Fund based working capital assessment with MPBF methodDate - OCTOBER 8,2013 Presented By: Mr. Abinash Biswal

INDEXPART1Brief about working capital.Methods of lending.IllustrationPART2Live Project 1.Butterfly Gandhimathi Appliances LimitedHistory of the companyCMA file analysis for MPBF calculationPART3Live Project 2.Eversendai Constructions Private LimitedHistory of the companyCMA file analysis for MPBF calculation

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DefinitionA business organisation needs financing not only to acquire fixed assets but also for its day -to-day operations. It has to obtain raw materials, process the same, pay wage bills, transport finished goods, provide credit to customers.

Capital or funds required for the 'day to day' operations of an organisation is called the 'Working Capital.

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Operating Cycle

Operating cycle is the time that elapses between the company's outlay raw materials, wages and other expenditures and the inflow of cash from sale ofgoods.*

Classification

The working capital assistance provided by banks can broadly be classified as Fund based Non-fund based.

The difference between fund and non-fundassistance lies mainly in the cash outflow. Fund based assistance involves an immediate cash outflowWhile non fund based may or may not involve cash outflow from the bank.

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*Tree Diagram

Computation of MPBF

Once the estimation of the reasonable level of current assets required for the operation of the unit is completed the source of financing the same is decided. A part of the total current assets can be financed by credit for purchases and other current liabilities. The funds for financing the working capital gap is bridged from the borrower's owned funds and long term borrowings and partly from borrowings from the bank. Below is the three methods suggested by Tandon committee.*

First Method of Lending: Finance a maximum of 75% of the working capitalgap (total current assets minus current liabilities other than bank borrowings),

Balance to come out of long-term funds, namely owned funds and term borrowings.

The borrowers contribution of long term funds described is called the minimum stipulated Net Working Capital (NWC).

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Second Method of Lending:Borrower to provide for a minimum of 25% oftotal current assets out of their long term funds, i.e. owned funds and term borrowings. Credit for purchases and other current liabilities will be available to finance a part of the remaining amount of current assets with banks financing the remaining portion.

Thus total current liabilities inclusive of bank borrowings will not exceed 75% of the current assets.

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Third Method of Lending:Core current assets are excluded from total current assets. Core current assets are expected to be financed by long term funds.

Under this method, long term funds are required to finance core current assets and an additional 25% of the remaining current assets.

RBI did not accept this method for implementation.

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Illustration, Method 1*

First MethodTotal current assets 740Current liabilities (other than bank borrowings)300Working capital gap 440(NWC - 25% of above from long term sources)110MPBF 330Current ratio 1.17:1

*Illustration, Method 2

Second MethodTotal current assets 740NWC- 25% of above from long term sources185Less555Current liabilities (other than bank borrowings)300MPBF 255Current ratio 1.33:1

Turnover MethodThe genesis of the Turnover Method of assessment is based on the recommendations of Nayak Committee for ensuring adequate flow of credit tosmall borrowers. Under this method, the working capital requirements are estimated at 25% of the projected turnover. Of the working capital requirement, banks can finance to the maximum extent of 20% of the projected turnover and the balance 5% is the Net Working Capital to be brought in by the borrower as his margin.

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Cash Budget MethodCash budgets are submitted by the borrower for the future period. Bank finance is limited to cash deficit i.e the excess of payments over receipts. While assessing under this method, the profitability statement, balance sheet and cash flow statement for future period is taken into account to prepare the cash budget. The operating cycle is also considered for cash flow assessment from cash flow statement on how cash was generated and used. Generally this method of assessment is used for seasonal industries like tea, sugar.

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INDEXPART1Brief about working capital.Methods of lending.IllustrationPART2Live Project 1.Butterfly Gandhimathi Appliances LimitedHistory of the companyCMA file analysis for MPBF calculationPART3Live Project 2.Eversendai Constructions Private LimitedHistory of the companyCMA file analysis for MPBF calculation

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BGAL is the flagship entity of the Butterfly group and manufactures traditional kitchen appliances, such as liquefied petroleum gas(LPG) stoves, mixer-grinders and table-top wet grinders.

BGAL was originally incorporated as a Private Limited Company on 24th February, 1986 and was converted into a Public Limited Company on 25th April, 1990.

*Background and business description

Butterfly Gandhimathi Appliances Limited.

Present banking arrangement

Currently BGAL has consortium banking arrangement with IDBI, ING, AXIS, State Bank of Travancore and Bank of Baroda.

The total exposure taken is 800 million Fund based limit and 2530 million of Non fund based limit.`

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Proposed Exposure:

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FacilityAmt (` in million)Fund Based LimitsCash Credit100.0WCDL(100.0)Non-Fund Based LimitsLC 500.0BG(500.0)Total600.0

Financial StatementsBUTTERFLY*

Conclusion*The projected values for the client is not that exciting without the Tamilnadu Governments order which contributes nearly 45% to companys revenue in earlier years.But the good news is that the client has recently bagged the Governments order once again which will add that much required cushion to the projected value.

INDEXPART1Brief about working capital.Methods of lending.IllustrationPART2Live Project 1.Butterfly Gandhimathi Appliances LimitedHistory of the companyCMA file analysis for MPBF calculationPART3Live Project 2.Eversendai Constructions Private LimitedHistory of the companyCMA file analysis for MPBF calculation

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Eversendai Construction Pvt. Ltd. (ECPL) is a wholly owned subsidiary of Eversendai Corporation Berhard (ECB), Malaysia was established in the year of 1984.ECPL commenced its operations in Chennai in the year 2009.The company is into engineering and construction business and has been involved in some of the landmark projects in India and abroad like Mumbai international airport, Petronas twin towers in Malaysia, Burj Al Arab Hotel in Dubai to name a few.

*Background and business description

Eversendai Constructions Private Limited

Current and Executed ProjectsFollowing are some of the projects executed by ECPL. Mumbai International Airport Ltd.Oberoi TowerKhatau Mills Byculla, MumbaiBWE Energy India (P) LtAnd some of the power plants executed by ECPL in Tamilnadu and Maharastra.d,Chennai

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Present banking arrangement

Currently ECPL is banking exclusively with Standard Chartered Bank (SCB). The total exposure taken is as follows the Bank

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Name of the BankPresent limitsFBNFBSCB70.01980.0

Proposed Exposure:

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FacilityAmt (` in million)Cash Credit(100.0)FCNR(B)(100.0)WCDL(100.0)STL (One time)(100.0)LC(100.0_BG250.0Derivative50.0Total300.0

FINANCIAL STATEMENTSEversendai*

Conclusion*As we are projecting a positive figure for 2014 onwards and the parent entity has a very good track record in the market we are going ahead with the proposal despite having a negative PAT in the year 2013.

THANK YOU*

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