Project Appraisal free essay sample

CHAPTER 1 INTRODUCTION PROJECT APPRAISAL Every organisation has to examine the viability of each project before it provides financial assistance. It has to ensure that the project will generate sufficient funds on the resources invested in it. With the opening of new factory outlet, the study of viability of a project has become more vital for financing a project. Project appraisal the process of critical evaluation of all the six faces of the project appraisal namely: 1. Technical analysis 2. Financial analysis 3. Legal analysis 4. Market analysis 5. Management appraisal 6. Ecological appraisal. 1 Technical Analysis: Technical analysis of a project is essential to ensure that necessary physical facilities required for production are available and the best possible alternative is selected to procure them. Technical analysis considers following aspects. o Manufacturing process/technology o Product mix o Plant capacity o Location and site o Machineries and equipments o Plant layout o Work schedule o Structure and civil works. Raw materials: The potential availability of raw materials cost of collection and quality of raw materials. Utilities (Power, Water, Fuel, etc): These are essential to run a company. The availability of power, water, fuel, etc. should be considered whether sufficient utilities are available or not. Manufacturing process/technology: The selection of manufacturing process/technology depends on quality of the product required, its end use, latest developments and principal inputs. Product Mix: Product mix is dependent on market requirements. Product mix holds quality, performance, or innovative features. While planning the production facilities of the firm, some flexibility with respect to the product mix mist is sought. Plant capacity: Plant capacity refers to the volume of number of units that can be manufactured during a given period. The following factors have an influence on the plant capacity. o Technology requirement o Input constraints o Investment costs o Market conditions o Resources of the firm o Government policies Location and site: Location refers to a fairly broad area like a city, and industrial zone, or a coastal area. Site refers to a specific piece if land where the project would be set up. Location of the project depends on the land availability of raw materials, market, labor, water, power, effluent disposal, good infrastructure, communication facilities etc. Procurement of plant and machinery: For procuring the plant and machinery, orders with different reputed machinery suppliers are on turnkey basis. The factors to be considered in selecting the suppliers of plant and machinery are the quality of machinery, the level of technology sophistication, the expected delivery schedules, and the required performance guarantees. Plant layout: Should consider factors as flows of materials, storage, inter linked storage yards, utility service systems, future expansion alternatives, disposal of industrial effluent, etc. Work schedule: The purpose of work schedule is: o To anticipate problems likely to arise during the installation phases and suggest possible solutions. o To develop a plan of operations covering the initial period. o To establish the phasing of investments taking into accounts the availability of finance. Civil work o Site preparation and development: o Cost of land o Legal charges for registration o Cost of levelling o Cost of roads formation Building and structures: o Main factory buildings o Other civil works for auxiliary services o Administrative buildings o Quality control laboratory and RD building o Go downs and drying yards o Security and time office o Pump and pump house o Compound wall/fencing etc o Sump tank and overhead tank o Cost of building electrification, water supply, sanitary fittings etc. 2 Legal Analysis: The collateral properties, guarantees and other legal legalities with respect to the regulations of the government will be analysed and this creates basis for further processes for the financial assistance. Financial Analysis: Financial appraisal seeks to ascertain whether the proposed project will be functionally viable in the sense of being able to meet the burden of servicing debt and whether the proposed project will satisfy the return/expectations of those who provide funds Financial appraisal involves the following terms. o Capital cost of projects and sources of finance o Financial projections -Cash flow and profitability estimates o Ratio analysis o Breakeven point o Discounted cash flow techniques-net present value and internal rate of return. Capital cost Estimation of the capital cost of a project provides the basic information to decide its pattern of financing and profitability. If the cost of the project is not estimated correctly, the preparation of cash flow and profitability estimates will be futile exercise because the amount of depreciation, interest and dividend will change with the change in capital cost of the project. An entrepreneur has to tie up the resources according to the estimates of the cost of the project. If there is an overrun in the cost of the project, the entrepreneur may find it difficult to arrange for additional resources and it may delay the implementation of the project, which will lead to further overrun in the capital cost. Sometimes Financial institutions and banks are taking an undertaking from entrepreneurs to meet the cost of overrun, if any, in the implementation of the project. But such an undertaking does not have practical meaning. Many a times an entrepreneur is not in a position to bring additional resources to complete the project and safeguard the money already invested in the project. Over estimation of the cost of the project is also equally bad as under estimation. If the cost of a project is over estimated the organizations have to make unnecessarily higher commitments and promoters may divert resources for other purposes. Realistic estimation of capital cost of a project is necessary not only in the interest of entrepreneurs but also in the interest of financial institutions if a loan is taken. Details of the capital cost of the project and methods of appraisal: Items to be included: ? Land and site development ? Building and civil works ? Plant and machinery o Imported machinery Indigenous machinery ? Engineering and consultancy fee ? Miscellaneous fixed assets ? Preliminary and pre-operative expenses ? Provision for contingencies Estimate of working capital margin After the acquisition of fixed assets that unit has to acquire the current assets to run the wheels of the industry-working capital is required for acquiring current assets and timely arrangements shall be made for adequate working capital to start working for the unit immediately after the implementation. The cost of project should include adequate margin for working capital depending on the nature of activity. Requirements of working capital differ widely from order placed. Units working on job order basis require very little working capital whereas solvent extraction plants, fabrication units where high level of inventory has to be maintained and in respect of imported raw material huge working capital is required. Calculate total requirement of working capital on the basis of expected production in the first year, if probability estimates of first year indicate cash loss, take working capital requirement on the basis of production for second or third year when the project is likely to generate profit. The level of raw materials, consumable stores, goods in process, finished well and debtors should be decided keeping in view of production requirements, process time and practice prevailing in the industry. 