COMMERCIAL BANK MANAGEMENT

Practical- 4

Submitted by – Section B
Sandeep Mishra – PGP/21/109
Mohit Mishra – PGP/21/156
Vikas Suman – PGP/21/244
Ghazal Afreen – PGP/21/270
 TERM LOAN
General Profile

Name of the controlling branch Flagship Corporate Centre, New Delhi

1.1 Name of the borrower
1.2 Constitution
1.3 Date of incorporation
1.4 Sector (Public / Private / Jt.)
1.5 Group / House
TATA Advanced Metals Limited
Limited Company
July 06, 1992
Private
TAML is a TATA group company, was originally
incorporated on 10.11.1989 as M/s Matrix Material
Limited. It was subsequently renamed to TAML in 1992.
TATA Industries, a promoter company was set up by Tata
Sons in 1945 as a managing agency for the businesses it
promoted. Following the abolition of the managing
agency system, TATA Industries mandate was recast, in
the early 1980s, to promote Tata’s entry into new and
high tech areas.

Sanction Particulars (if existing account)

Not applicable as this is a new
proposal.

Banking and Financing details

Projected Financing Pattern Consortium Lending

Names of the existing lenders: NA
Dealing with our bank since
Name of the leader bank in case of consortium
Date of last appraisal by the leader bank NA
Date of last review by the leader bank
Date of last consortium meeting

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Salient Financial Indicators & Analysis

Indicators FY2008 FY2009 FY2010

Capital 1.17 16.31 142
Reserves & Surplus 66.48 116.02 0
Intangibles 0 8.81 23.24
TNW 67.65 123.52 118.76
Long term Loan Loan from 6 7.02 103
Banks
Debentures 0 0 0
Unsecured Loans 0 0 5
Total Capital Funds 0 139.35 250
Current Assets 73.75 66.45 76.47
Current Liabilities 48.56 62.69 50.48
NWC 24.29 4.16 25.9
Gross Block 24.27 50.75 219.5
Net Block 29.53 41.02 200.77
Uinvestment 21.83 0 0
Non-Current Assets 0 0 0
Net Sales 0 49.09 90
Other income 22.89 2.92 0
PBDIT 0.99 -4.65 1
NPBT -3.28 -9.61 -15
NPAT -5.97 -9.73 -15
Net profit -8.23 -6.98 -6
Interest 1.12 2.82 7
Depreciation 1.57 2.14 9
Cash Accruals -4.49 -7.59 -6

Industry analysis
The production of defence equipment was, until relatively recently entirely a government
function. The Industrial Policy Resolution, 1948, restricted the entry of the private sector into
this industry.
• In May 2001, the sector was opened for private sector participation, with 100 percent
private sector ownership permissible and FDI of up to 26 percent.
• Foreign companies account for the majority of procurement from the private sector in
India, with approximately 70 percent of Indian defence procurement coming from
overseas sources.
• Of the 30 percent of orders placed in India, only an estimated percent is attributed
directly to the private sector.
• Over the years, the Department has established wide ranging production facilities for
various defence equipment through the Ordnance Factories and Defence Public Sector
Undertakings.
• The products manufactured include arms and ammunition, tanks, armoured vehicles,
heavy vehicles, fighter aircraft and helicopters, warships, submarines, missiles,

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 ammunition, electronic equipment, earth moving equipment, special alloys and special
purpose steels.
Major Companies
➢ HINDUSTAN AERONAUTICS LIMITED (HAL)
➢ HARAT ELECTRONICS LIMITED (BEL)
➢ HARAT DYNAMICS LTD. (BDL)
➢ BEML Limited
➢ MISHRA DHATU NIGAM LIMITED (MIDHANI)
➢ MAZAGON DOCK SHIPBUILDERS LIMITED (MDL)
➢ GOA SHIPYARD LTD. (GSL)
➢ GARDEN REACH SHIPBUILDERS AND ENGINEERS LTD. (GRSE)
➢ HINDUSTAN SHIPYARD LTD. (HSL)
➢ Private Sector Companies: TATA ADVANCED SYSTEMS LIMITED,
MAHINDRA DEFENSE SYSTEMS

Proposal
Considering various aspects and financial performance of the company, it has been proposed
to provide TAML with term loan of 103 crores in 2010 and a projected value of 127 crores and
169 crores will be sanctioned in 2011 & 2012 respectively.

