Beruflich Dokumente
Kultur Dokumente
Submitted by
T.SAI KUMAR
171319
Submitted To
Prasanth. K
1
2018
Name: Ishwar
Company address: Flat A-3, Ground Floor, Plot No 326, Lakshmi Nilayam,
Teachers Colony St, Teachers Colony, Begumpet, Hyderabad, Telangana
500016
Website: www.springforthcap.com
2
DECLARATION
I hereby declare that this Project Report titled Online Vendor Bill Discounting submitted by
me is a bonafide work undertaken by me and it is not submitted to any other Institution or
university for the award of any degree/diploma certificate or published any time before.
3
Executive Summary:
This project is all about the process of bill discounting and the current market is running in this
sector. After analysing this project, we can come to know that exact position of the bill
discounting market.
At present the main problem facing by the Indian economy is - Despite the important
role played by MSME’s in India’s overall economic growth, they continue to face constraints
in obtaining adequate finance, particularly in terms of their ability to convert their trade
receivables into liquid funds. So, to overcome out of this problem many companies came into
existence and tried to solve by providing loans to them in the form of discounting and factoring.
At the end of the project it is mentioned about a company which our company helped to get a
working capital loan of 30crs from RXIL a bill discounting company.
Also, this project speaks about MSME sector because the main vendors
are MSME banks and what are the challenges faced by them. After reading this project report
everyone will come to know about the practical structure of bill discounting system in India
and cost structure of different companies involved in this sector. Also, we can come to know
about the advantages and disadvantages from bill discounting.
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Table of contents
S. No TOPIC Pg.no
3 My Project 14-25
-Introduction to the Project
-Work Area Deliverable
-Work area Outcome
7 Bibliography 50
5
List of Tables
6
List of Figures
S. Indication of the Figure Figure no. Page No
No
3 Industry Diversification 3 17
4 TReDS process 4 21
5 Types of Agreements 5 22
7
PMCI ANALYSIS
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Product: Bill discounting is a discount/fee which a bank takes from a retailer to release
money. This is the money which bank asks before the credit period terminates. The bill is later
offered to seller’s customer and complete amount is composed. It is valid in situations when a
customer purchases goods and makes payment via letter of credit. For discounting of bill, the
credit period may vary from 30days to as high as 120days. Based on the credit value of the
buyer and the risk involved in the bill, the bank carries out the discounts of the amount. Bank
then receives this amount at the completion of credit period.
The bills or invoices that are included under the bill discounting are
formally the ‘Bill of exchange’. A bill of exchange is a tool which is used only by approving
the name. For example, we can consider our currency as a bill of exchange. The currency offers
value printed over it is funded to the bearer. In the instance of discounting on bill, these kinds
of bills can be either owed to the bearer or due to the order. So, after discounting a bill, a bank
can get the bill re-discounted from different banks for cash flow constraint.
Invoice Factoring: Factoring is a financial transaction and a type of debtor finance in which
a business sells its accounts receivable (invoices) to a third party (called a factor) at a discount.
A business will sometimes factor its receivable assets to meet its present and immediate cash
needs. It might also factor their invoices to mitigate credit risk. Factoring is commonly referred
to as accounts receivable factoring, invoice factoring and sometimes erroneously accounts
receivable financing.
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Difference between Invoice discounting & Invoice factoring: They both are
financial facilities that can release the capitals with the help of unpaid invoices. Factoring is
applied by smaller business, for example, a start-up business or a small firm. Invoice
discounting is considered by larger and more reputable firms.
Selling of bills at a discount to the bank before its maturity is known as Bill
Discounting. Selling of the debtors to a financial institution at a discount is Factoring.
The main difference between these two depends on controls the sales ledger and
accountability for getting payment.
