Project Appraisal of Hotel

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Project Preparation and Appraisal of Hotel cum Resort

Chapter 1

Introduction of Topic

1 BRCM COLLEGE OF BUSINESS ADMINISTRATION

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1.1 ENTREPRENEURSHIP Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who

undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods". This may result in new organizations or may be part of revitalizing mature organizations in response to a perceived opportunity. The most obvious form of entrepreneurship is that of starting new businesses (referred as Startup Company); Company); however, in recent years, the term has been extended to include social and political forms of entrepreneurial activity. When entrepreneurship is describing activities within a firm or large organization it is referred to as intra-preneurship and may include corporate venturing, when large entities spin-off organizations. Entrepreneurial activities are substantially different depending on the type of organization and creativity involved. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many "high value" entrepreneurial ventures seek venture seek venture capital or angel funding (seed money) in order to raise capital to build the business. Angel investors generally seek annualized returns of 20-30% and more, as well as extensive involvement in the business. business.[4] Many kinds of organizations now exist to support would-be entrepreneurs including specialized government agencies, business incubators, science parks, and some NGOs. In more recent times, the term entrepreneurship has been extended to include elements not related necessarily to business formation activity such as conceptualizations of entrepreneurship as a specific mindset (see also entrepreneurial mindset) resulting in entrepreneurial initiatives e.g. in the form of social

entrepreneurship, political

entrepreneurship, or knowledge entrepreneurship have emerged. Brown and Upton had the opinion that Entrepreneurship can be known as the method of gaining, pulling simultaneously all the resources, and installing them in the quest of apparent chances in the coming future for lengthy gains.


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1.2 IMPORTANCE IMPORTANCE OF ENTREPRENEURSHIP EN TREPRENEURSHIP 1) Provides employment employment to huge mass of people: -

People often hold a view that all those who do not get employed anywhere jump into entrepreneurship, a real contrast to this is that 76% of establishments of new business in the year 2003 were due to an aspiration to chase openings. This emphasizes the fact that entrepreneurship is not at all an encumbrance to an economy. What's more is that approximately 34 million of fresh employment opportunities were created by entrepreneurs from the period of 1980. This data makes it clear that entrepreneurship heads nation towards better opportunities, which is a significant input to an economy. 2) Contributed towards research and development system: -

Almost 2/3% of all innovations are due to the entrepreneurs. Without the boom of inventions the world would have been a much dry place to live in. Inventions provide an easier way of getting things done through better and standardized technology. 3) Creates wealth for nation and for individuals as well:-

All individuals who search business opportunities usually create wealth by entering into entrepreneurship. The wealth created by the same play a considerable role in the development of nation. The business as well as the entrepreneur contributes in some or other way to the economy, may be in the form of products or services or boosting the GDP rates or tax contributions. Their ideas, thoughts, and inventions are also a great help to the nation. 4) Sky-scraping heights of apparent prospects: -

The individual gets maximum scope for growth and opportunity if he enters into entrepreneurship. He not only earns, the right term would be he learns while he earns. This is a real motivating factor for any entrepreneur as the knowledge and skills he develops while owning his enterprise are his assets for life time which usually, lacks when a person is under employment. The individual goes through a grooming process when he becomes an entrepreneur. In this way it not only benefits him but also the economy as a whole.


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5) It is a challenging opportunity for the people: -

Although entrepreneurship is a challenging task but in most of the cases the rewards it gives are much more than what one anticipates. It does not only reward an entrepreneur at financial levels but also on individual level. It provides self-satisfaction to the entrepreneur. 6) Entrepreneurship Entrepreneurship provides self-sufficiency: self-suffi ciency: -

The entrepreneur not only become self-sufficient but also provides great standards of living to its employees. It provides opportunity to a number of people working in the organization. The basic factors which become a cause of happiness may be liberty, monetary rewards, and the feeling of contentment that one gets after doing the job. Therefore the contribution of entrepreneurs makes the economy an improved place to live in.

1.3 WHA WH AT IS PROJECT MANAGEMENT? Project management is the discipline of planning, organizing, securing, and managing resources to achieve specific goals. A project is a temporary endeavor with a defined beginning and end (usually time-constrained, and often constrained by funding or deliverables), undertaken to meet unique goals and objectives, typically to bring about beneficial change or added value. The temporary nature of projects stands in contrast with business as usual (or operations), which are repetitive, permanent, or semi-permanent functional activities to produce products or services. In practice, the management of these two systems is often quite different, and as such requires the development of distinct technical skills and management strategies. The primary challenge of project management is to achieve all of the project goals and objectives while honoring the preconceived constraints. Typical constraints are scope, time, and budget. The secondary — and and more ambitious — challenge challenge is to optimize the allocation and integrate the inputs necessary to meet pre-defined objectives.


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1.4 WHY PROJECT MANAGEMENT? Excellent product quality Consumers generally look for low cost and high quality, while purchasing a product. Maintaining a high standard of excellence in developing quality products earns the company goodwill amongst its customers. How can a project management team help in improving the quality of a product? The project management plans the allocated budget, resources and testing methods that keep the pace of production high, both qualitatively and quantitatively.

Adequate communication Improper communication among employees can lead to misunderstandings and negatively impact the performance of the firm. A project manager can be a bridge among the diversified branches of project undertaking. And why only employees? Stakeholders also form a part of the company. They prefer investing in those companies that deliver projects on time and keep them informed about updates and progress of the projects.

Reducing risks The probability of getting hit by an unwanted or unexpected event has increased manifold in today's competitive business environment. Why is project management so important? The project management team can identify the potential risks, take their time to rectify them and help the company save valuable resources. In case of worst crisis, the project management team can opt for change management method to attain the desired goals.

Strategic objectives and goals Strategic goals are the blueprint of the task undertaken by a company. For instance, a software company aims to prepare software and related programming codes, whereas an infrastructure company has a target of constructing dams, bridges and other construction works. A project management team helps the company in achieving the strategic goals, as it streamlines the task of a company in taking many important decisions.


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1.5 WHY PROJECT PREPARATION? Systematic and effective Project Preparation is important for a range of reasons outlined below: Project risks are managed and controlled. Scarce implementation resources (e.g. capital funding) are optimally utilized and are only allocated to viable projects. Projects are well conceptualized and planned. Development is appropriately tailored to local needs and is integrated in nature. Projects are supported by the key stakeholders (including the community, municipality, funders and implementation partners). Government and other funders can predict and therefore manage their cash flows by enhancing the predictability of project outcomes and timeframes for implementation.

1.6 WHY PROJECT APPRAISAL? Investment appraisal is a decision-making technique, which considers the cost and benefit of an investment in fixed asset or a project involving fixed asset over a period of time (often more than one financial year) When an organization is considering a capital investment, such as investment in noncurrent asset (e.g. investment in building, land, vehicles etc.), the huge amount of capital required and often the length of time that the investment may require and the long term that the asset is required for means that management need to consider the whole process of project appraisal carefully and professionally to minimize the risk of the project not being viable.

