Financial Analysis

Welc me

An Investment ActivityAssets are created/ acquiredThese Assets perform economic activityHas a specified time frameBenefits accrue for several years.

Identification of the ProjectPreparation and formulationAppraisalImplementationEvaluation

Technical AspectCommercial AspectManagerial AspectFinancial AspectSocial AspectsOrganisational AspectEconomic Aspect

Technology : Indigenous High-tech Manuf. processSoil: Type, pH, Drainage, Depth Location: Altitude, Slope, etcClimate : Temperature, Humidity, Rain fallVariety of Plant / Breed of animal

Backward linkages: Quality animal Veterinary care Artificial insemination centre Fodder Green grass Water ShedForward linkages: Transportation Milk Route Milk collection Centre Chilling plantProduction: Dairy

Man behind the venture Technically qualified / Experienced ? His Ability to hire qualified persons Training His Attitude towards the ventureInterview:Recording

Pollution Beneficiaries : Benefiting only a section of society ? Social acceptance ,Employment opportunities Labour resistance

Ability of the credit institution [MFI/Bank] to service the unitSupport from other agencies to implement the scheme:Horticulture Department,NHB,NHM,APEADA etc Veterinary DepartmentDepartment of Sericulture Boards : Coffee, Tea, Rubber, Spices

Whether National Priority? Foreign exchange earner ? Contribution to GDP Thrust area?

Technical AspectCommercial AspectManagerial AspectFinancial AspectSocial AspectsOrganisational AspectEconomic Aspect

Financial Analysis

Financial AnalysisObjective To Find out Earning Capacity of a Project To know the Repaying Capacity of a ProjectTo Compare Projects

Financial analysis is comparing investment made with the incremental net benefit derived during useful life of the assets

Steps in financial AnalysisAssessment of project cost (Outflow)Assessment of project benefits ( Inflow)Means of financePreparation of Cash Flow StatementWork out the net benefitNet Present value - NPVBenefit Cost Ratio - BCRInternal Rate of Return - IRRBreak Even PointDebt Service Coverage Ratio - Sensitivity Analysis

Production of Roses

Projections30 kgs/Sq.mtrActuals25 Kgs/Sq.mtrProduction of Mushrooms

Benefits accrue due to Increase in production Cost reduction Quality upgradation - value addition Prevention of loss Stop decline in production

LifeYieldMango

Cotton yield in qtls per acreLand Development Project : Problem soils

Benefits from a micro-enterprise Gestation period assess properly Stabilisation of productionperiod ,gap Economic life or useful life of assets Sale priceMain ProductBy-Product Scrap value of the assets at the end of useful life Pre Development Income OR Income before project

Mango ProjectYearFruits/ Tree

Incremental IncomePre- Development income

Investment costInitial investmentsReplacements Production cost:Cost of inputsCost of labourInsuranceTaxWorking capital interest etc.,.

A small Project : fruit and vegetable processing unit

Project cost : Rs. 60000 i.e. cost of dryer, shredder, washer etc

1st year2nd year onwards

Production cost: Rs 45,000 70,000

Benefits:Rs. 80,000 1,20,000Pre-Dev. income Rs. 30,000 30,000Income 50,000 90,000

Gestation period : 6 months

Useful life of Machinery: 9 years

Cost6000045000700007000070000700007000070000 70000 70000Year 0 yr1st2nd 3rd4th5th6th 7th8th9thBenefit 50000 90000 90000 90000 90000 90000 90000 90000 90000NetBenefit-60000 500020000 20000 20000 20000 20000 20000 20000 20000

The worth of Rs.100 TODAYis not equal to the worth of Rs.100 TOMORROW Due to: Earning power of money Opportunity costs Risk taking ability

Two techniques which take time into consideration for investment decisions Compounding: Future value of present money.

Discounting: Present value of future money

TodayOne Year fromNowTwo Years fromNowRs.100Rs.110Rs.121Rs.121Rs.110Rs.10010%10%10%10%

Two techniques which take time into consideration for investment decisions Compounding: Future value of present money. F = P (1+ r )n Discounting: Present value of future money P=F (1+ r) n

Where P = Present value, F= Future value, r = rate of interest , n = number of years 1

Opportunity cost -15% in Developing countriesStart discounting the cash flow with 15%During the economic life of asset, If the discounted returns are more than the investment made, then it is worth while examining critically further. To know this, two tools are used Benefit Cost Ratio ( BCR)Net Present Value/ Worth ( NPV or NPW)

Cost6000045000 70000 70000 70000 70000 70000 70000 70000 70000Year 0 yr1st2nd 3rd4th5th6th 7th8th9thBenefit 50000 90000 90000 90000 90000 90000 90000 90000 90000NetBenefit-60000 5000 20000 20000 20000 20000 20000 20000 20000 20000

82390 DF@ 15%0.8700.7560.6580.5720.4970.4320.3760.3270.28443501512013160114409940

86407520

65405680

Cost60000 45000 70000 7000070000 7000070000 70000 70000 70000Year 0 yr1st2nd 3rd4th5th6th 7th8th9thBenefit 50000 90000 90000 90000 90000 90000 90000 90000 90000NetBenefit-60000 5000 20000 20000 20000 20000 20000 20000 20000 20000

DF@ 15% 0.8700.756 + 0.658+ 0.572+ 0.497+ 0.432+ 0.376+ 0.327+ 0.2843.902780404350823900.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284

CostYear 0 year 1st year2nd to 9th year Benefit Net Benefit 3.9020.870DF @ 15%6000045000700005000090000-60000200005000-1

Tools for Financial Analysis

Present worth of benefitsPresent worth of costsBCR =IF BCR is more than 1, then the project is viable.NPW = PWB - PWCIF NPW = + ve then Project is viable

+ = PWB+ + =PWCCostYear 0 year 1st year2nd to 9th year Benefit Net Benefit 3.9020.870DF @ 15%6000045000700005000090000-60000200005000Disc.Cost27314039150 60000Disc.Benefit43500351180-1-BCR =372290394680= 1.06 : 1.00NPW =( PWB - PWC) = 394680 - 372290 = 22390 PWBPWC=

100012102 years10%BenefitCost1000

Internal Rate of Return (IRR) At what rate the project is giving returns Investing Rs. 100 - and getting back Rs. 121 after two years - means the investment is giving return at the rate of 10%. i.e. IRR in the case is 10%In above case When Rs. 121 ( benefit) is discounted @ 10% we get Rs.100, i.e. the present value of benefit which is equal to the investment ( cost)That means IRR is the rate of discount which would equate the Present value of benefit to the present value of cost.Internal Rate Of Return (IRR)

Internal Rate Of Return (IRR)IRR = discount rate at which :

Present value = Present value of benefits of costs

Worked out by trial and error method. By discounting Cash flow at higher discount rates till NPV = 0 or negative. Proceed discounting at 5 point scale higher each time.

