Case 1: ABC Ltd.

The captioned Company incorporated in 1987 as a Private Limited Company was converted into
a Public Limited Company in 1988. The Company is engaged in manufacturing of black G.I.
pipes. Initially the Company was availing credit facilities from a consortium of New Bank of
India and Punjab National Bank, however, on merger of NBI with PNB in 1993, PNB became
the sole banker of the Company.

COMMENTS ON MANAGEMENT, PRODUCTION AND MARKETING:

Promoters of the Company are well qualified and experienced in the line of activity. The
Company has appointed Professionals for day-to-day management / supervision of the
operations/ Marketing /Production etc. Its design and development group has made vital
contributions in producing customized products and value improvements in tube related areas.

THE MAIN CUSTOMERS OF THE COMPANY ARE:-

1. PETROLEUM SECTORS: Hindustan Petroleum Corpn. Ltd., Bharat Petroleum Corpn.

Ltd., Indian Oil Company Ltd., Cochin Refinery Ltd., MRPL

2. GAS SECTORS: Gujarat Gas Co. Ltd., Mahanagar Gas Ltd., Indraprastha Gas Ltd., Gas
Authority of India Ltd.

3. PUBLIC SECTOR UNDERTAKINGS: BHEL, SAIL, NTPC, HZL, BHPV, OIL,

COALFIELD (WCL/SECL etc)

4. INDUSTRIAL GIANTS: Larsen & Toubro Ltd., ThyssenKrupk Inds. (India) Ltd.,
Walchandnagar Inds. Ltd., Escorts, Punjlloyds Ltd., ISGEC, All cement plant of Grasim
Industries, TRF Ltd., Thermax Ltd., Hindustan Construction Co. Ltd., Macmet India Ltd.,
Nagarjuna Construction Co. Ltd., Mecon Ltd., North Delhi Power Ltd.

5. GOVT. SECTORS: PHE Deptts. (Water Supply Sector) of State Govt., State Electricity
Boards., Railways, Defence
GIST OF PROPOSAL

1. Enhancement in FBWC limits from Rs.800 lakh to Rs.1000 lakh.

FACILITIES FROM OUR BANK (Rs. in lakh)

FUND BASED EXISTING PROPOSED

Cash Credit (Stock) 800.00 1000.00
Cash Credit (Book Debt) (500.00) (575.00)
Packing Credit (100.00) (100.00)
Clean DD (within CC Book Debts) (50.00) (50.00)
FOBNLC/FOUBNLC/FOBP/FOUBP (125.00) (125.00)

TOTAL COMMITMENT 800.00 1000.00

6A. KEY FINANCIAL INDICATORS OF THE BORROWING UNIT.

(Rs. in lakh)
Particulars 31.03.03 31.03.04 31.03.05
Audited Audited Audited
Sales – Exports 380.70 181.57 148.31
Sales – Domestic 4755.67 5025.25 8860.26
TOTAL NET SALES 5136.37 5206.82 9008.57
Other Income 59.31 8.71 19.95
Operating Profit (18.68) 51.60 52.40
Profit before tax 40.63 60.31 72.35
Profit after tax 20.13 31.81 39.35
Cash Profit 55.25 67.19 75.15
Paid Up Capital 150.00 150.00 150.00
Reserves & Surplus 794.39 826.12 865.48
Revaluation reserves (138.78) (131.49) (124.20)
Tangible Net Worth 805.61 844.63 891.28
Current Ratio 1.47 1.59 1.64
Debt Equity Ratio 0.17 0.17 0.19

Latest key figure as on 31.12.2005

Sales Rs.6037.00 lakh
PBT Rs. 40.00 lakh
Paid up capital Rs. 150.00 lakh

COMMENTS

2
 - The company has achieved PBT of Rs.72.35 lakh on total sales of Rs.9008.57 lakh during
2004-05 as against PBT of Rs.60.31 lakh on total sales of Rs.5206.82 lakh during 2003-
04. During the current year upto 31.12.2005, sales were Rs.6037 lakh as against the
annual estimates of Rs.7500 lakh. Thus, the sales achievement has been satisfactory.
- TNW was Rs.891.28 lakh as on 31.3.05 as against Rs.844.63 lakh as on 31.3.2004.
- Current Ratio at 1.64 as on 31.3.2005 (1.59 as on 31.3.2004) and DE Ratio at 0.19 as on
31.3.2005 (0.17 as on 31.3.2004) were satisfactory.