Discounting is treated with Bills of the company, but the factoring can be done with
any of the trade debts
Another difference between these two is in the range of confidentiality. Through
factoring, the customer resolves their invoice straight with the factoring company. Due
to this, customers are more probable to be conscious of your factoring plan
Difference between factoring and reverse factoring is the type of security used in
advancing funds. In reverse factoring, the factor uses accounts payable, which is the
total money owed by the buyer as security for advancing funds. However, in factoring,
the repayment source is accounts receivable, which is the total amount a supplier is
entitled to for goods or services delivered.
The initiators of factoring and reverse factoring are not the same. The process of invoice
factoring is initiated by the supplier but in reverse factoring, the process is initiated by
the buyer as a means of assisting their suppliers to easily finance its receivable
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Process of Bill Discounting: For every bill to be get it discounted there is processing to
be followed. The following is the structure of bill discounting process.
The seller sells the goods on credit basis and raises invoice on the buyer.
The buyer accepts the invoice. By accepting, the buyer acknowledges paying on the
due date
Seller approaches the financing company to discount it
Financing company assures itself of the legitimacy of the bill and credit worthiness of
the buyer
The financing company avails the fund to the seller after deducting appropriate margin,
discount and fee as per the norms
Seller gets the funds and uses it for further business.
On the due date of payment, the financial intermediary or the seller collects the money
form the buyer (depends on the agreement between the seller and the financing
company)
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Market: Generally, there are two types of markets in relating to bill discounting and can
have named them as:
1) Discount Market
2) Acceptance Market
1)Discount Market: Discount market refers to the market where short-term genuine trade
bills are discounted by financial intermediaries like commercial banks. When credit sales are
affected, the seller draws a bill on the buyer who accepts it promising to pay the specified sum
at the specified period. The seller must wait until the maturity of the bill for getting payment.
But, the presence of a bill market enables him to get payment immediately. The seller can
ensure payment immediately by discounting the bill with some financial intermediary by
paying a small amount of money called ‘Discount rate’ on the date of maturity, the intermediary
claims the amount of the bill from the person who has accepted the bill
2)Acceptance Market: The acceptance market refers to the market where short-term
genuine trade bills are accepted by financial intermediaries. All trade bills cannot be discounted
easily because the parties to the bills may not be financially sound. In case such bills are
accepted by financial intermediaries like banks, the bills earn a good name and reputation and
such bills can readily discounted anywhere. In London, there are specialist firms called
acceptance house which accept bills drawn by trades and import greater marketability to such
bills. However, their importance has declined in recent times. In India, there are no acceptance
houses. The commercial banks undertake the acceptance business to some extent
Company: The following are the three companies that RBI has given license to involve in
Vendor Bill Discounting:
Apart from the above companies there are some more private companies which are involved
in bill discounting
4) Drip capital
5) Kredex
6) Indifi
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Industry: This Industry has drawn more consumers to draw the bills due to limited access
to credit and higher demand for more flexibility. Industry offering leads to improve working
capital access for clients at a faster rate than traditional bank lending. In addition to that demand
for short-term solutions to manage working capital, such as invoice discounting is expected to
decline over the five years to 2022. According to some research reports Revenue of this
industry is $5BN at the annual growth rate of 0.2%.
Bill discounting can be done globally by a name called Export bill discounting. It means for
example the bank of china buys from the exporter the undue time draft accepted by banks or
the undue debt claim honoured by the banks under the expert L/C or the undue debt claim
guaranteed by banks under the documentary collection. In this case, I the issuing bank fails to
pat the pay at maturity, Bank of China has the right of recourse.
Clients have increasingly turned to external competitors to maintain control over sales
ledger
Many hidden charges from operators discouraged many small business owners from
using bill discounting
The growth in accounts receivable financing has come with criticism.
Introduction to RXIL:
Receivables Exchange of India Ltd (RXIL) was set up on February 25, 2016 as a joint venture
of Small Industries Development Bank of
India (SIDBI) and National Stock
Exchange of India Limited (NSE), with
an objective to operate India’s First Trade
Receivables Discounting System
(TReDS) - an online platform for financing of receivables of Micro, Small & Medium
Enterprises. RXIL commenced operations on January 09, 2017.