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1.7 INTRODUCTION OF PROJECT FINANCE Project finance is the long term financing of infrastructure and industrial projects based

upon the projected cash flows of the project rather than the balance sheets of the project sponsors. Usually, a project financing structure involves a number of equity investors, known as sponsors, as well as a syndicate of banks or other lending institutions that provide loans to the operation. The loans are most commonly non-recourse loans , which are secured by the project assets and paid entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors, a decision in part supported by financial modeling. The financing is typically secured by all of the project assets, including the revenue-producing contracts. Project lenders are given a lien on all of these assets, and are able to assume control of a project if the project company has difficulties complying with the loan terms. Generally, a special purpose entity is created for each project, thereby shielding other assets owned by a project sponsor from the detrimental effects of a project failure. As a special purpose entity, the project company has no assets other than the project. Capital contribution commitments by the owners of the project company are sometimes necessary to ensure that the project is financially sound, or to assure the lenders of the sponsors' commitment. Project finance is often more complicated than alternative financing methods. Traditionally, project financing has been most commonly used in the extractive (mining), transportation, telecommunications and energy industries. More recently, particularly in Europe, project financing principles have been applied to other types of public infrastructure under public – private partnerships (PPP) or, in the UK, Private Finance Initiative (PFI) transactions (e.g., school facilities) as well as sports and entertainment venues. Risk identification and allocation is a key component of project finance. A project may be subject to a number of technical, environmental, economic and political risks, particularly in developing countries and emerging markets. Financial institutions and project sponsors may conclude that the risks inherent in project development and operation are unacceptable (financeable). To cope with these risks, project sponsors in these industries (such as power plants or railway lines) are generally completed by a number of specialist companies operating in a contractual network with each other that allocates risk in a way that allows


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financing to take place. "Several long-term contracts such as construction, supply, off-take and concession agreements, along with a variety of joint-ownership structures, are used to align incentives and deter opportunistic behavior by any party involved in the project." The various patterns of implementation are sometimes referred to as "project delivery methods." The financing of these projects must also be distributed among multiple parties, so as to distribute the risk associated with the project while simultaneously ensuring profits for each party involved. A riskier or more expensive project may require limited recourse financing secured by a surety from sponsors. A complex project finance structure may incorporate corporate finance, securitization, options (derivatives), insurance provisions or other types of collateral enhancement to mitigate unallocated risk. Project finance shares many characteristics with maritime finance and aircraft finance; however, the latter two are more specialized fields within the area of asset finance.

1.8 HISTORY OF PROJECT FINANCING Limited recourse lending was used to finance maritime voyages in ancient Greece and Rome. Its use in infrastructure projects dates to the development of the Panama Canal, and was widespread in the US oil and gas industry during the early 20th century. However, project finance for high-risk infrastructure schemes originated with the development of the North Sea oil fields in the 1970s and 1980s. For such investments, newly created Special Purpose Corporations (SPCs) were created for each project, with multiple owners and complex schemes distributing insurance, loans, management, and project operations. Such projects were previously accomplished through utility or government bond issuances, or other traditional corporate finance structures. Project financing in the developing world peaked around the time of the Asian financial crisis, but the subsequent downturn in industrializing countries was offset by growth in the OECD countries, causing worldwide project financing to peak around 2000. The need for project financing remains high throughout the world as more countries require increasing supplies of public utilities and infrastructure. In recent years, project finance schemes have become increasingly common in the Middle East, some incorporating Islamic finance.


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The new project finance structures emerged primarily in response to the opportunity presented by long term power purchase contracts available from utilities and government entities. These long term revenue streams were required by rules implementing PURPA, the Public Utilities Regulatory Policies Act of 1978 . Originally envisioned as an energy

initiative designed to encourage domestic renewable resources and conservation, the Act and the industry it created lead to further deregulation of electric generation and, significantly, international privatization following amendments to the Public Utilities Holding Company Act in 1994. The structure has evolved and forms the basis for energy

and other projects throughout the world.

1.9 PARTIES TO A PROJECT FINANCING There are several parties in a project financing depending on the type and the scale of a project. The most usual parties to a project financing are; 1. Project company 2. Sponsor 3. Borrower 4. Financial Adviser 5. Technical Adviser 6. Lawyer 7. Debt financiers 8. Equity Investors 9. Regulatory agencies 10. Multilateral Agencies 11. Host government / grantor


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1.10 THE PROJECT FINANCING PROCESS Eligible Sectors, The Banks can underwrite eligible projects in all sectors and cross-

cutting themes identified in the Needs Assessment (except for efforts to locate and disarm unexploded mines).ITF financed operations cover economic management, public sector management, social safety nets, education, health, water supply and sanitation, urban reconstruction, rural water and irrigation infrastructure, telecommunications, finance and private sector development. The trust fund, which gives particular emphasis to areas where the Bank has a comparative advantage,

will

not

pay

for

humanitarian

relief

missions,

peace-keepers,

or other security, military, or political interventions. Eligible expenditures that can be financed for the above from ITF are: 

Investment and capital expenditures, including prefeasibility studies and incremental recurrent costs.

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Technical assistance and training.

Eligible recipients of grants from the Trust Fund must meet the Bank's criteria,

included those that apply to financial viability. Recipient entities responsible for implementing activities financed from the ITF can be inside or outside Iraq, and include: Iraqi ministries, governorates and municipalities, private entities, NGOs, UN agencies, or international financial institutions. The ITF emphasizes Iraqi ownership and building Iraqi institutional capacity. Under the ITF, potential recipients, in consultation with World Bank staff, submit project proposals for approval to the Iraqi Strategic Review Board (ISRB), which determines whether proposals are consistent with priority needs. Following ISRB approval, the World Bank proceeds to appraise the project. For satisfactorily appraised operations, the Bank, as the ITF Administrator, and the recipient negotiate and sign a Grant Agreement which spells out the terms and conditions under which funds will be made available to the recipient entity.


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The Grant Agreement governs the actual use and disbursement of funds. It specifies measurable indicators to monitor implementation progress. It also contains detailed financial management, procurement, monitoring, and other fiduciary arrangements to ensure that funds are used for eligible expenditures.

1.11 IMPORTANCE OF PROJECT FINANCING Whether expanding manufacturing facilities, implementing new processing capabilities, or leveraging existing assets in new markets, innovative financing is often at the core of long-term projects to transform a company‘s operations. Akin to the underlying corporate

transformation, the challenge with innovative financial structures such as project finance is that the investment is made upfront while the anticipated benefits of the initiative are realized years later. There has been a rise in number of companies that need innovative financing to satisfy their capital needs, in a significant number of instances they have viable goals but find that traditional lenders are unable to understand their initiatives. And so the need merged for project finance. Project financing is a specialized form of financing that may offer some cost advantages when very large amounts of capital are involved it can be tricky to structure, and is usually limited to projects where a good cash flow is anticipated

1.12 REASONS FOR FINANCE Project finance can be defined as: financing of an industrial (or infrastructure) project with myriad capital needs, usually based on non-recourse or limited recourse structures, where project debt and equity (and potentially leases) used to finance the project are paid back from the cash flow generated by the project, with the project's assets, rights and interests held as collateral. Whether expanding manufacturing facilities, start new business, technology up gradation, expansion implementing new processing capabilities, or leveraging existing assets in new markets, innovative financing is often at the core of long-term projects to transform a company‘s operation.