Overall financial position of the company is considered satisfactory.

PRIMARY SECURITY

Hypothecation of present & future stocks of Raw Material, Stock in Process, Finished Goods,
Stores & Spares and receivables and other current asset.

8. C COLLATERAL SECURITY (Rs. in lakh}

SN NATURE OF SECURITY RV Valuer’s name &

MV
valuation date

TOTAL 755.04 627.86

Security (MV): Rs 755.04 lakh, (RV): Rs 627.86 lakh

The mortgage of company’s land and building as at 1 above has also been extended to secure the
term loan in favour of group concern for a T/L of Rs.600 lakh, with outstanding of Rs.194.72
lakh as at 14.02.2006 sanctioned by our bank.

To further secure the limits sanctioned to captioned company at the time of last sanction, it was
proposed to extend charge on EM of land & Building presently Mortgaged in the term loan of
the Society. Charge as above stands extended. (WDV of Block Assets of Rs.6.93 crore as on
31.03.2005).

POSITION OF ACCOUNT AS ON 23.03.2006 (Rs. in lakh)

3
Nature of limit Limit VS DP O/S Irregularity
Fund Based
CC(H & Book Debt)/ FCL 800.00 2069.25 800.0 571.51 Nil
(Incld... Allocated limit of Rs.25 Lakh 0
at B/o Ambedkar Marg, Ghaziabad
PC (100) Nil
Clean DD (50) Nil
FOBNLC/FOBP/FOUBP/FOUBNLC (125) Nil

Grand Total 1950.0 1568.55 Nil

0

REVIEW OF ACCOUNT- CASH CREDIT (Rs. in lakh)

PERIOD LIMIT AVAILMENT S U MA T I O N S

MAX. MINI. DEBIT CREDIT
1.4.03-31.3. 04 535.00* 758.96 Credit 9235.58 9010.76
1.4.04-31.3. 05 1100.00 1054.05 Credit 12514.52 12034.19
* Increase to Rs.1100 lakh from Feb.’04 and subsequently reduce to Rs.800 lakh.

INCOME VALUE OF ACCOUNT (Fig. In Lakh)

Period Limits Interest

01.04.04 to 31.3.2005 FBWC 800.00 60.19
30.56
TOTAL 90.75

CONDUCT OF ACCOUNT

a. Status of compliance of terms and All Terms and Condition of last sanction
Conditions of last sanction. Dt. 13.01.2005 have been complied with.
b Status of availment of limits and Availment in limits had been to the full
. overdrawing, if any: extent of sanctioned limit during the

4

c. Status of routing of proportionate business
in consortium advance & relationship in
sales and credit summation.
d Status of honoring of commitment in N.F.B.
. Limits.
e. Status of submission of stock report, QMS,
other financial information (including
audited/provisional balance sheet)
f. Status of checking of stock/ securities.
g Deviations in general guidelines, if any.
.
h Details of other adverse features observed.
.
review period.
The company is dealing exclusively with
our bank and sale/export proceeds are
routed through our bank.
----------------Nil--------------
The company is submitting the
information in time.
Stock/Securities are being checked as per
terms of sanction.
------------- Nil -------------
------------- Nil -------------

INDUSTRY SCENERIO & BUSINESS PROFILE.

The consumption of Steel in India is expected to reach around 55-60 Million Tones by the year
2008, nearly double the current level. There has been tremendous increase in the steel throughout
the world. The demand for steel tubes has also increased with the taking up of various
infrastructure projects by various Central/State Governments. The steel tubes infrastructure
witnessed growth during the current year and likely to see boom in the next few years. The
Government is giving continuous thrust on housing and infrastructure sector where Steel Tubes
are used. The existing refineries are expanding their capacities and new refineries are coming
into the scene. In future there seems to be a tremendous scope for industry of steel tubes. With
the cheaper availability of finance and Tax Incentives, it is expected that housing sector will get
a major boost. In view of the same, the long term outlook of Steel Tubes Industry looks positive
and bright.
NOTE ON ASSESSMENT OF PERMISSIBLE BANK’S FINANCE
The Performance of the company during the last two years, estimates for current year and
projections for next year are as under: (Rs.in lakh)
31.03.2004 31.03.2005 31.03.2006 31.03.2007
Estimates Projections