TReDS is an online digital platform primarily meant for MSMEs to auction their trade
receivables against large Corporates including Govt. Departments and PSUs at competitive
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rates through online bidding by multiple Financiers (Banks and Factoring Companies). The
main objective is to address the critical needs of MSMEs i.e. promptly finance trade receivables
and financing their trade receivables based on Buyers credit rating. Also, it is without recourse
to MSME Vendor.
• TReDS will enable discounting of invoices/bills of exchange of MSME Sellers against large
Corporates including Govt. Departments and PSUs, through an auction mechanism, to ensure
prompt realization of trade receivables at competitive market rates
• In this, MSME bills against large companies could be accepted electronically and auctioned,
to ensure prompt realization of trade receivables at competitive rates.
• Consequently, SIDBI in collaboration with NSE, took the initiative to set up an E-discounting
platform to support financing of MSME receivables.
Salient features:
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MY PROJECT
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Introduction to MSME: MSME’s play a crucial role in Indian Economy. It produces
diverse range of products & Services and contributes to add value across different sectors
MSMEs contributes 30% to the counties GDP from FY12 to FY15 and are the backbone to the
overall economic growth and contributes to employment generation in India. It also acts as a
growth driver for the Indian Economy.
On observing the above graph, we can understand that there is an increase in growth rate of
service part in MSMEs i.e. from 23.8% to 24.6% and there is a decrease on Manufacturing
sector i.e. from 6.2 to 6.1
As above said- In India contribution of MSMEs (not registered and registered) tp India’s GDP
is 30% but the share of registered ones is 8%. In comparing, share of MSMEs to the GDP of
major economies in India. Thus, MSMEs have a potential for future growth as the contribution
of registered ones in India is still low as compared across the leading economies of the world.
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Industry Diversification of NIFTY SME Emerge Portfolio Leads to lesser
Concentration:
NIFTY SME EMERGE is a diversified portfolio spread across 14 sectors. Services, Textile,
IT and Consumer Goods sectors are few of the top sectors with a combined weight -55% in
the index as on September 2017.In the same way, top 10 sectors have a combined weight of
91.4% of the index with the bottom 4 sectors weights adding up to 8.6%.
Indian Ecommerce market is extending at a quick race. It is also helping in
MSME growth eventually. The advanced commerce market in the country has developed
persistently from $4.4billion of 2010 to $13.6 billion out of 2014 while the worldwide market
is determined to reach $1.5 trillion out of 2014. Given the capability of MSME segment in
India, a few great moments have seen in the private business portions and the MSME area
has picked up significance among these players.
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Challenges Faced by MSMEs:
Individual Sectors have the tendency to face their own challenges, as real estate has
seen many downfalls in past few years. Due to disturbance in west Asian countries
and fewer demands in European countries exports industries have seen the reduction
in their business too which have turn unfavourably for small and medium enterprises.
The companies which are under the problem of growth have a different type of
problems which they need to deal with especially with ‘Financing’. A survey was
conducted with 15000 companies from various sectors. The common point that every
company showed that SMEs exposed to bank credit were immensely falling due to high
interest rates. In-order to overcome these challenges, SMEs tried through different
financial options like- Foreign banks, Debt funding, Equity Funding, Grants, NBFC
loans
MSMEs require timely and adequate capital infusion through term loans and working
capital loans, particularly during the early and growth stages. So RXIL came into
existence to solve this working capital issue
Problem: Despite the important role played by MSME’s in India’s overall economic growth,
they continue to face constraints in obtaining adequate finance, particularly in terms of their
ability to convert their trade receivables into liquid funds. To solve this issue Receivables
Exchange of India Ltd (RXIL) came into existence
India’s first blockchain- based network went live, when three online bill-discounting exchange
platforms came together and implemented a solution for their operations. RBI has introduced
TReDS to facilitate financing trade receivables of micro, small and medium enterprises from
corporate buyers through multiple financiers. The project has been implemented without any
cryptocurrency being used for settlement.