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1.13 TERM LOAN PROCEDURE The procedure associated with term loan for starting an event firm involves the following principal step:

1) Submission of Loan Application:The borrower may submit the application to any of the three lending institutions. viz IDBI, ICICI and IFCI. The borrower is required to fill out a common application form which seeks comprehensive information about the project. Specifically, the common application form covers the following aspect: 

Promoter background

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Promoters of the industrial concern

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Particulars of the project (capacity, process, technical arrangement, management location, land and building, plant and machinery, raw material, effluent, labor, housing, and schedule of implementation.

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Cost of project

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Means of finance

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Marketing and selling arrangement

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Profitability and cash flow

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Economic consideration

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Government consents

2) Initial Processing Loan Application:When the application is received, and officer of the recipient institution reviews to ascertain whether it is complete for processing. If it incomplete the borrower is asked to provide the required additional information. When the application is considered complete the recipient institute prepares a ‗flash report‘ which is essentially summarized of the loan

application, to be evaluated at the Senior Executive Meeting (SEM). Once the SEM, on the basis of its evaluation of the ‗flash report‘, decides that the project justify a detailed

appraisal, it nominate the lead financial institution. The factor taken into account for designating the lead financial institution are : location of the project, prior experience of institution in handling similar project, presentation of institutions in the state and promoter group, and exiting workload of the institution.


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Fir the convenience of borrower, financial institution operate scheme of participation for rupee term loans and underwriting assistance. Under this scheme, the borrowers interact with only the lead financial institution which administers the entire loan and underwriting facility. The lead institutions exercise the right of other participating intuition as their constituent authority.

3) Appraisal of the Proposed Project:The detailed appraisal of the project is done by the lead institutions. The appraisal covers the marketing, technical, financial, managerial and economic aspects, the appraisal memorandum is normally prepared within two month after site inspection and placed before the Senior Executive Meeting /Inter-Institutional Meeting (SEM/IIM) for a decision about approval of the project and determining the sharing arrangement among the institutions. Once a favorable decision is taken at the SEM/IIM forum and the sharing arrangement worked out, the case is referred to the Board of the lead financial institution.

4) Issue of the Letter of Sanction:After the Board of the lead financial institution approves the proposal, a financial letter of sanction is issued to the borrower. This communicate to the borrower the assistance sanctioned by the lead institution and the assistance sanction /to be sanctioned by other participant in the consortium arrangement. Each of the participating institute would , after approval by its share of assistance to the lead financial institution under advice its share of assistance. The same will be shared on a pro data basis amongst the lead and other participating institution.

5) Acceptance of the Term and Condition by the Borrowing Unit:On receiving the letter of sanction from the lead financial institution, the borrowing unit conveys its board meeting at which term and condition associated with the letter of sanction is accepted and an appropriate resolution is passed to that effect. The acceptance of the term and conditions has to be conveyed to the lead institution within thirty days.


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6) Execution of Loan Agreement:The lead financial institution, after receiving the letter of acceptance from the borrower, sends the draft the agreement to the borrower to be executed by authorized person and properly stamped as per the Indian Stamp act 1899. The agreement, properly executed and stamped, along with other documents as per required by the lead financial institution must be returned do it. Once the lead financial institution also signs the agreement, it become effective.

7) Disbursement of Loan:Periodically, the borrower is required to submit information on the physical progress of the project, financial status of the project, arrangement made for financing the project, contribution made by the promoters, projected fund flow statement, compliance with various statutory requirement, and fulfillment of pre-disbursement, condition. Based on the information provided by the borrower, the lead financial institution will determine the amount of term loan to be disbursed from time to time. Before entire term loan is disbursed borrower must fully comply with all the term and condition of the loan agreement.

8) Creation of Security:The term loans (both rupee and foreign currency) and the deferred payment guarantee assistance provided by the All-India financial institution are secured through the first mortgage, by way of deposit of title deeds of immovable properties and hypothecation of movable properties. As the creation of mortgage, particularly in the case of land, trend to be a time consuming process, the institution permit interim disbursement against alternate security (in the form of guarantees by the promoter). The mortgage, however, has to be created within a year from the date of the first disbursement. Otherwise the borrower has to pay an additional charge of 1 percent interest.

9) Monitoring:Monitoring of the project is done at the implementation stage as well as operational stage. During the implementation stage, the project is monitored through: (i) regular report, furnished by the promoters, which provide information about placement of orders, construction of building procurement of plant, installation of plant and machinery, trial production, etc., (ii) periodic site visits, (iii) discussion with promoters, bankers, suppliers,


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creditors and other connected with project, (iv) progress report submitted by the nominee director, and (v) audited account of the company. During the operation stage, the project is monitored with the help of (i) quarterly progress report on the project, (ii) site inspection, (iii) reports of nominee director, and (iv) comparison of performance with promise. The most important aspect of monitoring of course is the recovery of dues represented by interest and principal amount. The financial institution has been made following observation during the implementation stage 

Marketing Appraisal

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Technical Appraisal

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Financial Appraisal

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Economic Appraisal

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Managerial Appraisal


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Chapter 2

Industry Profile


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2.1 HOSPITALITY INDUSTRY – AN OVERVIEW Hospitality is all about offering warmth to someone who looks for help at a strange or unfriendly place. It refers to the process of receiving and entertaining a guest with goodwill. Hospitality in the commercial context refers to the activity of hotels, restaurants, catering, inn, resorts or clubs who make a vocation of treating tourists. Helped With unique efforts by government and all other stakeholders, including hotel owners, resort managers, tour and travel operators and employees who work in the sector, Indian hospitality industry has gained a level of acceptance world over. It has yet to go miles for recognition as a world leader of hospitality. Many take Indian hospitality service not for its quality of service but India being a cheap destination for leisure tourism. With unlimited tourism and untapped business prospects, in the coming years Indian hospitality is seeing green pastures of growth. Availability of qualified human resources and untapped geographical resources give great prospects to the hospitality industry. The number of tourists coming to India is growing year after year. Likewise, internal tourism is another area with great potentials. The hospitality industry is a 3.5 trillion dollar service sector within the global economy. It is an umbrella term for a broad variety of service industries including, but not limited to, hotels, food service, casinos, and tourism. The hospitality industry is very diverse and global. The industry is cyclical; dictated by the fluctuations that occur with an economy every year. Today hospitality sector is one of the fastest growing sectors in India. It is expected to grow at the rate of 8% between 2007 and 2016. Many international hotels including Sheraton, Hyatt, Radisson, Meridien, Four Seasons Regent, and Marriott International are already established in the Indian markets and are still expanding. Nowadays the travel and tourism industry is also included in hospitality sector. The boom in travel and tourism has led to the further development of hospitality industry. In 2003-04 the hospitality industry contributed only 2% of the GDP. However, it is projected to grow at a rate of 8.8% between 2007-16, which would place India as the second-fastest growing tourism market in the world. This year the number of tourists visiting India is estimated to have touched the figure of 4.4 million. With this huge figure, India is becoming the hottest tourist destination. The arrival of foreign tourists has shown a