+ + =NPW @ 25%+ + =NPW @ 20%CostYear 0 year 1st year2 to 9 yrs Benefit Net Benefit 3.1980.833DF @ 20%6000045000700005000090000-60000200005000PW @ 20%639604170 - 60000-1DF @ 25%10.8002.663PW @ 25%-60000400053260IRR = 20 +581308130= 23.74%= 8130= (2740)- (-2740)

Working out Cost of FundsInvestment : Rs. 60000Loan : @ 15% rate of int.Own funds : 12% r.o.i.

Cost of funds: 14.25%Cost of fund=(Proportion of equity X Cost of Equity) + (Proportion of borrowed fund X cost of borrowed fund)=( 0.25X 12) +(0.75X 15)= 3 + 11.25= 14.25%

Repaying capacity of the borrowerRepayment period of loan - Linked to the Economic lifeTool used here is Debt Service Coverage Ratio ( DSCR)Ratio of Annual Long term debt obligation to the Net cash surplusDefer the interest during gestationEarlier we recover the dues , the better.

Sheet1

Sheet2

Financing pumpset for lifting water from canal : Repayment schedule

Capital investment :Rs.6000

Margin from farmer :Rs.1000

Bank loan :Rs. 5000

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Sheet3




Bank loan :Rs. 5000

Amount in Rs.Rate of Int:12%

Repayment

YearDisbursementOutstanding at beginning of yearInterestNet benefitPrincipalInterestDeferred InterestTotal Outgoings (6+7)Surplus (5-9)DSCR (5/9)

1234567891011

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Sheet4




Bank loan :Rs. 5000


Repayment

YearDisbursementOutstanding at beginning of yearInterestNet benefitPrincipalInterestDeferred InterestTotal Outgoing (6+7)Surplus (5-9)DSCR (5/9)

1234567891011

1st50005000600.00500

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Sheet5




Bank loan :Rs. 5000


Repayment


1234567891011

1st50005000600.00500006000500

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Sheet6




Bank loan :Rs. 5000


Repayment


1234567891011

1st50005000600.00500006000500

2nd5000600.002000

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Sheet7




Bank loan :Rs. 5000


Repayment


1234567891011

1st50005000600.00500006000500

2nd5000600.00200001200012008001.67

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Sheet8




Bank loan :Rs. 5000


Repayment


1234567891011

1st50005000600.00500006000500

2nd5000600.00200001200012008001.67

3rd5000600.002000

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Sheet9




Bank loan :Rs. 5000


Repayment


1234567891011

1st50005000600.00500006000500

2nd5000600.00200001200012008001.67

3rd5000600.002000500600011009001.82

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Sheet10




Bank loan :Rs. 5000


Repayment


1234567891011

1st50005000600.00500006000500

2nd5000600.00200001200012008001.67

3rd5000600.002000500600011009001.82

4th4500540.002000500540010409601.92

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Sheet11




Bank loan :Rs. 5000


Repayment


1234567891011

1st50005000600.00500006000500

2nd5000600.00200001200012008001.67

3rd5000600.002000500600011009001.82

4th4500540.002000500540010409601.92

5th4000480.002000600480010809201.85

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Sheet12




Bank loan :Rs. 5000


Repayment


1234567891011

1st50005000600.00500006000500

2nd5000600.00200001200012008001.67

3rd5000600.002000500600011009001.82

4th4500540.002000500540010409601.92

5th4000480.002000600480010809201.85

6th3400408.002000600408010089921.98

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Sheet13




Bank loan :Rs. 5000


Repayment


1234567891011

1st50005000600.00500006000500

2nd5000600.00200001200012008001.67

3rd5000600.002000500600011009001.82

4th4500540.002000500540010409601.92

5th4000480.002000600480010809201.85

6th3400408.002000600408010089921.98

7th2800336.002000800336011368641.76

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Sheet14




Bank loan :Rs. 5000


Repayment


1234567891011

1st50005000600.00500006000500

2nd5000600.00200001200012008001.67

3rd5000600.002000500600011009001.82

4th4500540.002000500540010409601.92

5th4000480.002000600480010809201.85

6th3400408.002000600408010089921.98

7th2800336.002000800336011368641.76

8th2000240.0020001000240012407601.61

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Sheet15




Bank loan :Rs. 5000


Repayment


1234567891011

1st50005000600.00500006000500

2nd5000600.00200001200012008001.67

3rd5000600.002000500600011009001.82

4th4500540.002000500540010409601.92

5th4000480.002000600480010809201.85

6th3400408.002000600408010089921.98

7th2800336.002000800336011368641.76

8th2000240.0020001000240012407601.61

9th1000120.0020001000120011208801.79

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Sheet16




Bank loan :Rs. 40000


Repayment

YearDisbursementOutstanding at beginning of yearInterestNet benefitPrincipalInterestDefered InterestTotal Outgoing (6+7)Surplus (5-9)DSCR (5/9)