Impact of RXIL:
TReDS has successfully executed financing of trade receivables of MSMEs and successfully
settled both financing and repayment legs through NPCI NACH Debit and Credit Settlement
System as mandated by RBI.
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As on May 31, 2018, 69 Buyers, 196 MSME Vendors and 28 Financiers were registered on the
TReDS platform & 7387 invoices aggregating INR 338 crore have been factored. 19 PSUs
have also executed the Master Agreement till date.
The TReDS Platform of RXIL is expected to be a catalyst in the growth of MSMEs by bringing
in transparency in the business eco-system and addressing the issue of delayed payments for
MSMEs. Through this many of the people are getting benefitted. The following are the are
some of parties involved and the benefits got by them in this:
Parties:
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Benefits to MSME Financier:
Verification
Onboarding fees
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TReDS Process:
Cost
In Auction - RXIL Generates
Bearer(Seller/Buye
Financiers Bid Obligations
r) Accepts Bid
Bank
RXIL 10000000 9% 45 365 110959
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Consider an example of taking working capital loan. If the loan amount 1cr is taken
from bank for a duration of 45 days, interest charged by banks is 15% and the total
financing cost will be 1,84,932
Taking the same loan from RXIL leads to lesser amount of interest cost due to
competition among financiers and therefore a firm can get a benefit of Rs.73973
In case if the firm wants to pay the higher interest and takes the loan from banks, then
it can repay the loan amount in 75 days but not in 45 days. So, the company can generate
revenue by investing money for some more time
TReDS Agreement:
Financier
Sponsor
Bank
There are many agreements formed between in this TReDS process i.e. in between MSME
Seller and RXIL, RXIL and MSME buyer, between banks and RXIL, Financiers and Bank etc.,
all these are the mandatory agreements formed between different parties to get the TReDs
process done.
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Comparison of Onboarding fee between M1X and RXIL:
Eligibility criteria for setting up and operating TReDS is that it will not be allowed to
assume credit risk and minimum paid up capital shall be Rs.100Crs. In addition to that
TReDS should have a net worth of Rs.100 crore at all the times
The promoter’s minimum initial contribution to the paid-up equity capital of TReDS
shall be at least 40% which shall be locked in for a period of five years from the date
of commencement of business of TReDs
The following are the different amounts charged to buyer and vendor separately and the default
assumption is that vendor will bear the transaction cost (May vary based on the agreement
between buyer and seller)
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Fees/Charges Buyer MSME Vendor
Registration
Fee Rs.25,000 Rs.10,000
(One time)
Annual Fee
(Yearly)
Rs.25,000 Rs.10,000
Transaction NIL
Charges (Considering 0.35% p.a.
(One Factoring Vendor is
Unit) bearing the cost)
Figure 6: Cost Structure of RXIL
Revenue Sharing: Though there is a different cost structure for both the companies they
are giving a great competition in the market and occupying good percentages in terms of
revenue. The following is the revenue sharing comparison between the companies RXiL and
M1X
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REVENUE SHARING COMPARISON
M1X RXiL
117.3725
117.25
REVENUE ( IN LAKHS )
56.1225
56
7.1225
2.7125
2.625
0.525
3.5
2.5
2.5
7
1.5
1.5
0.5
0.5
The revenue of the company is increasing if the volume of transaction increases from
0.5Lakhs.0.525Lakhs to 3.5Lakhs and 118 Lakhs for both M1X and RXIL respectively. If we
observe the graph from initially the revenue is little bit high for RXIL rather than M1X as
because RXIL has many vendors to supply loan for the needy people.