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compounded annual growth of 6 per cent over the past 10 years. Besides, travel and tourism is the second highest foreign exchange earner for India. Moreover, it is also estimated that the tourism sector will account for nearly 5.3 per cent of GDP and 5.4 per cent of total employment. Hotel Industry in India has witnessed tremendous boom in recent years. Hotel Industry is inextricably linked to the tourism industry and the growth in the Indian tourism industry has fuelled the growth of Indian hotel industry. The thriving economy and increased business opportunities in India have acted as a boon for Indian hotel industry. The arrival of low cost airlines and the associated price wars have given domestic tourists a host of options. The 'Incredible India' destination campaign and the recently launched 'Atithi Devo Bhavah' (ADB) campaign have also helped in the growth of domestic and international tourism and consequently the hotel industry. According to a report, Hotel Industry in India currently has supply of 110,000 rooms and there is a shortage of 150,000 rooms fuelling hotel room rates across India. According to estimates demand is going to exceed supply by at least 100% over the next 2 years. Fivestar hotels in metro cities allot same room, more than once a day to different guests, receiving almost 24-hour rates from both guests against 6-8 hours usage. With demandsupply disparity, hotel rates in India are likely to rise by 25% annually and occupancy by 80%, over the next two years. This will affect the competitiveness of India as a costeffective tourist destination. To overcome, this shortage Indian hotel industry is adding about 60,000 quality rooms, currently in different stages of planning and development, which should be ready by 2012. Hotel Industry in India is also set to get a fillip with Delhi hosting 2010 Commonwealth Games. The future scenario of Indian hotel industry looks extremely rosy. It is expected that the budget and mid-market hotel segment will witness huge growth and expansion while the luxury segment will continue to perform extremely well over the next few years. Hotel industry in India has been an important industry to the Indian Economy. It is one of the largest foreign exchange earners, to the country and also one of the largest employers, both directly and indirectly.


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The hotel industry in India can be divided into eight segments based on the norms set by the Ministry of Tourism. They are 5-Star Deluxe, 5-Star, 4-Star, 3-Star, 2-Star, 1-Star, Heritage and Unclassified. However, the 3-star, 2-star, 1star and unclassified hotels in India are spread across the length and breadth of the country and are highly fragmented in nature, whereas, the upscale, mid-market and heritage categories are highly organized. The upscale category hotels are primarily present in the metros and the tier 1 cities and are now targeting the tier 2 cities for expansion. The industry is characterized significantly by small unorganized players, labour-intensive operations, seasonality, cyclicality, highly capital intensive nature and highly sensitive to the external factors like economy, terrorism and political status. The demand for the hotel rooms is driven by the rise in the number of the domestic and well as the foreign tourists. The demand for the foreign tourists is driven by the level of growth in Global GDP, increased business activities of other nations with India, growing number of tourist destinations, rise in trade and sporting events, marketing efforts like “Atithi Devo Bhava” & “Incredible India”.

Domestic tourist arrivals are the backbone of Indian Hotel Industry as the number of domestic tourists is more than 100 times as compared to foreign tourists. Domestic tourists are of 2 types, leisure travellers and business travellers. Growth in leisure travellers is driven by rising personal discretionary income, evolving lifestyle, growing number of multi earner families, weekend vacation culture, and improvement in rail, air as well as road connectivity, diverse topography and rich cultural heritage. Drivers of domestic business traveling are rise in trade and commerce, increasing geographical spread of companies, growing MICE culture. Players like Lemon Tree, IBIS, Park, Sarovar and Ginger have identified that there is dearth of quality rooms in the mid-market segment across the country, especially in the tier 1 and tier 2 cities. Approximately, 55 per cent of the upcoming inventory is expected to be in the mid-market and economy segment. Entry of such organized players is expected to improve the quality of offerings and bridge the wide gap between mid-market and upscale category.


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By 2015, the Indian Hotel Industry is expected to reach Rs 230 billion, growing at a robust CAGR of over 12.2%. A total investment of Rs 448 billion is expected in the next five years. India is currently ranked 12th in the Asia Pacific region and 68th overall in the list of the world's attractive destinations, according to the Travel and Tourism Competitiveness Report 2011 by the World Economic Forum (WEF). Despite global economic woes, development of hotels in India has been one of the most lucrative investments. As per Cygnus estimates, total supply (number of hotel rooms) in India is expected to reach more than 180,000 within five years. Various domestic and international brands have made significant inroads into this space and more are expected to follow; around 40 international brands will enter the country in the next five years. Indian Hotel Industry holds a huge potential due to the positive impact of demand-supply scenario, growth drivers, investments and government initiatives for tourism sector. To develop a better understanding of the industry, Cygnus has come out with a comprehensive Industry insight - Indian hotel industry, which brings out the past performance, trends and future prospects keeping in mind the various factors.


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2.2 SWOT ANALYSIS OF INDIAN HOTEL INDUSTRY  STRENGTHS 

Natural and cultural diversity: India has a rich cultural heritage. The "unity in

diversity" tag attracts most tourists. The coastlines, sunny beaches, backwaters of Kerala, snow-capped Himalayas and the quiescent lakes are incredible. 

Demand-supply gap: Indian hotel industry is facing a mismatch between the

demand and supply of rooms leading to higher room rates and occupancy levels. With the privilege of hosting Commonwealth Games 2010 there is more demand of rooms in five star hotels. This has led to the rapid expansion of the sector 

Government support: The government has realized the importance of tourism and

has proposed a budget of Rs. 540 crore for the development of the industry. The priority is being given to the development of the infrastructure and of new tourist destinations and circuits. The Department of Tourism (DOT) has already started the "Incredible India" campaign for the promotion of tourism in India. 

Increase in the market share: India's share in international tourism and hospitality

market is expected to increase over the long-term. New budget and star hotels are being established. Moreover, foreign hospitality players are heading towards Indian markets.

 WEAKNESSES 

Poor support infrastructure: Though the government is taking necessary steps,

many more things need to be done to improve the infrastructure. In 2003, the total expenditure made in this regard was US $150 billion in China compared to US$ 21 billion in India. 

Slow implementation: The lack of adequate recognition for the tourism industry has

been hampering its growth prospects. Whatever steps are being taken by the government are implemented at a slower pace. 

Susceptible to political events: The internal security scenario and social unrest also

hamper the foreign tourist arrival rates.


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 OPPORTUNITIES 

Rising income: Owing to the rise in income levels, Indians have more spare money

to spend, which is expected to enhance leisure tourism. 

Open sky benefits: With the open sky policy, the travel and tourism industry has

seen an increase in business. Increased airline activity has stimulated demand and has helped improve the infrastructure. It has benefited both international and domestic travels.