5
 accepted in
last sanction
Projected Sales
Domestic 4400.00 6750.00 7250.00 8900.00
(8400.00)
Export 425.00 250.00 250.00 150.00
(150.00)
TOTAL 4825.00 7000.00 7500.00 9050.00
(8550.00)
Figures in bracket as above denotes now revised sales projections.

31.03.2004 31.03.2005 31.03.2006 31.03.2007

Estimates Projections
accepted in
last sanction
Sales Achievement
Domestic 5025.25 8860.26
Export 181.57 148.31
TOTAL 5206.25 9008.57
% of Achievement 107.90% 129%
Projected NWC 732.82 817.63 923.78 932.78
Actual NWC 748.60 820.92

The sales of the company during 2003-04 & 2004-05 have improved over the previous years.
During 2003-2004 actual sales of Rs.5206.82 lakh are against the estimates of Rs.4825.00 lakh
thereby surpassing the sales estimates by 7.90%. Similarly during 2004-05 actual sales of
Rs.9008.57 lakh are against the estimates accepted Rs.7000 lakh thereby surpassing the sales
estimates by 29%. Major chunk of the Company’s sales comes from Govt. Sector and Industrial
Consumers.

Sales during the nine months period ended 31.12.2005 are Rs.6037 lakh against the full year
projections of Rs.7500 lakh which if annualized comes to 107.32% of full year projections of
Rs.7500 lakh. The company has however; looking at the past trend revised the sales estimates

6
for the current year (2005-06) to Rs.8550 lakh (including exports of Rs.150 lakh) and is hopeful
of achieving the same.

Sales growth during last year (2004-05) was much more than expected as the company had got
Govt. supply orders worth approx. Rs.30 crore which may vary from year to year. The company
however, wants to be realistic in sales projections and hence has projected sales for the current
year (2005-06) at a lower level than the actual sales during 2004-05.

Similarly the Company has projected sales of Rs.9050 lakh (including exports of
Rs.150 lakh) for the following year (2006-07), which seems to be achievable.

Summary on reasonableness current assets / liabilities. (Rs. in Lakh)

Inv 31.03.04 31.03.05 31.03.2005 31.03.2006 31.03.2007
entry item Audited Revised Actual Estimated Projected
Accepted
Raw Material 552.46 580.00 409.38 570.00 590.00
[1.48M] (1.32M) (0.70M) (1.03M) (1.03M)
Stock in Process 245.52 320.00 376.06 510.00 550.00
(0.62M) (0.70M) (0.63M) (0.92M) (0.95M)
Finished Goods 93.24 110.00 225.38 350.00 400.00
[0.24M] [0.24M] (0.38M) (0.50M) (0.53M)
Receivables – Domestic 775.65 900.00 867.53 950.00 1020.00
[1.62M] [1.60M] (1.17M) (1.36M) (1.36M)
Advance to suppliers 166.66 170.00 43.44 50.00 60.00
Other Current Assets 351.84 227.63 190.00 268.78 306.78
TOTAL C.A. 2018.71 2307.63 2111.79 2698.78 2926.78
CURRENT LIABILITIES
Trade Creditors 48.72 630.00 750.00
Advance from Customer 35.81 40.00 95.00
Statutory Liabilities 33.00 45.00 50.00
Other Current Liabilities 371.63 60.00 99.00
TOTAL C.L. 489.16 775.00 994.00

Comments on Break up of Current Assets

Raw Material

7
The borrower has revised the projected holding of raw material & packing material to 1.32
months consumption as against 1.50 months for 2004-05 which were accepted by ZO as per
sanction dated 13.01.2005. Actual there against is 0.70M. The company has informed that they
have been keeping the inventory levels at bare minimum level for the best possible utilization of
resources. For the next FY 2005-2006 the RM holding have been projected at 1.03 months and
for 2006-07 also at 1.03 months because Major quantity of raw material are procured from SAIL
& Hindustan Zinc Ltd. in lots. RM holding level estimated/ projected is below the actual holding
level as at 31.03.2004 but the same is little higher than the actual as at 31.03.2005 Looking at the
past three year’s trend of holding levels, the estimated/projected holding level for 2005-2006 &
2006-07 have been considered as reasonable.