25% of the total working requirements should be financed by long term resources and included in the capital cost of project. Sources of finance After assessing the capital cost of the project, the company have to decide the pattern of financing the capital cost during construction period. A project can be financed by one of more than of the following sources. o Issue of ordinary/preference shares Issue of secured debentures o Issue of convertible debentures and bonds o Loans, subsidy or development loans/sales tax But at Aditya Brila Aluminium Gallery it has been financed by a loan taken by lic India. Financial projections Financial projections include profitability estimates, (estimates of working results) cash flow statements and projected balance sheets. They are inter-related and prepared on the basis of cost, sources of finance and various assumptions of profitability estimates. Profitability estimates Profitability estimates are estimates of expected sales realizations and expenses to be incurred by the unit. Excess of sales realizations over expense indicates the expected profit of the unit. Verification of profitability estimates is highly essential for the proper appraisal of a term loan proposal. The company must give a bright picture of his project to enable him to get finance from the bank or financial institutions. It is the duty of the appraising officer to verify and analyze information given to the banker. Various terms included in profitability estimates can be verified according to the checklist given below. o Sales realizations o Raw materials and consumable stores o Utilities (power, Fuel, Water, etc. o Repairs and maintenance o Wages and salaries o Rent, Insurance, etc. o Depreciation o Administrative expenses o Selling expenses o Interest on term loan. Cash flow estimates Cash flow estimates are prepared to ensure that the unit will generate necessary cash with it and will not face liquidity problem. The cash flow estimates include sources of funds and their disposition (u se). While profitability estimates are prepared only from the tear in which the unit is likely to commence production, cash flow estimates are necessary for the construction period also to ensure requirements of the projects. The difference between sources and uses of funds indicates the net cash surplus or deficit arising out of movement of funds in that year. Projected balance sheets Projected balance sheets are prepared on the basis of profitability estimates and cash flow estimates. The position of share capital, term loans, sundry creditors, bank borrowings, current assets, etc. is ascertained at the end of each year according to the movement shown in cash flow and profitability estimates. Preliminary expenses are taken after deducting the amount, which is already written off from the expected profits of the units. Cumulative surplus shown in profitability estimates represents the position of reserves at the end of each year. Closing balance shown in cash flow estimates represents the position of cash and bank balance at the end of each year. Ratio analyses Ratio analysis is a powerful tool of financial analyses. A ratio is defined as â€Å"the indicated quotient of two mathematical expressions†. The relationship between two accounting figures expressed mathematically is known as a financial ratio. Ratio indicates the relationship between two or more than two variables. Many important items like sales, profits, net profit debt, equity current assets, current liabilities, etc do not give much information if each figure is studied in isolation. . Ratios are useful for comparative study of various units and also of various years working of the same unit. Ratio can be calculated for the past record as well as for the future. It can be undertaken by analyzing their financial projection. Ratio should be calculated from the figures of balance sheets to study past record and figures of financial projections to study the future. Many ratios can be calculated to study the working of the unit. Following ratios are used in Aditya Brila Aluminum Gallery A. LOAN SAFETY RATIO i. Debt-enquiry ratio ii. Current ratio iii. Debt-service coverage ratio iv. Margin on security B. PRODUCTIVE RATIO i. Capital employed to value of output/sales ii. Capital employed to net value added iii. Investment per worker iv. Productivity per worker C. PROFITABLE RATIO i. Percentage of raw material to value of output ii. Percentage of wages and salaries to value of output iii. Percentage of interest to value of output iv. Percentage of operating profit to sales A. LOAN SAFETY RATIO i. Debt-equity ratio (Term liabilities to owned funds) This ratio indicates the relationship between term liabilities and owned funds and helps in assessing the capital gearing. This relationship describing the lender contribution for each rupee of the owner’s contribution is called debt-enquiry ratio can be computed as follows: Debt-equity ratio = Total Debts Total equity ii. Current ratio (Current Assets to Current Liabilities The current ratio is a measure of the firm’s short term solvency. It indicates the availability of currency assets in rupee for every one rupee of current liability. The current ratio represents a margin of safety that is a â€Å"cushion† of protection for creditors. The higher the current ratio, the greater the margin of safety. Current ratio = Current assets Current liabilities iii. Debt Service Coverage Ratio (DSCR) This ratio indicates the capacity of the unit to repay term loan interest there on. The formula calculating this ratio is as under: = Profit after tax+Depreciation+Interest on term and differed credits Installments+Interest on term borrowings and deferred credit iv. Margin on Security Term loans are generally sanctioned against the security of fixed assets. The excess of fixed assets over term loans provides margin on security for term loans. The margin on security can be calculated using the formula to express it as percentage to total assets. Margin on security =Value of fixed assets-Term loan Liabilities Value of fixed assets In case of existing units, fixed assets to be created for implementation of the project are added to the present net fixed assets (gross fixed assets – depreciation). Similarly, proposed term loans are added to existing term loans if both have par pass charge on fixed assets. In the case of new units, Proposed fixed assets to be created by the project can be ascertained by deducting following terms from the estimated capital cost of the project. 