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Introduction to Springforth Capital Advisors: Basically, Springforth offers two
types of diversified financial services:
1. Investment Banking
2. Investment Management
1.Investment Banking: It is a mix of Investment banking and strategic consulting services and
includes:
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In part of Strategic consulting services Springforth is offering
Investment approach: SIM has been launched keeping faith in India’s ever-growing
consumer markets to accelerate and nurture Food, Agri and logistics Start-ups. The typical
profile is as follows:
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Portfolio Companies: Following are the some of the companies which are under the portfolio
of Springforth Investment management-
I. Last Mile- It is a start-up based out of Hyderabad which focuses on last mile fulfilment.
It is creating network at Mandal and village level to cover each pin-code in South-India.
II. Tummy kart: It provides 24x7 A la carte food options and customized lunch meals
with subscription facility from its own fully-equipped kitchen in Hyderabad. with more
than 50 years of combined experience, Tummy Kart has come up with sumptuous
delicacies that are swiftly delivered at customer’s doorsteps
III. Return Trucks: Return Trucks, is an award winning innovative platform connecting
goods and truck owners for an economic, effective and timely engagement. RT is
committed to work in the large road-transportation eco-system and be a technology
enabler to build in efficiency in the transportation business
IV. RenoWala: Home Improvement enthusiast in India will have a new customer
experience of getting their home a makeover and get all those services to improve the
new feel of your property. RenoWala is to provide for all the requirements to be met
from every work aspect of Home Improvement. Services will also cover hotels, schools,
offices, hospitals, restaurants and many more.
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Sector Allocation: Recently the company had launched a 100cr fund by attracting investors
in various fields and decided to invest in the following way.
The main aim this fund is to collect 100crs from various investors, CEO’s, CFO’s, CIO’s of
various family offices, insurance companies in various cities like Mumbai, Delhi Chennai,
Bengaluru etc..., across the country.
The collected amount will invest in agriculture, Food, Logistics sectors in the
above shown way. The company is trying to complete its first close by the end of the July.
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The following is the fund Structure that has been launched by the SIM recently.
Investment Banking Sector: It is a specific division of banking related for the formation
of capital for other companies, governments
and other entities. It underwrites new debt
and equity securities for all types of
corporations and to facilitate mergers and
acquisitions for both institutions and private
investors. It also provides guidance to
issuers regarding the issue and placement of
stock. Major reasons behind investment
banks to invest into India is its low operating
cost model because of availability of cheaper
Figure 9: Functions of Investment Banking
workforce.
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Market Share of Investment Banking:
The following chart compares the market share of revenue of largest global banks globally as
of December 2017. As it shown the revenue of JP morgan is 8.1% of the global investment
banking revenue
Main role of this sector is to take care of government, companies and other market participants
in raising capital. These banks take the role of transaction underwriter and making sure that the
evolution of bonds or stocks is executed optimally on buying and selling side. It means the
prices of emitted securities are not too low or not too high and that there are enough investors
to purchase of these securities.
JP Morgan and Goldman Sachs were the top leading companies in the world in
terms of revenue generation with 8.1 and 7.2% respectively Other leading investment banks
were Bank of America Merrill Lynch and Morgan Stanley. The revenues of JP Morgan
amounted approximately 6.63 billion U.S. dollars in 2017, whereas Bank of America Merrill
Lynch generated about 5 billion U.S. dollars.
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Company:
Springforth Capital Advisors is a mid-market focused sector agnostic boutique advisory firm
founded and run by corporate professionals aggregating 50+ years of work experience across
investment banking, logistics and corporate finance spectrum
Recent Developments
SIM is also set to launch a ₹100-crore fund that will invest in early stage companies in the
agriculture, food and logistics companies. To be named Springforth Agri Food and Logistics
(SAFAL), it will help these firms to reach the Series A funding stage. Richard B Saldanha,
former Vice-Chairman, Blackstone India and former Chairman Unilever, Peru is the Chairman
of SIM.
Financials:
The total revenue of Springforth Capital Advisors Ltd as on 2014 march was 7.49 INR
million.
The total assets value is 2.71INR Million and net current assets value is 2.30 INR
Million.