Stock in Process

At the time of last sanction SIP level was accepted at 0.70 months (revised) consumption for the
current year 2004-2005. Actual there against is 0.63 months. For the year 2005-2006 the holding
level has been estimated at 0.92 months and for 2006-07 at 0.95 months. Looking at last
accepted level and past trend of holding level, estimated level for 2005-2006 and projected level
for 2006-07 have been considered as reasonable.

Finished Goods

At the time of last sanction, FG level was accepted at 0.24 months consumption for the year
2004-2005. Actual there against is 0.38 months. For the year 2005-2006 the holding level has
been projected at 0.50 months and for 2006-07 at 0.53 months. Actual lower level in the past had
been mainly due to Govt. supply orders for which the company was not required to maintain
high level of inventory. Though the company is expecting Govt. Supply orders, the projections
are on conservative basis without considering the Govt. Supply orders. As such, estimated /
projected levels have been considered as reasonable.

Receivables

At the time of last sanction, level was accepted at 1.60 months for 2004-2005. Actual there
against is 1.17 months. For the year 2005-2006 and 2006-07 the holding level has been projected

8
at 1.36 months. Looking at past trend, the projected holding level for 2005-2006 and 2006-2007
has been considered as reasonable.

Consumable Stores & Spares

The Company maintains consumables equal to one-month requirements which looking at the
nature of activity and operation level seems to be reasonable.

Other Current assets

Advance to suppliers were accepted at Rs.170 lakh as against actual of Rs.166.66 lakh of 2003-
04. However, actual advance to suppliers is Rs.43.44 lakh as at 31.03.2005. The company has
now projected advance to suppliers at Rs.50 lakh for 2005-06 and at Rs.60 lakh for 2006-07,
which are in, tune with actual of 31.03.2005 and have been considered as reasonable.

The revised level of Other Current Assets (OCA) was accepted at Rs.227.63 lakh for 2004-05.
Actual there against is Rs.190 lakh. The estimated/-projected level for 2005-06 and 2006-07 has
been accepted at Rs. 268.78 lakh and Rs. 306.78 lakh respectively.

Break-up of OCA is as under: (Rs. in lakh)

2005-06 2006-07
Fixed Deposits with Banks 94.00 95.00
Advance payment of taxes 40.00 50.00
Other current assets 134.78 161.78
(Consumable Stores & Spares (105.00) (135.00)
Total 268.78 306.78

Comments on Break up of Current Liabilities

At the time of last sanction, the Creditors level was accepted at Rs.500 lakh for the year 2004-
2005 & Rs.520 lakh for the year 2005.06. Though actual level of Sundry Creditors as at
31.03.2005 was lower at Rs.48.42 lakh, yet the company has projected higher trade creditors at
Rs.630 lakh for 2005-06 and Rs.750 lakh for 2006-07 in anticipation for availing higher credit
from suppliers.

9
 COMPUTATION OF MAXIMUM PERMISSIBLE BANK FINANCE
On the basis of sales turnovers for the financial year 2006-07, ZO has assessed MPBF of
Rs.1000 lakh for 2005-06 and for 2006-07 as under :- (Rs. in lakh)
2005-06 2006-2007
Estimates Projections
1.Current assets 2698.78 2926.88
2.Less: Export Receivables Nil Nil
3.Current Assets net of export receivables 2698.78 2926.88
4. Current Liabilities (Other than Bank Borrowings) 775.00 994.00
5.Working Capital Gap 1923.78 1932.88
6.Minimum Stipulated NWC 25% of 3 674.70 731.72
7.Actual /Projected NWC 923.78 932.88
8.Item 5 minus 6 1249.08 1201.16
9.Item 5 minus 7 1000.00 1000.00
10.Working Capital Limits (FB) 1000.00 1000.00