 THREATS 

Fluctuations in international tourist arrivals: The total dependency on foreign

tourists can be risky, as there are wide fluctuations in international tourism. Domestic tourism needs to be given equal importance and measures should be taken to promote it. 

Increasing competition: Several international majors like the Four Seasons,

Shangri-La and Aman Resorts are entering the Indian markets. Two other groups the Carlson Group and the Marriott chain - are also looking forward to join this race. This will increase the competition for the existing Indian hotel majors.

2.3 IMPACT OF RECESSION ON HOTEL INDUSTRY The state of turmoil in global financial markets has generated new concerns for the hospitality industry. Existing hotels in India are also likely to benefit from the improved performance of the non-room sources of income, namely Food & Beverage (including banquet operations), Spa, Corporate Club memberships and other ancillary services. India is expected to see Asia's biggest drop in corporate travel spending, falling 25% this year compared to 2008.


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2.4 GOOD IDEAS FOR STARTING A HOTEL Step 1: Decide the services you wish to sell Choose those services in which you have a strong hold, in which you have majority of your experience and expertise and which can generate maximum revenue for you. Don't try to be jack of all trades and sell all event planning services one can think of.

Step 2: Do market research, competitor's analysis and SWOT analysis. It's very important to research the market properly before you start up your hotel business. Making sure this is the right move

Unless you have some practical experience of working in the hotel business you may not be fully prepared for the level of commitment that will be required. If you have the opportunity to work in the trade beforehand this might help you to know what to expect. You will probably be working long hours, often seven days a week, with little opportunity for a holiday. You will have to have good personal and social skills as well as physical strength and stamina. If you are planning to run the hotel with your partner or spouse you should make sure that you are both prepared for what life will be like. Your market

Your customer base will depend to a certain extent on: 

the sector of the market you are targeting



your location

For example, you might be located in a tourist area so the majority of your guests are holiday makers. If you are beside the sea, many of these will be British, while if you are near an area of historical or cultural interest your guests are also likely to include many overseas visitors.


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Estimating demand

Having decided to take the plunge you will need to find out how much demand there is likely to be for your business. First of all, check that people will want accommodation in your area. For example, this might be because you are near an international airport, a major conference centre, a tourist attraction or a town or city which attracts many visitors, both from the UK and from overseas. You could find out whether there are companies or organisations locally which regularly need accommodation - for example a language school might require accommodation every summer for students or a large firm might often have visiting colleagues from other parts of the country. Then check out the competition. Count how many hotels and guesthouses there are already in your area and try to find out how many rooms they have, what facilities they offer and what prices they charge. Make a note of any self-catering accommodation, caravan and campsites and so on which might attract your potential customers. Your local tourist information office may be able to give you some indication of the number of visitors each year to your area and what type of accommodation they choose. If you are taking over an existing hotel you will be aware of existing bookings and the previous proprietors may be able to give you an idea of occupancy levels throughout the year. You can then decide if you want to try to improve on this by targeting a different type of clientele. Why will guests choose your hotel?

You need to make sure that enough people will choose your hotel rather than other hotels or other accommodation types. It's worth checking out the competition to see: 

What kind of guest they attract



What services and facilities they offer



What prices they charge



The sort of special offers and discounts they are prepared to give



When they are fully booked



If the premises have been newly refurbished


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This might immediately show you that there is a gap in the market for a certain type of hotel, for example, offering business people well equipped rooms with internet connection, desks and so on. It will also give you a feel for the room rates to charge - although you should be wary of competing solely on price there is no point in pitching your charges well above hotels in your area which are similar to yours. Competitors' Analysis

Find out: 

Who are your competitors



Where they live?



What are their employee base (i.e. number of employees)



Client base (i.e. number of clients)



Market value (i.e. what is their reputation in the market)



Market share (i.e. how much business they have occupied)



Turnover (i.e. annual sales)?



How many events they organize in a year?



Why people attend their events?



What is so special about their events?



How do they get clients and sponsors for their events?

All this will help you in developing a better business plan for your hotel company.

Step 3: Prepare business plan for your hotel. You will develop your business plan on the basis of market research, competitors' analysis and SWOT analysis of your hotel company. Before developing your business plan, you should keep some points in mind: 

Be realistic and avoid optimism while estimating capital requirements, sales and profits.



Don't ignore developing strategies which may come handy in case of adversities in your business.


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”


Following steps can be adopted for developing a business plan for your hotel : 1.

Outline your business objectives.

What do you want to achieve in short term and in long term i.e. what is the mission and vision of your event planning company? However don't stick too much with long term objectives as they may become meaningless after a long time or changes in market situation. 2.

Determine your staffing needs and what should be their skill sets.

Develop the organizational structure of your hotel company. Outline your own skills, knowledge and experience and determine how they can be used to achieve business success. Prepare resume of yourself and all of the people who will be involved in your business. These resumes will come handy when you will look for partners/investors later on. 3.

Determine how exactly you will find clients?

How you will approach them and how you will sell your services. How you will expand your business? What will be your rules, regulations, policies and procedures regarding payments, reimbursement, penalties, cancellation and behaviour? 4.

Estimate your capital requirements for one whole year.

How you will manage the cash flow? 5.

Prepare a contingency plan

I.e. what strategies you will adopt in case of capital loss, economic crisis or market downturn.

Step 4: On the basis of your business plan determine your operating cost I.e. the cost to run the business.


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”


Step 5: On the basis of the operating cost, decide your own fees and the staff salary. Step 6: Get investors/ business partners for your hotel company On the basis of market research, competitors' analysis, SWOT analysis and your business plan.

Step 7: Decide name and logo of your company and its status I.e. whether organization will be a company, firm or establishment.

Step 8: Premises, recruitment and marketing your business Hire office. Buy office stationary and recruit staff. Launch a new flashy website which effectively describes your business and services in great detail. Hire an internet marketing professional to promote it. If you won't promote your website, then nobody will visit your website. So in that case your website will be as good as nothing.

Step 9: Register your Company If you have opened a company then get it registered under the Company's Act'. If you have opened a firm then gets it registered under the 'Indian Partnership Act'. If you have opened an establishment, then get it registered under the 'Shops and Establishment Act‘. An event

management company is just like any other company. So whatever rules and procedures are required to start a company, also applies to an event management company.

Step 10: Register to pay tax Following taxes are to be paid by a hotel. Income Tax, TDS (Tax deducted at source), service tax, entertainment tax and taxes related to moving goods and merchandise from one destination to others. Get PAN card to file Income Tax return. TAN card to file TDS return. Get registration for service tax. The service tax on hotel in India is 12.36%


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Chapter 3

Projected Company Profile


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3.1 ORGANISATION 

Name of Organisation: PARADISE HOTEL CUM RESORT



Type: Proprietorship Firm



Tagline: ―Somewhere between Heaven and Earth‖



Symbol:



Established: 2012-13



Address: Opp. Surat Airport, Dumas Road, Near Magdalla, Surat.


