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* Old & Outdated TECHNOLOGY.(ASCEPTIC PACKAGING & POST HARVEST TECHNOLYIN HANDLING)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

Terms of Usage•TNTDPC does not hold the copyright for the above content unless otherwise mentioned. The content is published with permission from the presenters.•TNTDPC is not responsible for the validity or accuracy of information and/or suggestions provided in the presentation and cannot be held

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.