1234567891011

1st40000400004800.00500000480005000

2nd400004800.00200000960009600104002.08

3rd400004800.00200005000480009800102002.04

4th350004200.00200006000420001020098001.96

5th290003480.00200006500348009980100202.00

6th225002700.00200007000270009700103002.06

7th155001860.00200007500186009360106402.14

8th8000960.0020000800096008960110402.23

Total4000040000Average DSCR2.14

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Average DSCR for Loans

Lowest Risk

>= 2.00

Low Risk

< 2.00 >= 1.80

Medium Risk

< 1.80 >= 1.60

High Risk

< 1.60 >= 1.40

Highest Risk

< 1.40 >= 1.25

Caution

< 1.25

Chart2

112.8193.87124.55

91.6885.21129.39

76.9793.97118.97

8076.393.67

78.0690.58101.06

93.14110.27120.7

100.45119119.58

84.39109.29102.42

98.294.8110.97

102.998.9117.84

114.93118.9126.07

110.48124.48138.55

1995

1996

1997

NECC Egg Prices - Hyderabad

1990

N.E.C.C EGG PRICES1990

MONTHHYDVIJVIZNELNKLBBYMADDELCALBANGOD

JAN56.6158.4259.7154.5255.8464.6559.5266.5875.2557.74

FEB41.7143.8246.8245.4649.0452.1850.4650.5059.9649.93

MAR46.0048.0053.7750.0353.4553.0054.8754.9068.8154.00

APR42.0044.1047.2045.2347.5049.8050.2347.9358.1747.53

MAY48.3950.4556.8453.0056.7155.7758.0051.7766.3558.19

JUN51.5351.6054.3155.6059.2067.6060.6052.4766.6859.33

JUL53.0354.2657.0356.3259.4564.5261.3256.5572.5858.77

AUG54.0055.8757.9456.7458.1959.5561.7456.7170.4458.19

SEP52.7353.9754.1849.6052.4062.0754.6057.2372.2156.5354.18

OCT57.8459.8461.8752.9054.1666.8457.9463.3877.0856.9760.31

NOV64.7765.4766.7360.6762.8075.6065.6775.5079.5268.0065.58

DEC64.6566.9068.5261.3563.2376.8466.1675.0384.1166.95

AVG52.7754.3957.0853.4556.0062.3758.4359.0570.9356.8361.76

1991

NECC EGG RATES1991


JAN68.3268.2670.1663.7762.9478.4567.6877.8186.3062.8268.53

FEB53.6153.4355.4356.5459.7564.3262.3259.5766.7358.0053.32

MAR49.7451.1353.4853.4257.3262.1958.0357.5566.9651.13

APR50.8052.8056.1057.0758.3360.9762.0355.7369.2858.0053.43

MAY62.6864.8169.7769.1073.1972.0674.0366.5884.2070.0065.03

JUN64.8063.4066.9364.1069.8078.1369.0065.0781.4674.5064.27

JUL72.3271.4874.7475.4880.1085.9080.4874.4890.1572.32

AUG69.4569.0671.9768.7772.5580.3973.7774.5884.9574.9269.19

SEP64.6365.6768.4765.0067.0074.6770.0077.1081.3265.67

OCT62.4262.7463.1063.0666.5569.7768.0076.4282.0063.03

NOV73.0773.7775.5373.4777.3082.3378.4785.2089.6779.3374.63

DEC75.1975.0676.0671.9076.3285.1976.8190.0089.1475.26

AVEG63.9264.3066.8165.1468.4374.5370.0571.6781.0168.2264.65

1992

NECC EGG PRICES1992

HYDVIJVIZNELNKLBBYMADDELCALBANGOD

JAN79.4281.1082.1978.5279.5589.5883.5290.1997.0481.52

FEB67.1767.3169.5273.1479.3477.1778.3479.0381.9267.31

MAR62.0664.1667.1969.3974.6172.7174.5867.9478.4864.03

APR51.5052.6055.0356.1763.0762.7061.8056.7766.9252.63

MAY67.7170.6172.9774.7781.5277.1379.3964.2987.3671.29

JUN70.7070.6372.5079.4386.9783.2384.5368.8087.5884.0071.80

JUL77.1077.6580.9782.4588.7490.4587.6181.8796.9692.0078.32

AUG73.9077.0381.2378.9079.5879.3284.7481.8192.3878.81

SEP85.3786.9790.0086.2788.6794.0392.2792.13103.7491.2788.00

OCT88.5289.4590.5285.2986.0398.1991.0097.23107.0890.61

NOV99.2399.4099.4395.5397.20110.50101.23112.13112.8299.73

DEC90.9093.1493.0690.2693.06104.5296.19104.16105.1892.0091.23

AVERAGE76.1377.5079.5579.1883.2086.6384.6083.0393.1289.8277.94

1993

NECC EGG PRICES1993

HYDVIJVIZNELNKLBBYMADDELCALBANGOD

JAN73.7174.8176.6575.5179.4585.4883.9485.4590.3275.16

FEB84.0085.8686.9690.5091.2193.0096.5792.32103.7687.93

MAR82.5884.2386.2388.3289.8192.1394.3289.4899.4185.32

APR69.2771.5074.2776.1378.1380.0082.1379.9786.6971.73

MAY70.4872.9776.8477.8580.7781.8482.5871.2390.0773.48

JUN79.2779.3084.2385.3789.7094.7391.3780.3796.1580.30

JUL78.3978.4584.2683.3586.1990.3289.3588.6198.1780.32

AUG73.5274.5281.8480.0381.9483.2686.0385.4597.6777.16

SEP91.4094.0395.8787.3087.70103.1793.30105.47112.6995.63

OCT80.6880.2682.5876.6578.4591.3582.6597.4899.2281.74

NOV89.1388.1789.3085.2086.63101.8391.20105.17105.6890.13

DEC96.5295.0395.4295.2997.16108.87101.29112.48111.6795.03

80.7581.5984.5483.4685.6092.1789.5691.1299.2982.83

1994

NECC EGG RATES - 1994


JAN102.19103.16107.00103.00105.00114.32109.00118.52121.00103.23

FEB94.9694.89104.21101.14105.00107.11107.14109.04111.7095.36

MAR77.8178.1980.7786.6892.1391.2392.6886.4294.2278.19

APR69.6070.6776.6776.7378.7780.5382.9376.7387.6972.32

MAY78.5879.5885.7487.8193.9089.4293.8182.3996.0880.26

JUN98.1098.23102.63104.83107.93112.33110.8397.33115.2399.23

JUL92.4590.7796.9798.42102.19107.81105.1397.87105.8191.65

AUG81.7783.5886.9087.2689.1690.3593.2694.94101.8984.32

SEP87.8788.9792.8691.1394.5798.1097.13102.53106.5090.2790.63

OCT88.1389.3991.0385.6886.13100.1091.68104.74106.3589.0390.23

