14,49,997)

2,75,79,558

1,47,04,442

48,42,570

77,98,253

93,336

2,54,221

Reversal of provision for doubtful debts

Contingent Provisions against Standard Assets
Provision for Bad and Doubtful Debts
Provision for Gratuity
Expenses Related to issuance of share capital
32,50,000

Provision for leave Encashment

3,03,777

6,97,921

Foreign Exchanges Loss

-

4,42,921

Income from mutual fund

(1,82,658)

(9,49,698)

36,57,38,323

18,55,32,925

5,15,74,60,577

1,66,91,90,357

(3,85,72,69,387
)

(2,50,56,15,010
)

96,14,47,215

60,91,82,261

(2,61,43,94,050
)

(20,86,933)

1,29,82,678

(3,96,22,534)

Income Tax Paid

(9,99,59,138)

(7,02,12,296)

Net Cash Flow From Operating Activities

(8,69,76,460)

(10,98,34,830)

(27,92,946)

(46,50,929))

Operating Profit Before working capital changes

(Increase)/Decrease in Borrowings
(Increase)/Decrease in Sundry Debtors

Increase/(Decrease) sundry Creditors

(Increase)/Decrease Loans and Advances

Net Cash Used in Operations

B.CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of Fixed Assets
Investment in Mutual Funds
Income from Mutual Funds

(18,00,00,000)
1,82,658

9,49,698

Net Cash Flow From Investing Activities

C.CASH
FLOW
ACTIVITIES

FROM

(18,26,10,288)

(37,01,231)

FINANCISING

Subordinate Debts Raised

50,00,00,000

(32,50,000)

Net Cash Flow From Financing Activities

49,67,50,000

Net Increase/(Decrease) in Cash and Cash

Equivalents

22,71,63,252

(11,35,36,061)

1,66,68,122

13,02,04,183

24,38,31,374

1,66,68,122

Expenses Related to Issuance of Share

Capital

Opening Cash and Cash Equivalents

Closing Cash and Cash Equivalents