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

Mission-Vision-Values:


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3.2 SERVICES The following are the proposed products and services will be provided by the PARADISE Resort cum Hotel.

Hotel Rooms & Suites

The hotel rooms will be of stylish, comfortable, well-furnished and air-conditioned rooms with contemporary luxury and gracious service. There will be two catagories of rooms: 

Standard Rooms



Deluxe Rooms

Deluxe Room have 2 bedrooms in each, one bathroom with steambath facility, one LCD television, one computer, coupboard, a gallary from which a nice view can be seen and intercome telecome facility is also be there. We will have total 30 deluxe rooms in our hotel. Standard Rooms includes 1 bedroom with two separate beds, one bathrooms, one television, a coupboard etc. We will have total 50 standard rooms in our hotel. Multi-Purpose Hall (Banquet)

The Hotel will have a banquet hall with a capacity of 150 and 400 for parties, banquet

hall

also

be

used

for

exhibitions/events. The banquet hall is very essential for the hotel and will be done in a western concept.


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Conference Hall

There will be 1 conferencing hall for business

meeting,

conference

and

gathering etc. the hall will be equipped with all the modern conferencing aids.

Restaurant The restaurant will be having 2 parts veg and non-veg. A Lounge Bar and a coffee shop, which will be offering a choice of continental. Chinese and variety of food from Indian cuisine, with live piano music, and one open restaurant with the above amenities for the outside visitors will be having. The restaurant will have a variety of dishes like, 

South Indian dishes



Chinese dishes



Italian dishes



Gujarati Thalis



North Indian dishes



Fast Foods


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Resort Complex Ayurveda Centre

The resort will be having an Ayurveda centre. Ayurveda is the alternative medicine of Indian tradition, originated in ancient times. It is a natural healing science for cure, prevention or rejuvenation of the body, based on the use of herbs or herbal medicines. Kids Arena and Board Games

The Resort Complex will be having a separate area for the kids; Kids Arena for children to have fun and play all the time while visiting the Resort. The Resort will be having an area for board games, which will provide additional options for the guests to spend excellence time in the Resort. Swimming Pool, Jacuzzi, Spa, and Steam Sauna

A swimming pool is also an important part of the Hotel. The swimming pool facility is a must for any club and thus it will be instrumental for the popularity of the resort. It will be 1 of the main basis of marketing the resort facilities. There will also a small nearby kid‘s swimming pool. There will be a juice

and snack bar along with the swimming pool to add to the service provisions.


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Handicraft Shops

There will be a part of handicraft shops where anyone can buy a huge range of handicraft products like, 

Metal Crafts



Metal Ornamentation



Pottery & Stone Craft



Marble Inlay Work



Wood Craft



Precious and Semi-precious Stones



Paintings



Textiles



Carpets etc.

Garden

In the proposed project there is also a beautiful and decorated Garden and its well-kept gardens infuses a breath of fresh air and fill both young and old with vitality, which will be provided on rent for the enjoyment. The capacity of the garden will be around 1000 people with huge car parking capacity.

Tennis Court

A tennis court is also available in PARADISE hotel where anyone can play and enjoy their best time.


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Indoor Games Facility

Games mean fun and frolic for everyone and are the best way to spend some time in merriment and leisure. Indulge in our inhouse indoor games viz, chess, carom, virtual games, your children can have a world of their own playing games and much more. Cyber café cum Game Zone

Virtual games, video games and Sony play station where your children can have a world of their own playing games and much more.

Wedding / Marriage Arrangements

Wedding/Marriage Arrangements- We do have the facility for hosting a marriage ceremony/reception or a social gathering to make this immense significant moment of your life a special and memorable one for a lifetime.

Dive In Movie Theatre

Dive in Theatre, where you can watch movie in the open area.


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”


3.3 SWOT ANALYSIS OF HOTEL Products/Services Research

If you are managing a hotel then it is necessary for you as a hotel manager to do research of the products/ services promoted and sold by your corporate client. 

Find out how the company promotes its products



How the company wants to build/enhance the image associated with its product (also known as the brand image)?



What is the market value and market share of the company and its products?



Who are the customers of the product?



What are the features of the product?



What are the advantages and disadvantages of the product in comparison to competitors' products?

All this research will later help you in making an effecting promotional campaign for your corporate event. SWOT Analysis

In SWOT Analysis:

'S' stands for Strengths

'O' stands for Opportunities

'W' stands for Weaknesses

'T' stands for Threats

It is a strategic planning tool which is used to identify and analyze the strengths, weaknesses, opportunities and threats involved in your project. SWOT analysis can also be done on your organization.


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”




Strengths:

These are the attributes of your project/organization which are helpful in achieving project's objectives. For e.g.: experienced service team, high motivation level, excellent PR, good market share etc. 

Weaknesses:

These are those attributes of your project/organization which are harmful in achieving project's objectives. For e.g.: social loafing, lack of funds, inexperienced staff, low energy level, lack of media and corporate contacts etc. 

Opportunities:

These are those external factors which are helpful in achieving the project's objectives. For e.g.: little competition, favorable economic conditions, support from the local authorities, availability of the state of the art infrastructure etc. 

Threats:

These are those external factors which are harmful in achieving the project's objectives. For e.g.: high competition, little or no support from local authorities, bad weather, poor infrastructure, high lab our rate, unavailability of raw material etc. It is very important that you conduct SWOT analysis before developing a hotel plan to develop a strategy which maximizes the potential of strengths and opportunities of your project and at the same time, minimizes the impact of the weaknesses and threats.

Analysis Report

After conducting market, competitors, product/service research and SWOT analysis, create a report which contain details of all the research work done by you. Documentation of your research work is important. Your analysis report will also help you in getting loans for your hotel.


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”


3.4 COMPETITORS Basically there are many local players in Hotel Industry in Surat. But here is a list of very influencing players: 

The Grand Bhagvati (TGB)



The Gateway Hotel



Best Western Yuvraj



Embassy Hotel



Hotel Budget Inn



Lords Plaza



Hotel Golden Plaza



Hotel Relax Inn



Ginger



Hotel Oyester



Royal Park Club Resort



Tex Palazzo


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3.5 ADVERTISEMENT PICTURES


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“

”



“

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3.6 PLANT LAYOUT


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3.7 CAPACITY PLANNING

Hotel

Number

Types of Rooms - Standard

50

- Deluxe

30

Restaurant - Non Veg

01

- Veg

01

Administrative Office

01

Handicraft Shops

10

Multipurpose Hall

01

Garden

01

Children Playground

01

Swimming Pool

02

Tennis Court

01

Indoor Game Centre

01

Dive In Cinema Theatre

01

Ayurveda Centre

01

Staff Quarter

01

Cyber café cum Video Game Zone

01


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3.8 LICENCE OR PERMISSIONS REQUIRED FROM GOVERNMENT The Ministry of Tourism will approve hotels at project stage based on documentation. Documentation      

 



Duly filled up Application form. Application Fee. Proposed name of the hotel. Name of the promoters with a note on their business antecedents. Complete postal address of the promoters/tel./fax/email Status of the owners/ promoters: If Public/ private limited company with copies of Memorandum and Articles o of Association If Partnership, a copy of partnership deed and certificate of registration o If proprietary concern, name and address of proprietor/certificate of o registration Location of hotel site with postal address Details of the site Area (in sq. meters) o Title - owned/ leased with copies of sale/ lease deed o Copy of Land Use Permit from local authorities o Distances from Railway station, airport, main shopping centers (in Kms) o Details of the project: o

o

Copy of feasibility report. Star category planned.

o

Number of rooms and area for each type of room (in sq.ft.)

o

Number of attached baths and areas (in sq.ft.)

o

Details of public areas - Lobby/lounge restaurants, bars, shopping, banquet / conference halls, health club, swimming pool, parking facilities.



o

Facilities for the physically challenged persons.

o

Eco-friendly practices and any other additional facilities.

o

Date by which project is expected to be completed and operational.