NOV102.77102.27102.57104.97107.83114.70110.97119.67117.31110.13102.00

DEC110.48110.16111.32106.23110.00123.48112.23123.74124.37110.52110.13

AVERAGE90.3990.8294.8994.4997.72102.46100.57101.16107.3599.9991.46

1995



JAN112.81112.90114.38108.48110.48125.84114.48127.19132.20111.77113.26

FEB91.6892.1496.64100.18105.64105.72106.54101.37107.3397.2992.36

MAR76.9778.1982.1084.3590.7490.2991.3287.4593.5983.7178.16

APR80.0081.7388.7787.2788.8393.1793.2784.7396.8887.0781.83

MAY78.0679.7189.1086.6589.7491.1392.6578.8794.4187.4279.90

JUN93.1492.5799.17100.43105.80106.13107.2386.45107.65102.5792.53

JUL100.45100.32106.06109.68112.74114.77116.2998.53118.80107.94100.29

AUG84.3986.7788.4290.0092.2694.6197.1698.84106.0788.8487.00

SEP98.2099.60102.6797.6098.60110.70103.60119.10118.72101.7399.60

OCT102.90102.03104.3598.42100.00115.94105.06122.13123.7799.94102.48

NOV114.93114.53113.77110.07110.50127.93116.00131.27132.48114.13114.67

DEC110.48109.26110.45105.00106.48123.90111.42128.13125.48105.03109.32

AVERAGE95.3395.8199.6698.18100.98108.34104.59105.34113.1298.9595.95

Sheet1

199519961997

JAN112.8193.87124.55

FEB91.6885.21129.39

MAR76.9793.97118.97

APR80.0076.3093.67

MAY78.0690.58101.06

JUN93.14110.27120.70

JUL100.45119.00119.58

AUG84.39109.29102.42

SEP98.2094.80110.97

OCT102.9098.90117.84

NOV114.93118.90126.07

DEC110.48124.48138.55

Sheet1

1995

1996

1997

NECC Egg Prices - Hyderabad

1996



JAN93.8793.8196.9496.3597.52108.58103.58116.10113.6896.9793.81

FEB85.2185.2887.8691.3497.41100.1099.14104.00107.0393.5285.45

MAR93.9795.1097.8498.1099.52108.13103.81107.55116.4399.0396.06

APR76.3077.2378.9784.1087.5091.0790.0384.0395.9082.4077.53

MAY90.5891.7794.03102.00104.90103.58108.2892.13111.41102.5892.74

JUN110.27110.80113.43120.30124.50123.60126.50105.67129.50121.60111.47

JUL119.00119.00123.00126.29130.19133.00132.29118.16134.74122.45120.00

AUG109.29109.16112.81110.90114.77122.58116.90118.94124.74109.23109.35

SEP94.8096.5399.5098.00101.80103.97103.40106.23114.7096.9396.67

OCT98.90101.84103.35102.97104.35112.03108.97112.71119.57107.58102.00

NOV118.90121.80123.53127.17130.00132.70133.07129.87138.89131.13121.80

DEC124.48124.77127.29125.03130.00138.48131.03139.87141.97128.52124.77

AVERAGE101.30102.26104.88106.88110.21114.82113.08111.27120.71107.66102.64

1997



JAN124.55125.68128.74128.87130.16138.48134.87138.52145.74133.29126.03

FEB129.39130.25134.43137.43137.18143.39143.43140.64148.93142.00131.00

MAR118.97118.97123.10126.42129.84133.77132.42127.55133.29127.10118.81

APR93.6795.0398.0099.47102.83109.97105.4799.50119.41100.0795.33

MAY101.06102.13106.58109.77115.16114.97115.77106.58119.13114.06102.10

JUN120.70121.67126.47130.00135.33135.53136.00119.10138.47131.93121.73

JUL119.58119.52123.48128.74136.45137.58134.74121.42135.48126.81119.32

AUG102.42105.29110.42111.42114.35114.65117.42113.81122.63108.19105.45

SEP110.97114.13117.73118.33120.00124.27124.33128.73132.97116.50114.57

OCT117.84119.06121.74120.94121.29131.84126.94137.90138.29122.58119.52

NOV126.07124.77125.60127.80129.00140.07134.10149.40141.50129.93124.70

DEC138.55137.29138.00137.84134.45152.84143.84163.00155.10138.14137.29

AVERAGE116.98117.82121.19123.09125.50131.45129.11128.85135.91124.22117.99

Break Even analysisBreak even point - Sales level at which all the costs are recovered. Total salesBreak even Point=------------------- X Fixed cost Contribution(Contribution = Total sales- variable cost)

Capacity UtilisedBreak even point= --------------------- X Fixed cost Contribution(In terms of % of Capacity utilised)(In terms of amount of sales)

BEP ( Capacity utilisation)= 39.94%

Credit requirement

Project for financing ABC Floritech Limited

1. Cost of the Project

Items of developmentAmt.Rs. in lacsEarmarked for foreign currency

1. Land and site development72.68

2. Civil works ( Buildings)61.34

3. Plant and Machinery - Indigenous18.25

- Imported356.32351.80

4. Plant Material252.00252.00

5. Technical Know-how94.1845.00

6. Training expenses7.205.20

7. Misc. Fixed Assets87.05

8. Preliminary & Capital issue expenses44.00

9. Pre-operative Expenses108.49

10. Contingencies40.20

11. Margin for working capital8.29

TOTAL1150.00654.00

2. Means of Finance:

1. Equity:

i) Promoters contribution250

ii) Collaborators25

iii) Public issue325

2.Term loans:

i) Bank450

ii) NHB100

Total1150

3. Working capital Assessment:

ItemPeriodMarginPermissible Bank

(Months)%Rs in lacsFinance (Rs. in lacs)

Raw material32564.5

Packing Material1250.940.7

Expenses11006.080

Finished stock0.13251.871.4

Export Receivables1_44.0244.02

(70% of sale value)

Total current Assets58.9150.62

Profitability statement

M/S ABC Floritech Limited

Profitability statement ( Projected performance)

