5674 2363 115 1835-66-3 management & technical appraisal 2003format
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Session- 3
Shyam Ji Mehrotra1
Management & Technical appraisal
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(Seven Cs of Management
appraisal)
Shyam Ji Mehrotra2
Management is key to success of an enterprise Character & Integrity
Capability to organize resources
Capacity to arrange finance
Creditworthiness & KYC compliance
Competence to manage
Credit Rating
Collateral & Covenants
Majority of defaults occurs due to managerial inefficiency
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Credit Ratings
July 21, 2012Shyam Ji Mehrotra3
CRA like CARE, CRISIL, FITCH, ICRA,ONICRA,SAMERA conducting creditrating for SME and large industries
75% of credit rating fee subject tomaximum of Rs. 25000 to Rs. 40,000 isreimbursed to Small and Micro unitsway of grants.
Banks have developed system ofinternal credit rating of borrowers incompliance of BASEL II norms.
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Management structure
Shyam Ji Mehrotra4
Suitability and adequacy of management
structure
Individual
Proprietorship Partnership
Hindu Undivided family
Limited Liability Partnership (LLP)
Joint stock companies Others- society, trust etc.
Whether technically and professionally qualified
Reputation in the market and experienceJuly 21, 2012
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Borrowing capacity
Shyam Ji Mehrotra5
Capacity to borrowExamine memorandum and article of association or
charter of the borrower to satisfy capacity to borrowand borrowing limit
Resolution of the board or Shareholders meetingsfor borrowing
Resolution for charging securities
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Borrowing capacity
Shyam Ji Mehrotra6
Due diligence- past payment historyDefaulters list of RBI
Caution list of ECGC
Credit report of reputed companies like Dun &
Bradstreet, CIBIL etc.
Credit report from other banks/financial institutions
Market intelligence
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Borrowing capacity
KYC ComplianceTo confirm identity of the borrower/borrowers
through identity proof such as pass port, PAN card,
voters card, Aadhar card etc.
To confirm address through telephone bill,electricity bill, pass port etc.
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Borrowing capacity
Credit worthinessProject finance has no operating history
Credit worthiness is dependent upon debt servicing
capacity ( expected future cash flows) &
inherent value of assets ( collateral)Credit history of sponsors of the project and pledge
of third party assets, if any
Amount of equity project sponsors have at risk
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MANGEMENT APPRAISAL-
SUMMARY Quality of management
Honesty and integrity
Competence Broad based
Involvement in project
Financial resources
Initiative Intelligence
Self confidence
Patience
Drive and energy
Past track record
Experience Forms of organization
Setup of the organization
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SESSION 3
TECHNICAL APPRAISAL
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TECHNICAL APPRAISAL Purpose
Technically feasible in terms of size, location, plant
capacity,
Ease of absorptionAvailability of technical manpower
Technical know how at reasonable costAll inputs are available ( indigenously or imported) timely
and adequately- raw material, power, stores & spares
Ecological balance and environmental concern are
addressed
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Examined by experts but financial analyst is
expected to raise key questions based onex erience, common sense and ure lo ic11 shyam Ji Mehrotra July 21, 2012
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TECHNICAL KNOW HOW
shyam Ji Mehrotra12
Foreign collaborators, Consultancy organizations
Nature of support by collaborators in design,
selection, procurement, erection, maintenance
of project
Performance guarantee
Price- royalty, licensing fee , one time or regular
Upgradation of technology- automatic or against
fee Turn key projects
Restrictions if any by technology providers non
compete clause
Recruitment of suitable technical persons July 21, 2012
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Material input, skill and utilities
Check list
shyam Ji Mehrotra13
Defining the material required and setting upsupply chainMineral products, agricultural products, marine products,
imported raw materialdirect ownership, lease or purchaseagreements
Vendors, suppliers including overseas Input constraints and alternatives
Typical uncertainties like proven, probable or possiblereserves of natural resources
Availability Locally available
Dependent on foreign suppliers
Dependent on few suppliers
Dependent on vagaries of nature
Price agreements Forward contracts
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Material input ,skill and utilities
Check list
Defining the status of utilities , totalrequirements and gap if anyPower
StreamWater
Fuel
Skills
Locally available Trained manpower
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Product mix- check list
shyam Ji Mehrotra15
Product planning- based on target demand
Nature of target customers (garment
manufacturing wide range of sizes and quality)
Flexibility to change mix and additional
investment
Packaging
Profit margin and BEP analysis
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Plant capacity- check list
shyam Ji Mehrotra16
Also referred as production capacity Defined in terms of installed capacity, technical
condition of the plant, down time and holidays,shift change etc.
Minimum economic size Input constraints
Demand constraints
Investment cost economies of scale
Government policies
Limitation imposed by financial and managerialcapacity of management
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Location and site- check list
shyam Ji Mehrotra17
Land acquisition supported by state government,farmers agitations
Proximity to raw material, utilities etc.
Proximity to market
Transportation and other infrastructure facilities Labour situation
Government policies and incentives-Growth centers,Notitified back ward area etc.
Environmental issues and effluent disposal saychemical , plastic, tanneries industries are located insea area or rivers
Proximity to ancillary units
Climatic conditionsJuly 21, 2012
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Machines and equipments- check list
shyam Ji Mehrotra18
Estimate likely level of production
Define machine and other operations
Calculate the machine hours required in each
operations
Select machine and equipments required for each
functions depending upon technological
sophistication and opinion of consultant re. Vendor, capacity , technology, delivery schedule, payment
terms, performance guarantee etc.
Make inventory of spare and tools to meet need
of original machine and also wear and tear.
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Risk Mitigation
Assessment & mitigation of managerial andtechnical risks
Completion risk- time and cost over run
Technological risk
Raw material supply risk
Managerial risk
Default risk
Marketing risk
..
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