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Making The Bankable Proposal

Day 3, Plenary Session II, 1130 Hrs-1300 Hrs, 19th Dec 2009, MSME DI,Guindy, Chennai

An autonomous society of Government of Tamil Nadu and Confederation of Indian Industry

Tamil Nadu Technology Development & Promotion Center

Day 3, Plenary Session II, 1130 Hrs-1300 Hrs, 19th Dec 2009, MSME DI,Guindy, Chennai

Presented By: H M Sathyamurthy

FINANCING OF FOOD PROCESSING INDUSTRIES

INDIA’S UNIQUE FEATURES

1. Leading Producer - HORTI. CROPS

2.Food Processing - THRUST AREA

3. Crops – Wide Range

4.INDIA RANKS :* Cereals : 1st IN THE WORLD * Fruits & Vegetables : 2nd LARGEST

5. Tea, Coffe, Sugar, Tobacco : Within 5th

India has the perfect credentials for being aFood juggernaut

MILKLargest Producer

FRESH PRODUCE#2 in the world

LIVESTOCKLargest in the world

TEA#2 in the world

WHEAT#2 in the world

RICE#2 in the world

TEALargest Producer

SUGARLargest Producer

STATUS OF FOOD PROCESSING

1.INDIA’S Share in Global Food Trade : JUST 1.5%.

2.Value addition to Foods : ONLY 8% of Total Production

3.Major Activity : PRIMARY PROCESSING.Secondary & Tertiary PROCESSING - LOW

4. FOOD PROCESSING in India - 5TH in terms of Size

5. Accounts for 13% Of our EXPORTS

5.At present :

* Organized units – 90000 * Of which, F & Veg - 5000

6. Packaged Foods Business Level - Rs 4000 Crores

* Indian Brands with GLOBAL PRESENCE - Few* Indian Brands with GLOBAL PRESENCE - Few* Most Exports - in BULK * Branding - MINIMAL

7. Size Of Food industry : RS 144000 crores

8. Un organised , Small Players process - in volumes > 75%- in Value : 50%

PROBLEMS AND CONSTRAINTS OF FOOD PROCESSING

1.PROCESS INDUSTRY :

* Financially Poor/ weak* Uncertain RAW MATERIAL Supply* Seasonal & hence Capacity Uitilisation is Low * Higher COST OF PRODUCTION PER UNIT* Higher COST OF PRODUCTION PER UNIT

2.AVAILABILITY AND QUALITY OF RAW MATERIAL:

* RAW MATERIAL NOT as per Industry Requirement - varieties, produce parameters, period of availability

3.INFRASTRUCTURE:* Inadequate * Large Wastages - 25 –40%

Particularly HORTICULTURAL Products(COLD STORAGE,WAREHOUSES, COLD CHAIN)

* Absence / inadequate Infrastructure for Quality testing, R&D• UNITS either compromise on quality or spend heavily• ABSENCE Of Certifications –HACCP/ ISO • ABSENCE Of Certifications –HACCP/ ISO

4.TECHNOLOGY:

* Old & Outdated TECHNOLOGY.(ASCEPTIC PACKAGING & POST HARVEST TECHNOLYIN HANDLING)

5. MULTIPLICITY OF LAWS:

• Large no of LAWS & REGULATIONS • Too many Agencies• Inspection Raj (BOILER INSPECTOR. LABOUR INSPECTOR. SALES TAX, EXCISE DUTY, HEALTH INSPECTOR )

6. EXPORT:

* Large number of export units • Full Benefit NOT Reaching / Delayed • Credibility to exporters mainly – Quality product & GMP

7.GOVT POLICY:* Import – Vary widely, often* Excise Duty – VERY HIGH* TAX – vary among states 8. AVAILABILITY OF CREDIT:

MOST OF THE PROBLEM MAY BE SOLVED BY

•Establishing AGRO PARK – common facilities Power transformers, water supply, storagefacility, Lab, ETP,

PROJECT APPRAISAL•Validate All ASSUMPTIONS made are REASONABLE, • Evaluate Adequacy of ROI & RISKS - Requirement of Fixed Investments

ASSETS- NEW PROJECT - MODERNISATION- NEW PROJECT - MODERNISATION- EXPANSION - DIVERSIFICATION ETC.