Rs. in lacs

I yearII yearIII year onwards

A) Operational capacity70%80%90%

B) Sales600.86723.11854.45

c) Profit after tax96.38121.91193.36

d) Depreciation and write off109.89109.89109.89

i) Depreciation37.96

ii) Writeoff of plant material50.4

iii) Prel. and Pulbic issue exp.4.4

iv) Defered rev.exp. written off17.13

109.89

e) Dividend06090

F) Cash Accruals206.28231.8303.25

IRR


Financial Analysis

Rs. in lacs

0 yrs12345678910

Outflow1088.7158.920027.040264.627.040027.04

Inflow

Profit after tax:096.38121.91193.36198.41220.66235.84248.19256.32255.47255.47

ADD: Depreciation037.9637.9637.9637.9637.9637.9637.9637.9637.9637.96

Interest on TL0386752.638.2237.81.60.800

Exp. written off071.9371.9371.9371.9371.9371.9371.9371.9371.9371.93

Residual value43.05

(5% of fixed assets)

Land value42.38

Total Inflow0244.27298.8355.85346.5353.55353.53359.68367.01365.36450.79

Net Inflow-1088.71185.35298.8355.85319.46353.5588.93332.64367.01365.36423.75

IRR = 22.66%

BEP


Break Even AnalysisRs. in lacs

Year12345678

A) Sales600.86723.11854.45854.45854.45854.45854.45854.45

VARIABLE COSTS

I)Raw material costs32.4734.2836.2536.2536.2536.2536.2536.25

II) Utilities9.4510.8013.5013.5013.5013.5013.5013.50

iii) Sales & wages16.3217.1417.9918.8919.8420.8321.8722.96

iv) Overheads3.0016.8421.5329.9821.9822.4630.9522.53

v) int. on working capital8.998.998.998.998.998.998.998.99

vi) Direct selling expenses259.05314.56374.70374.70374.70374.70374.70374.70

B) Total Variable costs329.28402.61472.96482.31475.26476.73486.26478.93

C) CONTRIBUTION (A-B)271.58320.50381.49372.14379.19377.72368.19375.52

FIXED & SEMI VARIABLE COSTS

I) Administrative expenses27.3121.6925.6325.6325.6325.6325.6325.63

II)W/O of plants50.4050.4050.4050.4050.4050.4050.4050.40

iii) W/O of Def. Rev. Exp.17.1317.1317.1317.1317.1317.1317.1317.13

iv) Int. on Term loans38.0067.0052.6038.2023.007.801.600.80

v) W/o of Prel. Exp.4.404.404.404.404.404.404.404.40

vi) Depreciation37.9637.9637.9637.9637.9637.9637.9637.96

D)Total fixed & semivariable cost175.20198.58188.12173.72158.52143.32137.12136.32

CASH BREAK EVEN (%)=16.61

(=Installed capcity / Contribution X Fixed & semi-variable costs excluding non-cash items)

Details


1. Location:35 Km from Bangalore Airport

2. Constitution :Public Limited Company

3. Line of activity:Export oriented cut rose flowers grown under Green house

4. Status:100% export oriented Unit

5. Technical aspects:All technical parameters considered suitable.

6. Power:Feasibility certificate obtained - power is available nearby.

7. Technical collaboration: The unit has entered into technical collaboration with

M/S Moerheim Roses & Trading B.V., Netherlands, which is a reputed

company having long experience in supplying plants all over world.

The collaboration includes providing of technical information on growing roses

supervision of initial planting, post harvest operations, quality control, Training

the personnel employed, marketing assistance.

8.Marketing arrangements: The unit has entered into an agreement with M/S A.A.Flor

B.V. of Netherlands, for marketing and selling 100% of the production.

9. Assumptions:

i) The average price per rose stem is taken as Rs. 11.98 for export sales

and Rs. 1.50 per stem for local sales

ii)The exportable quality of stems are assumed at 80%, 85% and 90% of the

production from first, second and third year onwards respectively.

iii) Planting material: 6 months old root stock plants .

iv) Survival rate : 98%

v) Maximum installed capacity : 96.50 lac stems

vi) Installed capacity : 86.86 lac stems ( 90% of Maximum)

vii) Operational capacity:I year:60.80 lac stems ( 70%)

II year:69.48 lac stems ( 80%)

III year:78.16 lac stems ( 90%)

10. Settlement of any disputes : with reference to arbitration under the Indian Arbitration

Act 1940.

11. Owned land : 25 acres, Area under Green House : 10 acres

12. Brief details of the promoters:

A. 42 years, a post graduate in Arts, Ex-employee of a Bank , now a

renowned businessman.

B. 43 years: A graduate in commerce, A renowned businessman,

A good administrator and manager

C. 45 years: A graduate in Chemical Engineering. Investment consultant

Financially very sound.

13. The unit will be employing a Technical Director, A Agricultural Scientist having

having good experience in floriculture.

14. Other details and the financial parameters are provided in the annexures

Required:

The company has approached you with a request for project financing involving

Rupee Term loan of rs. 450 lacs. Please examine the company proposal in

order to assess the various aspects such as technical feasibility, commercial,

managerial and financial viability of the project.

i) Identify the information gaps.

ii) If the company furnishes the additional information to your satisfaction,

as required under (i) above, will you like to support the project.

iii) If your decide to provide the financial assistance, what special terms

and conditions will you like to stipulate so as to adequately protect the

banks Interest ?

iv) What follow-up measures will you recommend to your branch staff

so as to ensure that the project is implemented as per the time and

cost estimates accepted by you.