Blue prints/ sketch plans signed by owners and architect showing o

Site plan

o

Front and side elevations

o

Floor plans for all floors

o

Detail of guest room and bath room with dimensions in sq.ft.

o

Details of Fire Fighting Measures/ Hydrants etc.


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

Air-conditioning details for guest rooms, public areas



Local approvals by: o

Municipal authorities

o

Concerned Police Authorities

o

Any other local authority as maybe required.

o

Approval /NOC from Airport Authority of India (for projects located near Airports)





Proposed capital structure: o

Total project cost

o

Equity component with details of paid up capital

o

Debt - with current and proposed sources of funding

Certificates/No Objection Certificate's (attested copies) o

Certificate/ license of Registration from Municipality/ Corporation

o

Certificate/ license from concerned Police Department authorizing the running of a hotel.

o

Clearance Certificate from Municipal Health Officer/ Sanitary Inspector.

o

No Objection Certificate from the Fire Service Department (Local Fire Brigade Authorities)



o

Public liability insurance

o

Money Changers License (necessary for 4*,5*& 5*-D only)

Sanctioned building plans/occupancy certificate

 If classified earlier, a copy of the earlier & ―Certificate of Classification issued by

Department of Tourism‖ 

Any other local authority as maybe required.



Approval /NOC from Airport Authority of India (AAI) for projects located near Airports



Indicate whether a few rooms or all rooms are to be let out on a time-share basis.



Application fees


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Chapter 4

Research Methodology


“

”


4.1 REASON FOR CHOOSING TOPIC:Hotel Industry in India has witnessed tremendous boom in recent years. Hotel Industry is inextricably linked to the tourism industry and the growth in the Indian tourism industry has fuelled the growth of Indian hotel industry. The thriving economy and increased business opportunities in India have acted as a boon for Indian hotel industry. The arrival of low cost airlines and the associated price wars have given domestic tourists a host of options. The 'Incredible India' destination campaign and the recently launched 'Atithi Devo Bhavah' (ADB) and „Khushboo Gujarat Ki‟ campaign have also helped in the

growth of domestic and international tourism and consequently the hotel industry.

4.2 NEED FOR RESEARCH:The main need for research is to know how project is to be financed for starting an hotel on the basis of the projected fund flow and cash flow rather than the balance sheets of the project sponsors so; the main reason is to be known on the what basis and what criteria loans are given to the an event planner firm by financial institution and bank. Also the purpose of this research is to know how project is to be financed, the need of research is to know how this loan provided to the firm and what are the steps and procedure involve in it.

4.3 RESEARCH PROBLEM STATEMENT:―Project Preparation and Appraisal of Hotel cum Resort on basis of both primary data and secondary data.‖


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4.4 OBJECTIVE OF RESEARCH:

Primary Objective:-

To prepare and appraise the project for hotel cum resort. 

Secondary Objective:-

To know how project is to be financed for starting hotel and to know how this loan provided to the firm and what are the steps and procedure involve in it. To analysis financial evaluation of the project. To know which the main area are that to be covered in project financing. To find out appropriateness of the project by using various financial tools and techniques of the project.

4.5 RESEARCH DESIGN:This study is descriptive because, it gives useful information from available data. So that, here ―Descriptive Research design‖ is to be used. This research is based on secondary data.

4.6 CASE STUDY:Project Preparation and Appraisal of Hotel cum Resort is based on case study. The basic purpose behind this topic is to know how project is to be financed for starting hotel cum resort on the basis of the projected fund flow and cash flow rather than the balance sheets of the project sponsors so; the main reason is to be known on the what basis and what criteria loans are given to the hotel cum resort by financial institution and bank.

4.7 DATA COLLECTION:Data collection is based on secondary data only which is gathered from local hotels of Surat, which are as follows: 

TGB Hotels



Avadh Restaurant



Step up Restaurant & Banquet


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4.8 DATA ANALYSIS:Following data analysis tool must be applied in this project: Data Classification and Tabulation Ratio Analysis Projected Fund Flow Statement Projected Cash Flow Statement Projected Profit and Loss Account Projected Balance Sheet Statement Projected Working Capital Sensitivity Analysis 

Net Present Value

4.9 LIMITATION OF RESEARCH:The project study undertakes only certain aspect of hotel industry. The project report based on the assumption and projected data. Some of firm might give wrong information about their personal detail viz. Income & strategy. Some external factor doesn‘t consider.

If there is any error in data, all through they collected from official websites may influence the result & finding


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4.10 SCOPE OF RESEARCH:Scope of study means the study whichever is carried out where it will helpful in future. The study will helpful to know how project is to be financed for starting a hotel. The study will helpful to know how loan provided to the firm and what are the steps and procedure involve in it. The study will helpful to know what are the technical and fundamental factor affect while starting a new hotel. On the basis of the study individual firm can take the corrective actions. The study will be helpful to know the raising pattern of fund in market. It will be helpful to the company to know where it is lacking behind to raising fund from market.


“

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Chapter 5

Data Analysis and Findings


“

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5.1 COST OF FINANCE

Cost of Finance Particular

Amount

Land

5,00,00,000

Buildings

3,00,00,000

Furniture

80,00,000

Computers (15)

5,00,000

Motor Car (5)

50,00,000

Working Capital

10,00,000

Total Cost of Finance

9,45,00,000

5.2 MEANS OF FINANCE

Means of Finance Particular

Amount

Own Capital

2,83,50,000

Term Loan

6,61,50,000

Total Means of Finance

9,45,00,000


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5.3 PROJECTED PROFIT AND LOSS ACCOUNT

Projected Profit & Loss Account Particulars

Amount 2012-13

2013-14

2014-15

2015-16

2016-17

Income (Annexure A)

12,53,64,000

16,29,48,000

19,77,06,000

22,91,58,000

26,39,10,000

Material Consumed

3,00,00,000

3,30,00,000

3,69,60,000

4,13,95,200

4,63,62,624

Operating Expense (Annexure B)