KEY ASPECTS TO BE VALIDATED ARE:• MARKET• TECHNICAL• MANAGEMENT• FINANCIAL• ECONOMIC• RISK

MARKET* Evaluate ability to achieve Sales Projections

• Assess the MARKET SEGMENT to which unit will cater to

• Study MARKET POTENTIAL, COMPETITION AND EXPECTED MARKET SHARE.

• Marketing Activities Required- PRODUCT PLANNING(JUICE,CREAM,POWDER)- PROMOTION- DISTRIBUTION- PRICING ETC.

• LONG TERM PROSPECTS FOR THE PRODUCT

SOURCE OF MARKET INFORMATION

• PUBLISHED DATA• MARKET SURVEY REPORT• DISCUSSION WITH UNIT• DISCUSSION WITH SIMILAR UNITS• QUICK DIRECT MARKET SURVEY

THE MARKET ANALYSIS SHOULD LEAD TO VALIDICTION OF

- PRODUCT FEATURES- PRICING- DISTRIPUTION- SALES FORCE- SALES PROMOTION- SALES PROJECTIONS

TECHNICAL APPRAISALTHE OBJECTIVE IS TO ASSESS WHETHER THE UNIT HAS THE TECHNICAL KNOW- HOW, MACHINERY AND SYSTEMS TO MANUFACTURE THE REQUIRED QUALITY & QUANTITY OF THE PRODUCTS ENVISAGED

KEY AREAS TO BE VALIDATED

1. PROCESS KNOW HOW1. PROCESS KNOW HOW2. MACHINERY3.LAND & BUILDING4.PROJECT LOCATION5.POLLUTION CONTROL6.RAW MATERIAL7.POWER8.FUEL & WATER9.MANPOWER & ORGANISATION

10.PROMOTER

1. PROCESS KNOW-HOW

HOW TO VALIDATE ?-

• PROPOSED MANUFACTURING PROCESS• LEVEL OF TECHNOLOGY• JOINT VENTURE

- DISCUSSIONS WITH CONSULTANT, UNIT PROMOTER / TECHNICALPERSONS

- JOINT VENTURE AGREEMENT

- SIMILAR UNITS OR KNOWLEDGEABLE PERSONS IN THE INDUSTRY

- IITs, UNIVERSITIES, REGIONAL RESEARCH LABORATORIES, OTHERRESEARCH INSTITUTIONS

2. MACHINERY• TYPE OF MACHINERY• CAPACITY OF MACHINERY• QUALITY OF MACHINERY• UTILITY / SERVICE REQUIREMENTS• AFTER SALES SERVICE AVAILABILITY• MAKE & SPECIFICATIONS• COST• COST

HOW TO VALIDATE ?- MACHINERY CATALOGUES- DISCUSSIONS WITH MACHINERY SUPPLIERS /

TECHNICALPERSONS- SIMILAR UNITS OR KNOWLEDGEABLE PERSONS

IN THE INDUSTRY- FINISHED PRODUCTS QUALITY REQUIREMENTS

3. LAND & BUILDING REQUIREMENTS

• LAND AREA • BUILDING AREA• TYPE OF CONSTRUCTION• OTHER SPECIAL PROVISION REQUIRED

HOW TO VALIDATE ?HOW TO VALIDATE ?- PLANT LAYOUT- MACHINERY SIZE AND SPACE REQUIREMENT GIVEN IN CATALOGUES- STORAGE SPACE REQUIRED FOR RAW MATERIAL, WIP, FINISHED

GOODS- HOUSING FOR UTILITIES- WORK ENVIRONMENT REQUIREMENTS- NUMBER OF WORKERS / SUPERVISORS- STATUTARY REQUIREMENTS

4. PROJECT LOCATION

• LOCATION OF THE PROJECT SITE • INFRASTRUCTURE FACILITIES REQUIRED

HOW TO VALIDATE ?