DSCR


Debt Service Coverage Ratio

Rs. in lacs

Year1234567

Inflow

Net Profit96.3861.91103.36108.41130.66145.84158.19

ADD:

a)) Interest on Term loan38.006752.638.2237.81.6

b) Depreciation37.9637.9637.9637.9637.9637.9637.96

c) Prel. exp. wr. off4.404.404.404.404.404.404.40

d) Plant material wr. off50.4050.4050.4050.4050.4050.4050.40

e) Def. Rev. Exp. Wr. Off.17.1317.1317.1317.1317.1315.690.00

TOTAL INFLOW244.27238.80265.85256.50263.55262.09252.55

Outflow

Principal amount4590901101106540

Interest on TL38.0067.0052.6038.2023.007.801.60

TOTAL OUTFLOW83157142.6148.213372.841.6

DSCR2.941.521.861.731.983.606.07

Average DSCR2.82

Cost estimate

Estimation of Cost of Production

Rs. In lacs

Years12345678910

SALES

Domestic Sales18.2415.6311.7211.7211.7211.7211.7211.7211.7211.72

Export Sales582.62707.47842.72842.72842.72842.72842.72842.72842.72842.72

TotalSales600.86723.10854.44854.44854.44854.44854.44854.44854.44854.44

COST OF SALES

Raw Materials24.0024.0024.0024.0024.0024.0024.0024.0024.0024.00

Packing cost8.4710.2812.2512.2512.2512.2512.2512.2512.2512.25

Power and Fuel9.4510.8013.5013.5013.5013.5013.5013.5013.5013.50

Direct Labour16.3217.1417.9918.8919.8420.8321.8722.9624.1125.32

Administrative Overheads18.0321.6925.6325.6325.6325.6325.6325.6325.6325.63

Insurance9.2810.8412.5312.5312.5312.5312.5312.5312.5312.53

Repairs & Maintanence3.006.009.0017.459.459.9218.4210.0010.5011.03

Misc. expenses3.003.003.003.003.003.003.003.003.003.00

TOTAL (A)91.55103.75117.90127.25120.20121.66131.20123.87125.52127.26

SELLING EXPENSES

Air Freight109.43132.88158.28158.28158.28158.28158.28158.28158.28158.28

Auction /Sales commission79.0095.93114.27114.27114.27114.27114.27114.27114.27114.27

Import Duty70.6285.75102.14102.14102.14102.14102.14102.14102.14102.14

TOTAL (B)259.05314.56374.69374.69374.69374.69374.69374.69374.69374.69

TOTAL COST OF PRODUCTION350.60418.31492.59501.94494.89496.35505.89498.56500.21501.95

Sensitivity

Sensitivity Analysis

ParticularsIRRDSCRBEP

Normal23.15%2.3239.65%

10% Decrease in Yield19.13%1.9744.60%

10% Decrease in sale Price17.72%1.8546.54%

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Interpretation of Break even analysisIndicates margin of safetyLower the BEP, more the margin of safety.To be compared with Industrial average.

Cash Break even analysisSales level at which all cash costs are recovered : i.e.. all costs excluding:DepreciationPre-operative expenses SalesCash Break even (Sales)= --------------- X Fixed cost ContributionGives an indication regarding at what level of sale the unit will not make cash losses - Useful Mainly in analysis of rehabilitating sick units.

To assess the ability of the investment to bear the adversities: Inflation affecting only the cost or only the benefit Increased investment cost due to time over-run , or while replacing them Area of cost and benefits to which the project is sensitive Analysis to be done based mainly on the data available to us

Tea Project

Chart1

13454.7588

3862

500

925

Variables

No. of acres25

Cost of land Rs.20,000

LABOUR COST:( Basic +DA)Rs.32.3

Fring benefits (33%of above)Rs.10.66

Labour cost/Man day (A+B)Rs.42.96

Rateof interest for loan%13.77

Pre Devevelopment IncomeRs.0

Farm gate price per kg*Rs.11

Subsidy ( if any) :1st yearRs.0

2nd yearRs.0

3rd yearRs.0

Margin on loan25%

* Average of last 4 years

B) Material Cost

Particulars of expenditure0 yearI year2nd year3rd year4th year5th year onPrice/Unit(Rs.)

Planting material No.60006002

Shade Plants No.120121.5

Farm Yard Manure(tons)66666250

Fertilizers (Kgs)

Nitrogen164048566010.05

Phosphorus82024283018.15

Potash24607284906.55

Micronutrient Spray Rs.350475625625625

Plant protection chemicals Rs750750925925925

Weedicide Rs.012001200900500

Transportation of tea leaves Rs08802100315042240.5

Supervision cost Rs.120120120120120

C ) Labour Requirement(in Mandays)

Operations0 yearI year2nd year3rd year4th year5th year on

Land Preparation20

Contour survey & Marking drain4

Drain Digging30

Lining and marking15

Opening and filling pits303

Planting and staking303

Planting of shade trees- Permanent & Temp. shades242

Maintenance of footpaths & drainage04444

Weed control3624121212

Manuring1212121212

Fertilizer application68121212

Plant protection68888

Mulching7530

Irrigation ( Jan to May)8020202020

Shade regulation612888

Pruning & frame work08121616

Harvesting044105158211

Miscellaneous operations1010101010

Total labour requirement213188203260313

D) Other Investments(Amount in Rs.)

0 year1st year2nd year3rd year9th year**

1.Land500000

2.Fencing0

3.Workmen quarters40000

4.Borewell/open well20000

5. Pumpset8500085000

6. Sprinkler System200000

7. Any Other ( specify here)

7. Any Other ( specify here)

Total84500000085000

** Replacement cost

E) Benefits

Yield 2rd year (kgs)880

Yield 3rd year (kgs)2100

Yield 4th year (Kgs)3150

Yield 5th year ( Kgs)4224

Yield 6th year onwards(Kgs)5280

&C&"Mistral,Regular"&14&EFinancial Analysis : Tea Development in 25 acres&"Times New Roman,Regular"Variables&R&12Annexure -3a

Cost Analysis

1) Capital Investments

Land5000000

Land Preparation708820

Planting of Tea & Shade4818600

Manure/Fert/Micronutrient16401

Pest control115969

Weed control172714

Irrigation & Mulching5681240

Pruning & Havesting367836

Farm Structures40000350

Others42959120

Total23767460

2) Production(Recurring)Expenses

Labour charges13455298.452

Manure & Fertilizers3862170.544

Weedicides500127.908

Pesticides925127.908

724.812

&C&"Mistral,Regular"&14&EFinancial Analysis : Tea Development in 25 acres&"Times New Roman,Regular"Cost Analysis&RAnnexure - 3b