OTHER ISSUES

Rate of Interest

ED on 30.11.2005 has approved reduction in ROI to 9% (linked to BPLR) as against the

applicable ROI of 12.25% p.a. (BPLR + 1.50%) in the account of the company subject to the
condition that account of the group concern M/s Vasudeva Educational Foundation Society
remaining with us at existing ROI. ZM has recommended for continuance of interest at 9%
(BPLR linked) for the proposed enhanced limits also. We are recommending ROI @ 9.5% p.a.
(linked with BPLR) as against the existing and proposed ROI @ 9.00% p.a.

OTHER CHARGES
Processing fee : 25% concession (as against existing and proposed 50% of applicable
charges).

10
Commitment charges: 75% (To be considered by ZM at his level)

11
Credit Risk Rating/ Loan Policy of the Bank

Financial Evaluation Industry

Past Financials – Industry LQ - [M- UQ+[UQ-
Comparison Co Value Rate LQ]/2 LQ M UQ M]2
Category Parameter 0 1 2 3 4
Growth Rate 3
yrs Gross Sales growth rate 15.71 1.37 8.74 12.76 20.81 29.03 33.14
Profitability OPBDIT/Sales"%" 3.06 1.08 2.43 2.97 4.05 9.42 12.11
Short term bank borrowing / Net
sales "%" 8.28 2.98 16.16 14.52 11.25 8.22 6.71
Cash Flow Operating cash flow/ Total Debt "%" 30.85 3.35 -8.88 0.67 19.76 29.21 33.94
Net operating cash flow/ Total Debt
"%" 15.92 2.76 -21.51 -14.09 0.75 20.84 30.89
Past financials – Absolute
comparison
Category Parameter
Solvency Debt equity ratio 0 4 >3 2-3 1.5 - 2 0.5 - 1. < 0.5
TOL/TNW 1.73 3.51 >5 4-5 2.5 - 4 1 - 2.5 <1
1.25 -
Liquidity Current ratio 1.43 2.72 <1 1 - 1.25 1.5 1.5 - 2 >2
Debt 1.5 - 2.5 -
Coverage Interest coverage 1.86 2.36 <1 1 - 1.5 2.5 3.5 > 3.5
Return on capital employed "ROCE" 8% - 12% - 15% -
Profitability "%" 8.96 1.24 < 8% 12% 15% 25% > 25%

12
Category Parameter Comments Rate
Aggregate of contingent liabilities were 31%
Future risk Category of TNW 3.00
Operating cash flow was positive during the
Cash flow year 2005-06. The deficit, if any, will be met
adequacy from long term/short term debt funds 2.00
Reputed auditor audited the account and
Subjective standard accounting principle followed. There
assessment of transparency in are no qualification except for non-provision
financials accounting of gratuity, about Rs 0.14 cr., on accrual basis 2.00
quality of The realizable value is estimated at 9% of the
inventory book value. 3.00
Net debtor’s o/s for more than 6 months was
Reliability of Rs 0.34 cr. i.e., 3.82% of the total debts.
debtors Variation is estimated at < 5 of book value. 3.00

Trend adjustment Rate last last -1 last -2 last -3

Adjustment
for financial
trends Net sales 4.00 78.84 78.63 52.07 51.36
PBDT less non
recurring income/
expenditure 4.00 1.16 1.14 0.95 0.76
Operating cash flow/
Total Debt "%" 4.00 0.31 0.40 -0.20 -0.20
Tangible net worth 3.01 9.40 8.90 8.44 8.05

13
Business evaluation for steel Co. LQ - [M- UQ+[UQ-
products industry value Rate LQ]/2 LQ M UQ M]/2
Operating efficiency
evaluation
Operating leverage 1.41 2.44 1.65 1.59 1.46 1.32 1.24
Inventory turnover 7.53 2.46 5.17 5.64 6.59 8.64 9.67
Net sales / op. assets 2.67 2.96 0.65 1.03 1.8 2.71 3.17
Raw material consumed/ Net
sales 0.88 2 0.93 0.91 0.88 0.73 0.66
50.1 38.6
Credit period allowed 35.45 2.26 55.85 2 6 26.09 19.81