1. Margin money for working cap 2. start-up cost 3. Estimated cash loss, if it forms a part of the project cost. 4. Preliminary expenses, which are to be written off in ten years. B. PRODUCTIVE RATIO Capital employed to output/sales value It indicates the requirements of the capital for production Capital employed to value of output/sales = Capital employed Value of output/ Sales Capital employed includes: a) Gross fixed assets b) Working capital required Value of output/sales includes net sales realization (net of excise duty and returns) plus the value of closing stocks of finished goods and work-in-progress minus value of opening stock of finished goods and work-in-progress. If no adjustments are made for opening and closing stocks in financial projection, value of output represents the expected net sales realization. Capital employed to net value added It indicates the requirement of capital for increasing the national income. Net value added represents net increase in national income because all direct material inputs and depreciation are deducted from value of output. Capital employed to net value added = Capital employed Net value added Net value added, means value of output minus cost of raw materials, fuels, power, water, consumables, stores, spares and any other direct material and depreciation. Investment per worker It indicates the amount of capital required employing one person Investment per worker = Capital employed Number of workers and salaried employers A. PROFITABILITY RATIOS i. Percentage of raw material to value of output This indicates the comparative importance of raw material to value of output. Percentage of raw material to value of output = Raw materials X 100 Value of output Raw material consumed includes consumption of raw materials Chemicals and bought out components. ii. Percentage of salaries and wages to value of output = Salaries and wages X 100 Value of output iii. Percentage of interest to value of output = Interest X 100 Value of output iv. Percentage of operating profits in sales: This ratio indicates the profitability of sales. Mere increase in sales is not sufficient. Sales should also have a margin of profit. Operating profit is taken before tax but after all other expenses. = Operating profit Sales Operating profit means profit after interest and depreciation but before tax. Discounted cash flow techniques 1. Net present value 2. Internal Rate of Return A project should earn sufficient return, which should be at least equal to the cost of the funds invested in it. If many alternative proposals are available for the investment, the investor should make a comparative study of return of various purposes. Following methods have been suggested for evaluating the profitability of industrial project. 1. Payback method 2. Average Rate of Return method 3. Net present value method 4. Internal Rate of Return Pay-back period method The objective of this method is to ascertain the period required for recovering entire investment made in a project. The cash flow includes new operating profit after adding back to it the amount of depreciation on fixed assets and amortization of intangible assets, if any, less income tax payable during the year. The cash inflow accumulated year by year, until it equals the original investment. The length of time required for total cash inflow to recover the original investment is called the pay back period. Pay-back Period = Initial investment Annual cash flow Average Rate of Return Method Under this method, the entire life of a project is taken into account, unlike the payback period. An average of the annual net operating profits (after depreciation) for the entire life of the project is taken and rate of return on original investment and average investment is calculated. Average investment of one year can be ascertained by taking the average of opening and closing book value of the investment in the year. The grand average of such average investments of all the years is obtained to know the average investment of the project. Average profit is divided by original investment to get the rate of return on them. Average rate of return = Average income Average investment Time Value of Money Discounting Techniques: Pay back method and average rate of return method do not consider the time value of money. The initial amount incurred for acquisition of assets to implement a project and income received from the project in future is given equal importance the above methods. But in fact, the value of money invested in future is not equivalent to the value of money invested today. Net Present Value The NPV method is the classic economic method of evaluating the investment proposals. It is one of the discounted cash flow techniques explicitly recognizing the time value of money. It correctly postulated that cash flow arising at different time periods differ in value and are comparable only when equivalent present values are found. A positive NPV at the cut off rate indicates that the investments in the project gives profit greater than the marginal investment rate or cost o capital and hence proposal can be accepted. Internal Rate of Return Method Internal rate of returns (IRR) method is another discounted cash flow technique which takes into account the magnitude and timing of cash flows. Other terms used to describe the IRR method are yield of and investment, marginal efficiency of capital rate of return over cost, time adjusted rate of return and so on. The internal rate of return can be defined as that rate which equates the present value of cash inflow with present value of cash out flow of an investment. In other words, it is the rate at which the net present value of the investment is zero. Profitability Index (PI) Another method of evaluating the investment proposal is the benefit cost ratio or profitability index (PI). It is the present value of cash inflows, at the required rate of returns to the initial cash outflows of the investment. Profitability index = PV of the cash inflows Initial cash outlay 4. Market and Demand Analysis: The step in project analysis is to estimate the potential size of the market for the product proposed to be manufactured (or service planned to be offered) and get idea about the market share that is likely to be manufactured. Steps in the market analysis: o Situation analysis and specification of objectives o Collection of secondary information o Conduct of market survey o Characterization of the market o Demand forecasting o Market planning Situational and specification of objectives: This involves through understanding of the current factors and future changes that may occur in the aluminum business and in the manufacture of the product for the selected project to be success. Collection of secondary information: This is the data collected for some other purpose but may be useful in the current analysis of the market for the product. This involves data from journals, magazines, newspapers, websites and government