Cost Analysis

0

0

0

0

0

0

0

0

0

0

Cost & Benefit

0

0

0

0

IRR

Cost

A. Labour cost(Amount in Rs)

Operations0 year1st year2nd year3rd year4th year5th yr on

Land preparation & levelling85900000

Contour survey & Marking drain17200000

Drain Digging128900000

Lining and marking64400000

Opening and filling pits12890129

Planting and staking12890129

Planting of shade trees- Permanent & Temp. shades10310103

Maintenance of footpaths & drainage0172172172172

Weed control15471031516516516

Manuring5160516516516516

Fertilizer application2580344516516516

Plant protection258344344344344

Mulching32221289000

Irrigation ( Jan to May)3437859859859859

Shade regulation258516344344344

Pruning & frame work0344516687687

Harvesting01890451167669073

Miscellaneous operations430430430430430

Total labour cost73469150809387211114813455

B. Input cost(Amount in Rs.)

Operations0 year1st year2ndyear3rd year4th year5th yr on

Planting material120001200000

Manure ( FYM) Qty in tons15001500150015001500

Fertilizers

Nitrogen161402482563603

Phosphorus1450363436508545

Potash1570393472550590

Micronutrient Spray(If needed)350475625625625

Weedicides12001200900500

Pesticides750750925925925

Total Input cost1396311006283564055715287

Total cost per acre213091025014376143601671918742

Cost for Total area532730256257359412359007417977468544

Other Investments845000000

Total cost1377730256257359412359007417977468544

Benefit(Amount in Rs)

Year2nd year3rd year4th year5th year6th year7th yr on

Yield in Kgs per acre88021003150422452805280

Price per Kg111111111111

Total Benefit96802310034650464645808058080

Benefit from the total area242000577500866250116160014520001452000

LESS Pre-Development Income000000

Benefit LESS Pre Dev.Inc.242000577500866250116160014520001452000

&C&"Mistral,Regular"&14&EFinancial Analysis : Tea Development in 25 acres&"Times New Roman,Regular"Cost and Benefit&RAnnexure-3c

DSCR

Cash Flow Statement & Internal Rate of Return

Amount in Rs.

CostBenefit

YearInvestment CostNet BenefitDF @ 15%

LandTubewellSprinkler systemTea develop-mentProduction CostTotal costTea leaf salesResidual ValueTotal BenefitDiscounted CostDiscounted Benefit

0 year500,00020000285000532730137773000-1377730113777300

1st year25625725625700-2562570.872229430

2nd year359412359412242000242000-1174120.756271715182952

3rd year3590073590075775005775002184930.658236227379995

4th year4179774179778662508662504482730.572239083495495

5th year468544468544116160011616006930560.497232866577315

6th year468544468544145200014520009834560.432202411627264

7th year468544468544145200014520009834560.376176173545952

8th year468544468544145200014520009834560.327153214474804

9th year85000468544553544145200014520008984560.284157206412368

10th year468544468544145200014520009834560.247115730358644

11th year468544468544145200014520009834560.215100737312180

12th year468544468544145200014520009834560.18787618271524

13th year468544468544145200014520009834560.16376373236676

14th year468544468544145200014520009834560.14166065204732

15th year468544468544145200014520009834560.12357631178596

16th year468544468544145200014520009834560.10750134155364

17th year468544468544145200014520009834560.09343575135036

18th year85000468544553544145200014520008984560.08144837117612

19th year468544468544145200014520009834560.0732798101640

20th year4685444685441452000500000195200014834560.06128581119072

BCR =1.48: 1.00

NPW=1,664,168

IRR=25.97%

&C&"Mistral,Regular"&14&EFinancial Analysis : Tea Development in 25 acres&RAnnexure - 3d

A) Repayment Schedule

Amount in Rs.Rate of Interest:13.77%

YearDisburse- mentOutstanding at the begenning of the yearInterestNet benefitRepayment PrincipalRepayment InterestDefered InterestTotal OutgoingNet surplusDSCR

1st80540080540011090411090400

2nd269500107490014801425891700

3rd26920013441001850832184931109043330961109041075891.97

4th13441001850834482731480143701651480143002603.03

5th13441001850836930563701651850833701653228911.87

6th134410018508398345637016503701656132912.66

7th134410018508398345633602518508305211084623481.89

8th100807513881298345633602513881204748375086192.07

9th672050925418984563360259254104285664698902.10

10th336025462719834563360254627103822966011602.57

Total13441001344100Average DSCR2.21

B) Disbursement Schedule(Amount in Rs.)

1st year2nd yr3rd yrTotal

PlantationSprinklerPlantationPlantation

Project cost Rs.7889862850003594123590071792405

Margin25%197286713008991289807448305

Subsidy00000

Loan5917002137002695002692001344100

&C&"Mistral,Regular"&14&EFinancial Analysis : Tea Development in 25 acres&RAnnexure -3e

Tea Project

Poultry - Layer UnitFeed cost : Rs./ Qtl, Egg price: Rs./ 100 eggs

Chart1

304.6785.45

341.3388.68

332.0398.1

434.5899.95

487.46118.75

Feed cost

Egg Price

Sheet1

19921993199419951996

Feed cost304.67341.33332.03434.58487.46

Egg Price85.4588.6898.1099.95118.75

Feed cost : Rs/ QTL

Egg Price: Rs./100 eggs

Namakkal Zone

Sheet1

00

00

00

00

00

Feed cost

Egg Price

Feed

LAYER FEED PRICE IN NAMAKKAL ZONERs./75kg

1991-921992-931993-941994-951995-961996-971997-98

APRIL262.00347.00327.00395.00475.00500.00583.00

MAY268.00347.00309.00405.00475.00515.48597.42

JUNE288.00350.00300.00415.00475.00533.00598.00

JULY291.00357.00306.00435.00490.00547.42590.00

AUGUST302.00357.00319.00435.00490.00554.19584.35

SEPTEMBER302.00350.00331.00435.00480.00577.83565.00

OCTOBER296.00350.00331.00410.00480.00576.13538.55

NOVEMBER316.00340.00342.00430.00487.50560.00518.00

DECEMBER323.00330.00342.00450.00497.00555.48

JANUARY332.00330.00342.00458.00500.00554.52

FEBRUARY338.00315.00361.00480.00500.00557.50

MARCH338.00323.00375.00467.00500.00569.35

YEARLY AV.304.67341.33332.03434.58487.46550.08

INDEX100.00112.03109.00142.64160.00180.55

Feed

304.67

341.33

332.03

434.58

487.46

550.08

1997-98

Year

Yearly average

Feed Price(Namakkal)