Cash flow from operations is -4.08, cash flow from investing activities is -0.10, cash
flow from financing is 4.16 INR million.
Ratio Analysis
Current ratio 1.68
ROCE% 13.65
Trends in Investment Banking: India was the top destination for private equity (PE)
and venture capital (VC) investors in 2015. The country received a record $22.4 billion in
investments 2015, 31.8% more than the previous highest of $17 billion in 2007, according to a
report by Bain & Co. India Pvt. Ltd. The 2015 deal value marked a 47% increase over the $15.2
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billion India received in 2014. Consumer technology, real estate and banking, financial services
and insurance are the top sectors that attracted investors, accounting for 65% of deal value.
Investments in consumer tech grew 46% to $6.9 billion.
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Deals
happened
in
SPRINGFORTH CAPITAL
ADVISORS
34
Deals happened from Springforth Capital Advisors: Springforth had been creating
platform between these agencies and its clients in helping them to get out of financial credit
such as Eastern group and Sri Saravana Spinning Mills Pvt.ltd. Sri Saravana Spinning mills is
trying to get working capital loan of 30crs from RXIL with the help of Springforth Capital
Advisors and it is in the early stage.
Sri Saravana Spinning Mills Pvt.ltd: It is incorporated in 1983 and it is in Tamil Nadu.
It is engaged in manufacturing of yarn. Its products include single yarn and two-ply yarn.
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Financial Strength
Overview
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Directors N. Krishnasamy- Founder
Total Shareholders 2
Directors 100%
Total 100%
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EBIT 282.72 260.23 282.82
SOURCES OF FUNDS:
APPLICATION OF FUNDS:
CASH FLOW:
38
Cash Flow from Financing 94.84 (191.68) (371.79)
KEY RATIOS:
39
Figure 11: Financial Performance of Sri Saravana Spinning Mills Pvt Ltd
Overview
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Company EBITDA (2017) (23.14) INR Mn
Company Contact
Company Telephone
Company Email
Directors
Total Shareholders
Directors 100%
Total 100%
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Year End Mar – 2017
EBITDA (23.14)
EBIT (26.83)
PBT (26.83)
PAT (28.36)
SOURCES OF FUNDS:
Total Debt -
APPLICATION OF FUNDS:
Investments 30.96
42
Total Current Liabilities 55.26
CASH FLOW:
KEY RATIOS:
Debt to Equity -
43
Springforth Capital Advisors Pvt.ltd
Overview
44
Pradeep Dhobale- Operating Partner
Total Shareholders 2
Directors 100%
Total 100%
SOURCES OF FUNDS:
45
Equity Paid up 1.77 0.1 0.1
Total Debt - - -
APPLICATION OF FUNDS:
Investments - 0.05 -
CASH FLOW:
KEY RATIOS:
Debt to Equity - - -
46
ROCE (%) 13.65 113.41 133.33
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Relevance of this project to the company:
Springforth is dealing with various type of services and one of those is advising the
clients in relation to investments, working capital
So, as a part of working capital management springforth creates a platform between the
clients and loan provider companies through bill discounting i.e. RXIL
As I mentioned currently Springforth is dealing with a client – SRI SARAVANA
SPINNING MILLS PVT LTD, it also trying to get into a deal with “DODLA DAIRY”
AS a result, with the help of this report I will be able to analyse how exactly the bill
discounting process took place in the practical world
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Learnings from the Project: After completion of this project,
Came to know about the process of bill discounting happens in practical world
Learned about the growth rate, structure of MSME’s in the country
Came to know about the cost structure of different companies in the bill discounting
sector while the time of taking loan through discounting or factoring
Learnt about the various services offered by Springforth Capital Advisors and about
the Investment Banking Sector.
Gained practical knowledge about the deals happened in Springforth with external
clients in relating to bill discounting system
Came to know about how the amount is charged by different companies to various
clients practically
Also learnt about the various types of portfolios, funds involved at present and with
what type of funds does springforth is dealing with while the time of my internship
49
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