organization. E. g. Census of India, Data from IMRB, RBI bulletins Conducting market survey: The market survey basically is a sample survey in which a sample of the product is given to the customer and his views are elicited based on which the success of the product is determined. The second type of the market survey is through questionnaire in which a few questions are asked and the views are elicited. The important thing to be remembered is to have a clear idea about the target population. Characterization of the product: Based on the information gathered from the secondary and primary sources the characteristics may be analyzed in terms of the following factors or the character. o Effective demand in the past and the present o Break down of demand o Price o Methods of distribution o Consumers o Supply and competition Demand forecasting: The demand for the product may be forecasted either through the subjective or through the objective methods Subjective methods |Objective methods | |Jury method |Census method | |Delphi method |Statistical survey | | |Analysis based on secondary data | | |Chain Command | | |Cause and effect model | | |Economical model | | |Lead indicator | Market planning: Market planning is most important aspect in market demand analysis. A suitable market plan should be developed to reach a desired level of market penetration. It should cover distribution, pricing, promotion, and service. 5 Management Appraisals: In a project appraisal, appraisal of management is very important aspect. A project, which is considered technically feasible, economically viable and financially sound, may run into difficulties if sound and efficient management do not back it. The person behind the project is very important. It is said that a second grade project in the hands of first grade management is better than a first grade project in the hands of second grade management. Proper evaluation of management is an essential part of project appraisal. However it is often difficult to form a judgment regarding future management as the time of project appraisal. Evaluation of management is an art and no formula available. However, the projects appraiser should consider the experience of the promoter, educational background and enthusiasm. 6 Ecological Analysis: In recent years, environmental concerns have assumed a great deal of significance and rightly so. Ecological analysis should be done particularly for major projects, which have significant ecological implications like power plants and irrigation schemes and environmental polluting industries. Aluminum gallery is a very eco friendly organization it reuse the products. INDUSTRY PROFILE INTRODUCTION Aluminum Industry in India is a highly concentrated industry with the top 5 companies constituting the majority of the countrys production. With the growing demand of aluminum in India, the Indian aluminum industry is also growing at an enviable pace. In fact, the production of aluminum in India is currently outpacing the demand. Though Indias per capita consumption of aluminum stands too low (under 1 kg) comparing to the per capita consumptions of other countries like US Europe (range from 25 to 30 kgs), the demand is growing gradually. In India, the industries that require aluminum most include power (44%), consumer durables, transportation (10-12%), construction (17%) and packaging etc. Background Over the years aluminum has emerged as an ideal substitute for conventional building materials like wood or steel. Today it is emerging as one of the most preferred material for home and industry as it is strong, light in weight and corrosion resistant. Also it retains its finish and hence looks as good as new for years. Moreover it’s environmental friendly and enjoys high value in the market. The Indian aluminum market in India was 800,000 tons in 2003-04, approximately 3 per cent of the world market of 29. 5 million tons. The major consuming segments in India are electrical transmission conductors, transport, building and construction, consumer durables and packaging. In India, the per capita consumption of aluminum is barely 1 kg compared with the world average of 5 kg and the western world average of 20 kg. Worldwide, aluminum usage in buildings has grown tremendously. The market for aluminum in India, particularly for building and construction, has not grown to the desired level. This is largely because building and construction products based on aluminum are fabricated by small and medium scale manufacturers, who play only the price variable and have felt compelled to supply lower-end products which do not build markets. Aluminum Production in India India is worlds fifth largest aluminum producer with an aluminum production competence of around 2. 7 million tones, accounting almost 5% of the total aluminum production in the world. India is also a huge reservoir of Bauxite with a Bauxite reserve of 3 billion tones. The Consumption After a stagnant consumption of primary aluminum in India from the end of 1990s to 2002 (when the consumptions were between 500 – 600 KT), it started rising sharply since 2002. The consumption reached at 1,080 KT in 2006. The consumption of aluminum in India is dominated by the industries like power, infrastructure, and transportation etc. The Major Players The Indian aluminum industry is dominated by four or five companies that constitute the majority of Indias aluminum production. Following are the major players in the Indian aluminum industry: †¢ Hindustan Aluminum Company (HINDALCO) †¢ National Aluminum Company (NALCO) †¢ Bharat Aluminum Company (BALCO) †¢ MALCO †¢ INDAL Hindalco Industries It was set up in 1958, is under the Aditya Birla Group. Its businesses include the manufacture of Copper and Aluminum and in both; the company is a leader in the industry. The Hindalco Industries Ltds market value is US$ 2. 6 billion and it has around 13,675 The Company Hindalco Industries (commissioned in 1962) has its facility for Aluminum at Renukoot in eastern U. P. Today, the company has grown to become Indias biggest producer of integrated Aluminum and ranks top in the global sect or as the producer of low cost top quartile. The net operating and sales revenues of the Hindalco Industries Company had amounted to Rs 42,737 million in 2005-2006; while the next year it stood at Rs. 46,779 million. The various Aluminum products manufactured by the Hindalco Industries are: †¢ Primary Aluminum †¢ Alumina Chemicals †¢ Wire Rods †¢ Rolled Products †¢ Alloy Wheels Growable markets: Hindalco has identified segments (and sub-segments) that are growable through its market driving efforts. These are kitchen foils, wheels, transportation and building / construction. For discerning consumers keen on investing in lifestyle products to lend a refreshingly elegant look to their ambience, aluminum is fast emerging as a real material substitute. What is changing the Aluminum Fabrication industry: †¢ Entry of foreign players †¢ Widespread use of Structural glazing Composite panels †¢ Exponential growth of the organized real estate companies offering