Cull Bird

CULL BIRD PRICE --NAMAKKALRs/Bird

MONTH1991-921992-931993-941994-951995-961996-971997-98

APRPna21.0030.0731.1033.2733.8027.90

MAYPna26.7435.7434.9737.1338.5829.77

JUNPna28.5040.0738.2339.9342.3028.83

JULPna32.0638.3233.8439.7442.7726.39

AUGPna29.7436.2931.3937.8740.0322.68

SEPPna30.2035.5031.5338.4737.4720.40

OCTPna32.5531.0632.2339.6835.1324.48

NOVPna33.3029.1329.5735.3033.2027.00

DECPna32.2927.8128.0634.0034.29

JANPna30.9030.3530.3534.2334.58

FEB20.5631.8231.7130.0434.5943.00

MAR23.1031.2332.8729.1333.1344.13

AVERAGE21.8330.0333.2431.7036.2838.27

INDEX100.00137.56152.27145.21166.19175.31

Increase75%

75%

NECC-Egg Rate

NECC--EGG RATESRs./100Eggs

1991-921992-931993-941994-951995-961996-971997-98

APR58.3363.0678.1378.7788.8387.50102.83

MAY73.1981.5180.7793.9089.74104.65115.16

JUN69.8086.9689.70107.93105.80124.50135.33

JUL79.8788.7486.19102.19112.74130.19136.45

AUG72.5479.5881.9389.1692.26114.77114.35

SEP68.4088.6683.0394.5798.60101.80120.00

OCT66.5586.0378.4586.13100.00104.35121.29

NOV77.3097.2386.63107.83110.50130.00129.00

DEC76.3293.0697.16110.00106.48130.00

JAN79.5479.45105.00110.4897.52130.16

FEB79.3491.25105.00105.6497.41137.18

MAR74.6189.8192.1390.6199.52129.84

AVERAGE72.9385.4588.6898.1099.95118.75

INDEX100.00117.09121.51134.42136.96162.72

NECC-Egg Rate

72.93

85.45

88.68

98.1

99.95

118.75

Years

Rate

Egg price

Egg Production

EGG PRODUCTION -NAMAKKAL ZONEFIG IN Lakhs

1991-921992-931993-941994-951995-961996-971997-98

APRPNAPNA43.1055.4383.5898.0379.05

MAY32.52PNA43.1156.2284.0496.5976.05

JUNPNAPNA42.1457.2485.7899.6872.18

JULPNAPNA42.2858.2786.6698.8070.49

AUGPNAPNA42.8459.8487.1596.2270.67

SEPPNAPNA45.6563.8391.6991.7471.58

OCT33.3540.6347.5166.8294.7490.0371.35

NOVPNA41.8548.9971.5795.9486.9673.12

DECPNA42.7550.4875.6696.8084.71

JANPNA43.3252.3678.88104.4685.43

FEBPNA43.5254.3480.62107.2382.23

MARPNA43.1054.2781.60108.6580.77

YEARLY AVG32.9442.5347.2667.1793.8990.93

INDEX100.00129.00143.00204.00285.00276.00

29%11%42%40%-3%

Egg Production

000000

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

Years

No. of eggs

Egg Production

Comparitive graph

72.93304.67

85.45341.33

88.68332.03

98.1434.58

99.95487.46

118.75550.08

Egg rates

Feed prices

Years

Prices

Comparitive prices

Layer Strength

LAYER BIRD STRENGTH--NAMAKKALNO. In Lakhs)

1991-921992-931993-941994-951995-961996-971997-98

APRPNAPNA97.96125.98189.95196.18152.31

MAY73.91PNA97.97127.77190.99191.04148.92

JUNPNAPNA95.78130.09194.96185.02146.33

JULPNAPNA96.10132.44196.95181.59147.66

AUGPNAPNA97.37136.00198.06180.46147.69

SEPPNAPNA103.76145.07208.39179.36148.76

OCT75.7992.34107.99151.86215.32182.44152.7

NOVPNA95.10111.35162.66218.06179.19157.32

DECPNA97.15114.73171.95220.01175.36161.29

JANPNA98.46119.00179.26224.32171.61

FEBPNA98.91123.50183.24224.09160.72

MARPNA97.96123.53185.45218.6154.28

AVERAGE74.8596.65107.41152.65208.31178.10

INDEX100.00129.12143.50203.94278.30237.94

chick placements

CHICK PLACEMENTS -NAMAKKAL ZONE

Fig in Lakhs

1991-921992-931993-941994-951995-961996-971997-98

APRPNA5.766.157.9610.177.697.36

MAYPNA4.093.558.7911.446.979.54

JUNPNA3.955.677.8110.217.6610.04

JULPNA4.656.389.3010.2510.568.71

AUGPNA7.3210.2114.1617.4912.838.47

SEP6.075.829.4412.8715.3813.2511.63

OCT6.146.189.1216.9510.78.1911.58

NOV5.746.477.4712.8310.756.3811.63

DEC5.355.478.2212.9812.136.49

JAN5.115.749.1410.359.076.6

FEB3.825.097.1612.428.678.94

MAR5.216.078.4513.947.48.73

AVERAGE5.355.557.5811.7011.148.69

INDEX100.00103.74141.68218.63208.22162.43

Chart2

1991-921992-931993-941994-951995-961996-97

72.9385.4588.6898.1099.95118.75

304.67341.33332.03434.58487.46550.08

Summary of Financial Analysis

NPW

BCR

IRR

DSCR

BEP

Normal

2250

1.24

24%

1.9

29%

Sensitivity

250

1.04

17%

1.54

35%

RecommendationsWe must focus on the income stream; credibility, capability to repay as well as technical feasibility of the project

70% of the decision ,must settle at the desk levelComposite cash credit facility needed to the. promoterDesign saving module, in built into credit, to cushion farmers against natural calamities / Price fluctuation.Give agri-preneures the right advice about cropping pattern, yield ,critical inputs etc.,.

All the very best

Financial Analysis

Documents

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