CHECK REASONS GIVEN AND MAKE JUDGEMENT CHECK REASONS GIVEN AND MAKE JUDGEMENT - NEARNESS TO MARKET / RM SOURCES- BACKWARD AREA BENEFIT- INFRASRUCTURE NEEDS – ROAD, COMMUNUCATION- EFFLUENT DISPOSAL NEEDS- POWER, WATER REQUIREMENT & AVAILABILITY- SKILLS OF MANPOWER REQUIRED- SITE VISIT- DISCUSSION WITH PROMOTER

5. POLLUTION CONTROL

• TO MEET POLLUTION CONTROL BOARD NORMS &• STATUTARY REQUIREMENTS

HOW TO VALIDATE ?

- TYPE, QUANTITY & QUALITY OF EFFLUENTS GENERATED- TYPE OF EFFLUENT TREATMENT AND DISPOSAL- PERMISSIBLE LEVELS- CATEGORY OF INDUSTRY- OBTENTION OF PCB CLEARENCE- ENVIRONMENT REQUIREMENTS

6. RAW MATERIAL

• RAW MATERIAL REQUIRED • SOURCE & AVAILABILITY• OTHER CONSUMABLE REQUIRED• INVENTORY LEVELS

HOW TO VALIDATE ?HOW TO VALIDATE ?- PUBLISED DATA- DISCUSSION WITH SIMILAR UNIT- LOCAL MARKET ENQUIRY- WASTE & REJECTION %- CYCLICALITY OF AVAILABILITY- QUALITY - PRICE VARIATION- LEAD TIME FOR RM PROCUREMENT

7. POWER

• POWER REQUIREMENT & AVAILABILITY • ALTERNATE SOURCE OF ENERGY

HOW TO VALIDATE ?- INSTALLED HP - HOURS MACHINES RUN IN A SHIFT & NO OF SHIFTS PER DAY- HOURS MACHINES RUN IN A SHIFT & NO OF SHIFTS PER DAY- SOURCES OF SUPPLY – TNEB / CAPTIVE GENERATION- ENQUIRY WITH TNEB AUTHORITIES

8. FUEL & WATER

• FUEL REQUIREMENT AND AVAILABILITY• WATER REQUIREMENT AND SOURCE

HOW TO VALIDATE ?- TYPE & SIZE OF BOILER, GENSET ETC. USED - TYPE & SIZE OF BOILER, GENSET ETC. USED

AND HOURS OF RUNNING- TYPE & QUANTITY OF FUEL USED - FUEL & WATER REQUIREMENT GIVEN IN

MACHINERY CATALOGUES- PROCESS DATA

9. MANPOWER & ORGANISATION

• MANPOWER REQUIREMENT AND AVAILABILITY• ORGANISATION & MANAGEMENT CONTROL

HOW TO VALIDATE ?- TECHNICAL MANPOWER REQUIREMENT- TECHNICAL MANPOWER REQUIREMENT- QUALIFICATION AND EXPERIENCE OF KEY

TECHNICAL PERSONS- ALLOCATION OF SKILLED & UNSKILLED

MANPOWER- ORGANISATION STRUCTURE- MANAGEMENT INFORMATION SYSTEM &

CONTROL

10. PROMOTERS BACKGROUND

KNOWLEDGE & EXPERIENCE OF THE PROMOTERS RELAVANT TO PROPOSED ACTIVITY

HOW TO VALIDATE ?

- TECHNICAL QUALIFICATION- PREVIOUS EXPERIENCE - STRENGTHS & WEAKNESS- ARRANGEMENT FOR OVERCOMMING

WEAKNESS

FINANCIAL:I.PROJECT COST:1.LAND,BUILDING. MACHINE, ELECTRIFICATIONPRE-OPERATIVE , PRELIMINARY,WORKING CAPITALMARGINII.MEANS: PROMOTER’S MARGIN, SUBSIDY, BANK LOANLOANECONOMIC:PROFITABILITY PROJECTIONS,CASH ACCRUALS, REPAYMENT, DSCR,IRR.DSCR SHOULD BE ABOVE 2.RISK ANALYSIS AND RATING:BASED ON RATING INTEREST RATE WILL BE FIXEDWORKING CAPITAL WILL BE NEED BASED.

THANK YOU

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An autonomous society of Government of Tamil Nadu and Confederation of Indian Industry

Tamil Nadu Technology Development & Promotion Center

TNTDPC is not responsible for the validity or accuracy of information and/or suggestions provided in the presentation and cannot be held responsible for any consequences arising from the usage of the same.