quality homes †¢ Use of designed / imported window systems and hardware †¢ No. of fabricators with Excise registration A growing divide between premium and low priced products – on features, quality service COMPANY PROFILE Nautilus interior solutions The Bangalore based interior firm with 12 years experience in interior solutions has taken up the rights of The Aluminum gallery in Karnataka and have freedom to promote in all the markets which don’t have the presence of a franchisee. Nautilus interior solutions have implemented hundreds of projects in the past, for the leading builders and architects in Karnataka and abroad. For the firm it was a natural progression after seeing the opportunity and consumer shift in the market. The firm has been partnered by the founder of Nautilus interior solutions Mr Syed Shuaib . To promote and market the Aluminum products they have set up a contemporary retail gallery at Richmond town. There is also a back end office for designing and administration of the firm. Aluminum gallery: This is an initiative by Hindalco to promote the customers products and create new markets through pro-active partnerships. The Aluminum Gallery is the first of its kind in the commodity business. With the launch of this innovative concept, Hindalco aims to boost its sales by giving its customers a hands-on-experience while shopping for their aluminum needs. The Company also hopes that the gallery will lead to co-branding, marketing and promotion opportunities with quality manufacturers. Hindaclo has always been in the forefront of promoting the use of aluminum in everyday life which is why Hindlaco has chosen to make a range of quality of products available under one single roof The Aluminum Gallery. The Aluminum Gallery offers builders and architects a unique opportunity to explore new dimensions for design and impart to their creations. Brands showcased at the moment: †¢ Alutec windows and doors †¢ Hunter Douglas – False ceilings, Louvers, Cladding and other architectural products †¢ Hindalco Everest: Aluminium roofing sheets, Truss, Fazards. With its tie up with a German brand, Novellus Everlast is also introducing premium products. †¢ JVS Werner: Aluminium Ladders †¢ Infina engineering: Trivison hoardings †¢ Mosquito mesh: Fine fit †¢ Southern Aluminium Glazing: Architectural glazing Alutec The leading brand from Italy and a highly reputed manufacturer of window doors and accessories, offers an extensive range of high quality windows and doors in India. The aluminum extrusions are from Hindalco, India’s largest vertically integrated aluminum company. Alutec invented â€Å"R’ system – Italy’s best know and widely used architectural system, comprising quality Aluminum extruded profiles, accessories and gaskets. It is well known for its innovative designs and extensive range of standard and customized architectural products. From raw material through production, constant quality control and rigorous testing in Alutec in-house laboratories enable consistent high quality standards. In India critical components are sourced from Italy and carefully combined with high quality aluminum extrusions from Hindalco, which are both stylish and long lasting. Alutec, known for its innovation and cutting edge technology, has been launching a range of products every year to meet the demands of the market. VISION STATEMENT To be a premium aluminums major, global in size and reach, with a passion for excellence. MISSION STATEMENTS To relentlessly pursue the creation of superior shareholder value by exceeding customer expectation profitable, unleashing employee potential and being a responsible corporate citizen adhering to our values. VALUES Integrity Honesty in every action Commitment Doing whatever it takes to deliver, as promised Passion Missionary zeal arising out of an emotional engagement with work. Seamlessness Thinking and working together across functional silos, hierarchy levels, businesses and geographies. Speed Responding to stakeholder with a sense of urgency. PRODUCT PROFILE Aluminum Windows and doors The window and door market is heavily dependent on both the house building and the repair and maintenance markets. Although modern double-glazed windows and doors were first developed in substantial volumes for the replacement market, they are now also widely sold to the new build market. But today the important business has to be won in the commercial sector, where offices and retail projects have a high demand for windows. Types of doors and windows Windows – Casement Top link Sliding Tilt and Turn Sialwood (wood aluminum) Sliding and Folding Doors- Casement Sliding Sliding and Folding Cladding Sheets STRUCTURAL GLAZING While large energy saver buildings have aluminum structures holding up glass. Its has become a popular product in the corporate buildings EVERLASTINS ALUMIUNM ROOFING SHEETS Over the years, aluminum has fast emerged as the substitute for conventional roofing material for home and industry. Everlasting aluminum roofing sheets from hindalco industry limited, is leaders when comes to aluminum roofing solutions in India. In addition to world class quality, you can also enjoy infinite benefits when you switch to everlasting aluminum roofing sheets. ALUMINUM LADDER These ladders are manufactured from high tensile aluminum alloy and are ideal for domestic as well as industrial and electrical maintenance. With special features like steps with non-slip ribbed surface, non-skid rubber shoes. Light in weight, easy to handle, elegant in look and highly economical in the long run. A versatile serviceable multipurpose ladder, rigid, sturdy and slim in look with exceptionally strong structure, designed with specific requirements. These ladders are highly compact and space saver. FALSING CEILINGS False Ceilings in India are a relatively new concept but definitely a huge potential market. The usual problems pertaining to dirt, hygiene factor, expenses and maintenance are resolved by the use of False Ceiling boards or Tiles. DEPARTMENTAL STUDY The CEO and the Managing Director: Mr Syed Shuaib The Managing Director, a full time Executive takes care of day-to-day administration of the organization. All decision is taken by him or has been consulted by him. To assist the Managing Director, have 2 Executive Directors (Marketing and Technical) 4 General Managers (Designers, Fabricators, administration, sales and technical). The technical department consists of 3 fabricators under each fabricator they are 10 – 20 labors. There is a designing team which consists of expert designers whose bring out innovative designs Marketing and sales team works efficiently with growing competition and demand, headed by the marketing executive. The finance department is headed by the senior accountant of the company. There are 2 legal advisor of the company who take care of the documentation and legal formalities of the company. AREA OF OPERATION Aditya Brila The Aluminum Gallery has its outlet all over India and its head office at Mumbai. QUALITY SYSTEM PROCEDUERS †¢ To provide quality products and related