Assessment of Term loan

The company has signed long term contracts with HAL and ISRO in India and SAAB, FACC
spirit aerosystems, Pratt and Whitney with contract value of 1873 crores 555 crore to be
executed in the next five years commencing 2010-11 and 1318 crore to be executed in the
following five years up to 2018-19. Of this the confirm contract value to be executed in the
forthcoming financial year 2010-11 is 53 crores. In the defence and industrial composites
division the company has collaborated with Tata Motors, a group company for developing and
marketing vehicle Armor solutions in line with projections made by Tata Motors. The company
would be selling more than 1200 Armor vehicles in various platforms with a value in excess
of 600 crores over the next five years. The projection of vehicle Armor for 2010-11 is 27 crores.
In industrial composites the company has confirmed contracts valued 25 crores per annum from
GE Healthcare, Seimens & ordnance factories. In the personal Armor division mainly
consisting of Bulletproof elements the opportunity for 2010-11 is 330 crores to service the
personal IMO requirement of Defence para military and police establishment in various States
as well as and has requirement from various private sector establishments due to increased
threat perception and security concerns.
Though the total net sales achieved during 2008-9 was 49.0 8 crores, future estimates of 90
crores, 163 Crores, 345 crores, 508 Crores for the year 2009-10, 2010-11, 2011-12 & 2012-13
respectively is based on the actual of benefit of expansion project undertaken by the company
and long term contract entered with reputated companies such as HAL, ISRO, etc.

Repayment schedule for Term loan

Repayment scheduled for the loan has been fixed at 10 years. To calculate the monthly
schedule, the interest rate as per the credit rating will be used.

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Security Details
The unit being a TATA Group company is enjoying the full backing from the group companies.
Their R&D has helped in improvising their products, which is required by other than defence
also.
Thus Tata group company is a good security for the bank

Credit Rating Summary

Credit Rating: B

Pricing of the Loan

Credit Card rate in Proposed rate in percentage Rate stipulated by other banks,
rating percentage if any
B BPLR + 3.50% 11.75% p.a., linked to the PLR NA
of the lead bank. For arriving at
the interest rate, the Spread
between the PLR of the Lead
Bank prevailing on the date of
documentation and 11.75 %
would be fixed.

Risk Assessment
Risks Allocated To Risk Mitigation
Manufacturing Risks TAML Skilled personnel to be employed. Proper
technology transfers to be ensured in order to
reduce faults
Completion Risks TAML If the finish goods are not completed sale cannot
take place and hence working capital will be stuck.
And no sales will be generated. Thus, in this case
vendors should be identified who can buy the WIP
Accident Risks TAML Insurance to be done
Cost overrun Risk Contractors/Sponsors Since manufacturing is in-house and the equipment
are costly, breakages or faults can lead to more
costs and hence insurance of the items should b
done
Force Majuere Risks TAML Cost allocation under Force Majeure
When the Force Majeure Event is a Non Political
Event, the Parties shall bear their respective costs.
For Indirect Political Event, the costs attributable
shall be borne by the Concessionaire to the extent
of the Insurance Claims

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 WORKING CAPITAL LOAN ANALYSIS
Borrowers particulars & proposal
• Constitution: Limited company
• Address of Registered Office
• Address of Company: 10, Jigani Industrial Area, Jigani, Bengaluru, Karnataka 560105
• Parent/ group company: Tata group
• Date of incorporation: 10/11/1989
• Incorporation name: Matrix Materials Limited (later renamed as Tata Advanced
Materials Limited)
• Sector: Private

Activity
Line of activity includes: - It manufactures composite products that the used in various business
like
1. Defence
2. Aerospace – Diversification by the company is mainly focused on this line of business
3. Personal Armor
4. Vehicle Armor – Company is also focusing on diversifying in the vehicle armor line of
business as it is poised to show substantial growth of business.
5. Other Industrial Products

Management
S R Mukherjee is the Chief Executive Officer
Renier Francois Bosman is the Head of Operations
Stephen Haughey is the Head of Engineering & Quality
V Ranganathan is the Vice President of Business Development & Strategy
Abhishek Sharma is the CFO & Company Secretary
Naresh Chandra Sharma is the Head of Domestic Aerospace & Defence
Sudhir A Kulgod is the GM of Purchase & Supply Chain Management
Rajesh Bisht is the GM of HRD
Pradeep Sangvikar is the DGM of Quality

Board of Directors
➢ Mr. K R S JAMWAL

➢ Mr. BANMALI AGRAWALA

➢ Dr. DEBASHISH BHATTACHARJEE

➢ Mr. MILIND MADHAV SHAHANE

➢ Mr. L R NATARAJAN

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Banking arrangements-present & proposed including credits

✓ Dealing with our Bank: First time proposal of credit request with the Commercial
Bank whose Assistant Vice President is Mr. Sanjay
✓ Have the co-powers to borrow: yes, as the interest coverage ratio is projected to
increase from -2.93 60 3.32 over the next five years. The relevant clause of Article of
Association of the company permits the company to borrow from banks and financial
institutions. There is no negative covenant on the borrowing of the company
✓ Present banking arrangement: No data given