Market Position
evaluation
Competitive Position
Expected sales growth
Market Dominance/
Markert share
Trends in market share
Input related risk
Availability of raw
material and other critical
inputs
Proximity to raw material
Production related risk
Capacity utilization
Comments Rate
2.00
There was a sales growth of around 8% in
manufacturing activity though overall gross sales
have not increased due to decline in trading sales.
Company has made similar projection for 2006-07 2.00
The ERW pipe segment is mainly dominated by local
players in the country and this company is an average
player. 2.00
Sales of manufactured product have increased in
terms of quantity and amount, indicating that the
company has maintained its market share. 2.00
2.00
Main raw material required is steel strips/scrap, zinc
etc. and are easily available in the domestic market
and acan also be imported. 2.00
The main raw material is procured from SAIL, which
is having its go-downs at various locations. Location
of plant is comparable with the peers 2.00
2.00
Capacity utilization has exceeded the installed
capacity. 2.00

14
 Company is using average technology comparable
State of technology used with peers 2.00
Product related risk 2.50
The company is presently manufacturing steel
tubes/pipes of various sizes and is considered at par
Product range with peers. It is also trading in scrap. 2.00
Company's product is good and well accepted in the
Product quality market 3.00
Price Competitiveness 1.50
Economies of scale Considered at par with peers 2.00
Company is operating on thin margin and is placed
below the median level as regarded profitability and
Pricing flexibility flexibility in pricing its products 1.00
Marketing 2.00
Selling and distribution The company is having average marketing network of
network agents/ dealers at par with the peers 2.00
The plant of the company is located in Charcoal near
Proximity to market Ghaziabad, which is in close proximity to the market 2.00

Industry risk evaluation for steel

products 50%

Management evaluation – Co.

Objective value 0 1 2 3 4 Rate
Actual gross sales "in Rs crores" 90.42 90%
75%- 80%- -
Targeted sales "Rs crores" 75.00 <75% 79% 89% 95% >95% 4
Actual PBT "Rs crores" 0.81 90%
75%- 80%- -
Target PBT "Rs crores" 0.72 <75% 79% 89% 95% >95% 4

Management evaluation - Subjective Comments Rate

15
 Closely held family driven company. The
Management set up and corporate promoters are experienced business
governance people. 2

Commitment and sincerity Satisfactory 2

Track record in debt repayment Accounts of the company are regular 3

The industrial relation are reported to be
Track record in industrial relations cordial 3
Financial strength/ flexibility/ group Management is capable of arranging fund
support with a time lag. 2

Conduct of account evaluation Comments Rate

Status of account Standard account 3
Operation in account are
satisfactory and no devolvement/
Operations in account invocation. 3
Submission of financial data / Timely submission of financial
statements data and statements 3

Total score
% score Weighted
obtained Weight score
Finnacial Evaluation 55.37 40% 22.15%
Business industry evaluation 54.29 25% 13.57%
Management evaluation 71.25 25% 17.81%
Conduct of account 75 10% 7.50%
Aggregate score 61.03%
Final Rating of company A

The account has been risk rated by RMD HO as `A-‘ (Modest Risk) with a score of 61.24%
based on ABS as at 31.3.2005.

The proposal conforms to the Loan Policy of the bank.

OTHER RECOMMENDATIONS

16
In view of the satisfactory past conduct and financial position of the company and that it is risk
rated as `A’, we endorse ZM’s recommendations for:

1. Enhancement in FBWC limits from Rs.800 lakh to Rs.1000 lakh.

2. Approval of other issues viz.
• ROI @ 9.50% p.a (linked to BPLR) as against the existing and proposed at 9% p.a.;
• Minimum ROI shall be 9.50% p.a. (linked to BPLR) and Bank shall have right to modify
the same at any time.
• Cash Margin on BG limit to be maintained at 10% (existing same). However, ZM to
consider the following matters within his powers, on merits:
• Concession in inter-sol transaction charges for CBS accounts held by the company at
Ghaziabad, and Bombay Branch.
• Allocation of CC limit of Rs.25 lakh at BO: Ambedkar Marg, Delhi.

17