services on a continuous basis. †¢ To continually upgrade our products and services. †¢ To motivate and involve employees to achieve the set organizational growth targets. To encourage the employees to upgrade and enhance the knowledge and skills through effective Training and Development. †¢ To transform the organization to a customer centric Institution Growth prospects The potential of the m arket is huge and untapped because of the unorganized players and rise in income amongst the middle class families who are keen on having reliable products for their houses. What will change the industry further: †¢ Increased acceptance of premium double glazed windows †¢ Factory fabricated windows as a norm †¢ Consolidation in the industry †¢ Retail sale of windows – in malls DIY outlets †¢ Standards for Aluminum windows †¢ Patents unique designs †¢ Standardization of sizes †¢ Service: Delivery and post delivery Focus area months of operation and marketing done by the promoters clearly indicate that the window market has a huge potential in this region. Fenesta’s sale in Bangalore itself is 130 crore, which translates into 65% sales turnover of the company. The indications and the enquiries guarantee that the chosen category has enormous opportunities. The initial discussion with leading builders and prominent architects also emphasize the need for an organized player with cutting edge design and technology which can grow in the market. With globalization and transmission of fashion catching up, domestic consumers, too, have plumped for aluminum as the preferred choice for home products. Marketing of the windows so far Nautilus interior solutions has been able to bag orders worth Rs 45,00,000 in the last 2 months of operations. Most of them have been implemented. The customers include the prestigious builders like Salarpuria and some of the leading architects in Bangalore. This has been achieved without much spending in marketing or employing professionals to market the product. Order enquiries The order enquiries so far have been worth Rs 4. 5 crore. 90% of the enquiries are from 4 major players in the market. The builders in discussion are Divyashree builders, Salarpuria builders, Gopalan builders and G corp. The need of the hour The large enquiries and negotiations clearly indicate the market potential. But Alutec production in India is not geared up to meet this kind of demand. This clearly gives Nautilus interior solutions opportunity to manufacture the windows and doors to cater the market. Alutec and Hindalco have been encouraging Nautilus interior solutions to commence the factory to tap into the market. Neither Alutec nor Hindlaco have plans to invest in a fabricating unit, Nautilus interior solutions is foreseeing a huge opportunity. Factory – Scaling and playing the volume game Volume game has been the order of the day and Nautilus interior solution is sitting on a great opportunity. The pillar of the volume game will be to set up a factory in Bangalore to meet the demands and spruce up the sales in subsequent years. Unlike Fenesta or Sara LG there is no need to set up the several units (extrusion unit, anodizing unit etc) to manufacture the end product. Since extrusions are supplied by Hindalco and hardware by Alutec, all Nautilus has to do is to set up the fabrication factory in Bangalore. With this factory several markets can be reached. So Nautilus can also service other galleries which are coming up in the country. Alutec has agreed to supply the machines from Italy to set up the factory apart from committing the hardware supply as well. Hindalco has wholeheartedly agreed to supply the extrusions for Nautilus interior solutions, which has the right to buy the extrusions because of the license it holds. The uniqueness of this arrangement: Hindalco will supply the extrusion for the assembly unit owned by the Aluminum Gallery. Hence we have a first mover advantage and if we can tap into the market and establish early, then this model can’t be replicated. Training of the people: Skilled labor at the factory and execution at the site are two crucial factors for the success of this industry. Alutec has committed to transfer this knowledge to Nautilus, so that the whole model is practical and implementable. Advantages of having own factory: †¢ To tap into the builder market who is looking for large supply †¢ Delivery time: Can cut down the delivery time considerably to meet the project requirements of the architects and builders, since we control the production †¢ Pricing: In a price sensitive market we can compete much more efficiently by controlling the supply chain and not dependent on the parent company completely for the production. †¢ Profits from the wastage: After manufacturing the end product there will be 15 to 20% wastage of aluminum extrusions in the factory. This can either be sold at the metal price or can be used to manufacture low priced products at the unit itself. Projection of the market and sales volume has been done based on the Bangalore production, Market data of the players and inputs from builders, architects and the market growth data. Product line: From premium to economy priced The premium windows from Alutec will drive the image in the market and we can utilize the extra capacity of the factory to manufacture economy priced windows to cater to the price sensitive customers. †¢ High end premium windows: Sialwood from Alutec, Wood finish windows from Alutec. †¢ Commercial purpose: Anodized and powder coated aluminum windows from Alutec †¢ Economy series: Riding on the brand value. This can be manufactured using economical aluminum extrusion and medium priced hardware to cater the price sensitive segment. Fund requirement To materialize this dream Nautilus interior solutions has decided to bring-in external funds. The proposal Seeing the growth divers and the volume model Nautilus has decided to invite a potential investor by offering the equity in the firm. This arrangement is a clear win-win situation for Nautilus and the potential investor. Long term vision – To be a premium player in architectural products Since Hindalco has plans to launch and tie up with prominent brand the firm can offer many more architectural products to the target market. Since this is an independent franchisee there is freedom to introduce other life style products to the target audience because of the category we are marketing. Retail experience Aluminum retailing is still in its infancy in India. As the average per capita consumption of aluminum in the country is 0. 