SWOT Analysis

Strengths:
-> Strong R&D support from the Tata group
companies
-> Innovative products- newer and more
effective solutions in Personal armour
segment
-> Relatively stable customer demand
(Ministry of Defense is the major customer)
-> Operates in an important industry-
polymer based composites critical for
aerospace and defense applications which
employ proprietary technology. Thus, there
are huge barriers to entry
Opportunities:
-> Diversifying its business to other
segments- industrial composites, aerospace
etc.
-> has entered into long term contracts with
reputed companies like HAL, ISRO, SAAB,
FACC, Pratt & Witney for supply of
industrial composites for their products
-> collaborated with Tata Motors to develop
and market armour vehicle solutions to
increase its sales of armour vehicles in next
five years
-> Increased order of Personal armour
solutions like bullet proof jackets/ helmets
for para military and police establishments
Weakness:
-> Operating in a niche and nascent industry
segments- the personal armour and vehicle
armour businesses, yet to diversify to
defense and aerospace
-> Have spare production capacity lying
unutilized since long
-> Struggling to secure cheap and reliable
source of finance (both working capital and
term loan)
Threats:
-> Dependent largely on s single customer
base- ministry of defense for its major
revenue segment of Personal armour
-> venturing into risky businesses like
Aerospace dependent on crude prices and
economic scenario
-> Huge redundant manpower recruited to
increase capacity in Aerospace division
-> Unproven capacity in Aersopace thereby
limiting large contracts securing ability

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Financials & comments
Consolidated financials (all figures in INR Cr)
Particulars As on 31.03.07 As on 31.03.08 As on 31.03.09
Capital 1.17 1.17 16.31
Tangible net worth 8.79 8.79 123.52
Net Sales 70.89 22.89 49.09
Net Profits -2.48 -6.06 -9.73

Comments:
➔ Net sales have improved from 22.89 Cr to 49.09 Cr but the achievement is 66.27% of
the estimated sales of 74.25 Cr due to non-receipt of budgeted orders from MOD
➔ Company continues to incur a cash loss due to lower level of performance and increased
expenses on additional manpower recruited for its Aerospace and other expansion
projects having long gestation periods
➔ Authorized capital is 23.50 Cr. Recently, the company has concluded a Rights issue of
1.5 Cr resulting in increase in capital by 15.147 Cr. Out of the total 1.63 cr equity shares,
the holding company holds 1.53 cr shares. Reserves include “advance against share
capital’ of 115.45 Cr which is funding towards their Project expansion
➔ NWC and Current ratio are below the required/benchmark level
➔ Net block increased from 76.99 Cr due to implementation of first phase of expansion
project with cost of 109 Cr
➔ Contingent liabilities:
o Sales tax demand (2003-04): 0.12 Cr
o Karnataka VAT penalty & int (2006-07): 0.14 Cr
o Pending contracts to be executed: 47.89 Cr

Assessments/ Analysis:
Key Financial ratios
Indicators FY2008 FY2009 FY2010 (E)
TOL/TNW 0.45 0.56 1.33
DER 0.09 0.06 0.91
PBDIT/ Net Sales -0.14 -0.09 0.01
NPBT/ NS (%) -26.08 -19.58 -16.67
Term Debt/ PBDIT -1.83 -1.51 103
PBDIT/ Interest -2.93 -1.65 0.14
ROE -0.09 -0.08 -.13
Inventory turnover 0.86 0.55 0.23
Debtors velocity 0.38 0.55 0.51
Creditors velocity 0.4 0.96 0.1
Inv.+ receivables/ Sales 1.18 1.07 0.73

➢ Interest coverage ratio (PBDIT/Interest) is increasing signalling future ability of the

company to service its debt
➢ Debt/ Equity ratio is increasing due to term loans being taken to fund the expansion

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 ➢ Losses in recent years is on account of the investments made in manpower, business
development in aerospace business with long gestation period charged to P&L a/c
➢ Future Sales is projected to increase over the next 5 years from current 49.08 to 508
Cr which is a good signal. This is mainly attributed to the expansion projects and
long-term contracts with reputed companies as well as the collaboration with Tata
Motors to develop and market Vehicle armour solutions
➢ Estimated sales are reasonable and achievable and thus warrant acceptability of
sanctioning the Working capital loan

Recommendation
Based on the above Financial analysis, it is evident that the company has sound financial
performance, hence the officer should approve the assessment of Fund Based working Capital
limits of INR 29 Crore and the Non-fund based working capital loan of INR 77 Cr. The loans
should be sanctioned through a Consortium arrangement for a period 1 year with share of the
Bank being 55% i.e; INR 15.95 Cr- fund based and INR 42.65 Cr- non-fund based in terms of
Letter of credits to suppliers, Guarantees to other members of the Consortium.

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