70 kg against the developed countries such as the US and Japans at over 25 kg, there is vast scope for making utility and lifestyle products of aluminum so that the consumer choice for material substitution gets widened and he/she would get the real value for the money spent. Since Nautilus has a classy retail gallery in Bangalore, with new additions of the brands and life style products this can be extended to other parts of the Karnataka as well as south. In long terms there will be considerable turnover from the retail customers as well. With Indian architectural skyline witnessing a transition from traditional to the modern the retail presence in the long term can give an unparallel advantage to the firm. Also more and more consumers would be able to take an informed decision on the products they intend to procure for enriching their environment that will be a virtual visual delight. For example: Brand like Hindalco Everlast, Hunter Douglas, trivison and 3-form don’t have a retail showroom in Bangalore. Since the market is moving more from floor level to touch and feel experience, we have an unparallel advantage with the experiential gallery. Elevating the gallery from aluminum designs to experiencing art Since architectures and builders are also connoisseurs and users of art, we can use the walls of the gallery to promote the art. Since investment in art is on all time high in India, we can spruce up the image and also pull the consumer traffic to the retail outlet. More over this combination will always contribute to the bottom-line as well. Export possibilities: With lower production costs in countries such as India, which can save up to $150 per ton. On the above factor and on the account of the enquiries and discussion from Middle East indicates good export demand for windows and doors. If we can scale the volume and offer a good price the doors can be opened in construction driven market in Middle East. Investment requirement: INR 100 lakhs Note: †¢ Open to giving stake in the company. Percentage of the stake can be decided Giving the exclusive right to the factory set up a guarantee Summary: We strongly believe that if the producers of Aluminum windows get more organized , attain technical competence, increase productivity and production capacity, deliver quality products timely, promote it through sound budget by exploiting mass media campaign with right retail experience, the market for this products will grow exponentially. CHAPTER 2 RESEARCH METHODOLOGY BACKGROUND OF THE STUDY Project appraisal is a generic term that refers to the process of assessing, in a structured way, the case for proceeding with a project or proposal. In short, project appraisal is the effort of calculating a projects viability. It often involves comparing various options, using economic appraisal or some other decision analysis technique. Project appraisal is the process of critical evaluation of the all six facets of the project appraisal, namely: †¢ Technical analysis †¢ Financial analysis †¢ Legal Analysis †¢ Market analysis †¢ Ecological Analysis †¢ Management Analysis Project appraisal has become the critical and most important as the estimations of the cash flows are based on some parameters, which may not remain static. The future is highly uncertain and hence the guarantee if cash inflow is a questionable concept. The project appraisal mainly considers the things that are tangible and possibly ignoring the arrival of competition into the market in the future. After the enactment of the project also there are things, which may be uncontrollable like government policies, competitors, strategies, etc. , therefore the project appraisal plays an important role. This dissertation study on â€Å"ANALYSIS OF PROJECT APPRAISAL PROCEDURES† at Aditya Brila The Aluminum Gallery is concerned with the project appraisal techniques, studying the effectiveness of these procedures and suggests some steps in the direction of high efficiency achievement concerning project appraisal. STATEMENT OF PROBLEM As Adity Brila Aluminum Gallery has opened there new factory in order for expansion it is necessary for a project appraisal. The project financed have to be viable as well as a wrong decision in assessing a project which is not even potentially viable may lead to mounting industrial sickness and wastage of scarce resources. In addition to proper appraisal sanctioned so that corrective steps whenever necessary can be taken in right time. Thus adequate knowledge of the techniques of project appraisal and follow up is necessary on the part of all concerned of new scarce national resources. NEED FOR STUDY In today’s highly uncertain and globalize economy, the feasibility and success of the project has become very difficult to predict any changes in one country, one factor may be political and economical and sociological has far reaching effect on the economy and the financial system as a whole. Many of the enterprises, which were earning good amount of profits, became impaired after the liberalization of the economy, thus it is important to take even aspect that is present and future possible changes has to be taken into consideration before a new plant or factory as been opened and thus project appraisal is very important topic and a life blood of a good financial system. IMPORTANCE OF STUDY Industrial projects are appraised by different institutions for a variety of reasons like Government and allied agencies may appraise project with a view to find out whether they should be given tax exemptions, subsidies, guarantees or other incentives. The purpose of appraisal thus varies from one appraising agency to another. While the objects of appraisal may differ, the general principals of appraisal are almost same. Basically the project appraisal is about finding out whether the project is technically feasible and financially viable. Equally important are the marketability of the projects and successfully sell the goods so produced. This is familiarly knows as project appraisal since aluminum gallery new factory outlet deal with fabrication of doors and window it should make sure it is better than the upvc windows and doors. The factors are taken into consideration in the security of individual applications. The weight age given to individual factors varies from order to order, important among those are the type of organization activity of the customers, its size, the nature of the competence, resourcefulness of the promoters, the financial soundness of the project, the quantum of the loan, its profitability etc. , SCOPE OF STUDY The Study covers the operational jurisdiction of Aditya Brila Aluminum Gallery OBJECTIVES OF THE STUDY ( To study the project appraisal procedure at Aditya Brila Aluminum Gallery ( To know the efficiency of the project appraisal process ( To suggest some measures to overcome the problems in the project appraisal process and make the procedure more effective TYPE OF RESEARCH The research approach used here is exploratory research. It is designed to generate basic knowledge, clarify relevant issues uncover variables associated with a problem, uncover information needs, and/or define alternatives for addressing research objectives. SAMPLING TECNIQUES A cluster sampling technique has been used. In cluster samplings they are to two stages in the first stage a sample of areas is chosen; in the second stage a sample of respondents within those areas is selected. So the sample area is the corporate office of Aditya Brila The Aluminum Gallery Richmond town and the respondents are the employees working in that branch. SAMPLING UNITS It gives the target population that will be sampled. The research was carried out in The Aluminum Gallery, Bangalore. There were 25 respondents they are the employees of the company from different departments. RESEARCH INSTRUMENTS Research instruments like questionnaire which can be structured and unstructured were issued to the company’s employees to analysis the present project appraisal process and procedures. DATA COLLECTION The research includes gathering both Primary and Secondary data. Primary Data The primary data was collected by discussion with the management of Aditya Brila Aluminum Gallery to get information about project appraisal and financing. Analysis of techniques and methods adopted by issuing questionnaire to the employees of the company. An interview schedule was used for the purpose of clarifying doubts which rose during the course of the study. Secondary Data A part of the data was collected from secondary source which would support are research. Some data was extracted from company journals and the annual report like the project cost and balance sheet of the company. Some information was also collected from internet which would be supportive for the research. DATA ANALYSIS AND COMPLETION: After the data has been collected, it was tabulated and the findings of the research were presented followed by analysis and interpretation to reach certain conclusions. Presentation and Analysis of data and Interpretation Table 1: Table to determine whether the respondents feel that the location of the new factory outlet is easy to access sources of raw materials |Raw material easy accessibility |No. of respondents | |Yes | |No | | |Total | | Graph: Graph is to determine whether the new factory outlet location is easy to access raw materials. [pic] Interpretation: The new factory outlet location is easy to access raw materials. Table 2: Table to determine the whether power and other utilities for production are easily available at the new factory outlet. |Raw material easy accessibility |No. f respondents | |Yes | | |No | | |Total | | Graph: Graph is to determine whether the power and other utilities for production are easily available in the new factory outlet. [pic] Interpretation: The power and utilities services are easily available in the new factory outlet. Table 3: Table rating the factors in the process of manufacturing products Factor in the process of manufacturing products |Ratings of number of respondents | | |1 2 3 4 | |Quality of the product |14 7 2 2 | |Its end use |1 2 8 2 | |Latest development |10 7 5 7 | |Principal input | 9 10 12 | |Total |25 25 25 25 | Graph: Graph shows the ratings of the factors in the process of manufacturing products by the respondents. [pic] Interpretation: In the process of manufacturing a product quality of the product is given preference then, the latest development, principal input and then its end use. Table 4: Table determining factors of products mix that hold more preference |Factors of product mix |No. f respondents | |Quality |8 | |performance |10 | |Innovative features |7 | |Total |25 | Graph: Graph determining factors of product mix that hold more preference. [pic] Interpretation: Performance of the product in the market has more preference in the product mix then quality and innovative features. Table 5: Table determining whether the present plant capacity is sufficient to meet the growing demand for the products |Plant capacity sufficient to meet demand |No. f respondents | |yes |5 | |No |20 | |Total |25 | Graph: Graph determining whether the present plant capacity is sufficient to meet the growing demand for the products. [pic] Interpretation: The plant capacity is not sufficient to meet the growing demand of the products. Table 6: Table rating the factors of selecting new plant and machinery for the factory outlet. |Factors of selecting new plant and machinery |Ratings of number of respondents | | |1 2 3 4 | |Quality |11 8 4 2 | |Level of technology sophisticated |13 4 8 14 | |The expected delivery schedules |- 8 3 3 | |Performance uarantee |1 5 10 | |Total |25 25 25 25 | Graph: Graph determining the rating of respondents for selecting plant and machinery for new factory outlet. [pic] Interpretation: In the factors of selecting plant and machinery for new outlet level of technology sophisticated is the most preferred factor then, the quality of the machinery, the expected delivery schedules and the required performance guarantee. Table 7: Table determining the period legal analysis is conduct. |Period legal analysis is conducted |No. f respondents | |beginning |8 | |Mid way |17 | |After completion |- | |Total |25 | Graph: Graph determining the period legal analysis is conducted [pic] Interpretatio n: Most of the legal analysis is conduct in the beginning of the project. Table 8: Table determining whether capital cost is realistic | Is capital cost realistic |No. f respondents | |yes |19 | |No |6 | |Total |25 | Graph: Graph determining whether capital cost is realistic [pic] Interpretation: The capital cost is realistic Table 9: Table determining whether working capital is sufficient enough to run the wheels of the industry. |Is working capital sufficient |No. f respondents | |yes |16 | |No |9 | |Total |25 | [pic] Interpretation: The working capital is sufficient enough to run the wheels of the industry. Table 10: Table determining the percentage of market share held by the company, compared with the competitors. |Market share |No. of respondents | |15%-25% 17 | |25%-50% |8 | |50%-75% |- | |75%-100% |- | |total |25 | Graph: Graph determining market shares held by the company when compared with the competitors. [pic] Interpretation: The Company holds upto 15% 25% of market shares as compared with the competitors. Table 11: Table determining product that has more demand in the market. |Products |No. f respondents | |Aluminum doors |5 | |Aluminum windows |7 | |Structural glazing |9 | |partition |4 | |total |25 | Graph: Graph determining the product that has more demand in the market. [pic] Interpretation: Structural Glazing has more demand in the market as compared to other products. Table 12: Table determining reasons consumer prefer aluminum product then upvc products. |Reasons consumer prefer aluminum product |No. f respondents | |Green material |12 | |Finishing |8 | |Quality |5 | |total |25 | | | | Graph: Graph determining the reasons consumers prefer aluminum product then upvc product. [pic] Interpretation: The reason consumers prefer aluminum products then upvc product is because aluminum products are green material in nature. Table 13: Table determining whether aluminum product can match up with market demand equalant to upvc pr oducts. |Market demand of aluminum equalant to upvc products |No. f respondents | |yes |17 | |No |8 | |Total |25 | Graph: Graph determining whether aluminum product can match up with market demand equalant to upvc products. [pic] Interpretation: The market demand for aluminum products can match up with the demand for pvc products. Table 14: Table determining products are rightly priced |Products are