5,73,00,000

7,05,30,000

9,25,89,600

10,50,80,952

11,86,24,445

Gross Profit

3,80,64,000

5,94,18,000

6,81,56,400

8,26,81,848

9,89,22,931

Gross Profit In Percentage

30.36%

36.46%

34.47%

36.08%

37.48%

Administrative Exp (Annexure C)

1,24,60,000

1,36,06,000

1,52,44,780

1,71,83,860

1,96,11,439

Depriciation (Annexure D)

48,50,000

41,77,500

75,67,875

58,29,994

68,28,865

Profit Before Interest And Tax

2,07,54,000

4,16,34,500

4,53,43,745

5,96,67,994

7,24,82,628

Interest (Annexure E)

1,08,15,525

84,34,125

62,51,175

36,71,325

12,89,925

Profit Before Tax (PBT)

99,38,475

3,32,00,375

3,90,92,570

5,59,96,669

7,11,92,703

Prvocision For Tax

20,00,000

1,15,00,000

1,60,00,000

2,00,00,000

2,30,00,000

Net Profit After Tax

79,38,475

2,17,00,375

2,30,92,570

3,59,96,669

4,81,92,703

Net Profit In Percentage

6.33%

13.32%

11.68%

15.71%

18.26%


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5.4 PROJECTED BALANCE SHEET

Projected Balance Sheet 2012-13

2013-14

Amount 2014-15

Own Capital

2,83,50,000

2,83,50,000

2,83,50,000

2,83,50,000

2,83,50,000

Reserve and surplus

79,38,475

2,96,38,850

5,27,31,420

8,87,28,089

13,69,20,792

Secured Loan

5,29,20,000

3,96,90,000

2,64,60,000

1,32,30,000

0

Total Liabilities

8,92,08,475

9,76,78,850

10,75,41,420

13,03,08,089

16,52,70,792

Land

5,00,00,000

7,00,00,000

7,00,00,000

10,25,00,000

10,25,00,000

Buildings

2,70,00,000

2,43,00,000

3,08,70,000

2,77,83,000

4,30,04,700

Furniture

72,00,000

64,80,000

1,03,32,000

92,98,800

83,68,920

Motor Car

42,50,000

36,12,500

64,70,625

55,00,031

46,75,027

Computer

2,00,000

80,000

12,32,000

4,92,800

1,97,120

Total Fixed Assets

8,86,50,000

10,44,72,500

11,89,04,625

14,55,74,631

15,87,45,767

4,00,000

5,00,000

5,50,000

5,80,000

6,00,000

29,08,475

49,86,350

48,86,795

50,33,458

2,98,25,025

33,08,475

54,86,350

54,36,795

56,13,458

3,04,25,025

Sundry Creditors

7,50,000

7,80,000

8,00,000

8,80,000

9,00,000

Provision for Tax

20,00,000

1,15,00,000

1,60,00,000

2,00,00,000

2,30,00,000

Total CL

27,50,000

1,22,80,000

1,68,00,000

2,08,80,000

2,39,00,000

Total Assets

8,92,08,475

9,76,78,850

10,75,41,420

13,03,08,089

16,52,70,792

Particulars

2015-16

2016-17

Liabilities

Assets Fixed Assets

Current Assets Stock Cash & Bank Balance Total CA

Current Liabilities


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5.5 WORKING CAPITAL STATEMENT

Working Capital Statement Particulars Current Assets Stock Cash and Bank Total CA Current Liabilities Sundry Creditors Provision For Tax Total CL Net Working Capital

2012-13

2013-14

Amount 2014-15

4,00,000 29,08,475 33,08,475

5,00,000 49,86,350 54,86,350

5,50,000 48,86,795 54,36,795

5,80,000 50,33,458 56,13,458

6,00,000 2,98,25,025 3,04,25,025

7,50,000 20,00,000 27,50,000

7,80,000 1,15,00,000 1,22,80,000

8,00,000 1,60,00,000 1,68,00,000

8,80,000 2,00,00,000 2,08,80,000

9,00,000 2,30,00,000 2,39,00,000

5,58,475

(67,93,650)

2015-16

2016-17

(1,13,63,205) (1,52,66,542)

65,25,025

5.6 FUND FLOW STATEMENT

Fund Flow Statement Particulars

2012-13 Sources of Fund Profit After Tax add 2,36,04,000 Depreciation Own Capital 2,83,50,000 Bank Loan 6,61,50,000 Net Decrease in (5,58,475) Working Capital Total Sources 11,75,45,525 Application of Funds Repayment 1,32,30,000 Instalment Land 5,00,00,000 Building 3,00,00,000 Furniture 80,00,000 Computers 5,00,000 Motor Car 50,00,000 Interest on 1,08,15,525 Capital Total 11,75,45,525 Application

2013-14

Year 2014-15

2015-16

2016-17

3,43,12,000

3,69,11,620

4,54,97,988

5,63,11,492

0 0

0 0

0 0

0 0

(10,82,000)

(16,81,620)

(39,03,337)

(2,30,81,492)

3,32,30,000

3,52,30,000

4,94,01,325

3,32,30,000

1,32,30,000

1,32,30,000

1,32,30,000

1,32,30,000

2,00,00,000 0 0 0 0

0 1,00,00,000 50,00,000 30,00,000 40,00,000

3,25,00,000 0 0 0 0

0 2,00,00,000 0 0 0

84,34,125

62,51,175

36,71,325

12,89,925

3,32,30,000

3,52,30,000

4,94,01,325

3,32,30,000


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5.7 CASH FLOW STATEMENT

Cash Flow Statement Particulars

2012-13 Operating Activities Net Profit 79,38,475 After Tax Depreciation 48,50,000 Interest 1,08,15,525 Stock (4,00,000) Creditors 7,50,000 Provision for 20,00,000 tax Total Cash from 2,59,54,000 Operation Less: Actual (29,81,543) Tax payments Net Cash from 2,29,72,458 Operation Investment Activities Land (5,00,00,000) Building (3,00,00,000) Furniture (80,00,000) Computers (5,00,000) Motor Car (50,00,000) Total Cash In (9,35,00,000) Investment Financing Activities Own Capital 2,83,50,000 Secured Loan 6,61,50,000 Repayment of (1,32,30,000) Loan Interest (1,08,15,525) Total Cash 7,04,54,475 from Finance Total Cash 29,08,475 Flow

2013-14

Amount 2014-15

2015-16

2016-17

2,17,00,375

2,30,92,570

3,59,96,669

4,81,92,703

41,77,500 84,34,125 (1,00,000) 30,000

75,67,875 62,51,175 (50,000) 20,000

58,29,994 36,71,325 (30,000) 80,000

68,28,865 12,89,925 (20,000) 20,000

95,00,000

45,00,000

40,00,000

30,00,000

4,37,42,000

4,13,81,620

4,95,47,988

5,93,11,492

(99,60,113)

(1,17,27,771)

(1,67,99,001)

(2,13,57,811)

3,37,81,888

2,96,53,849

3,27,48,987

3,79,53,681

(2,00,00,000)

(3,25,00,000)

-

(1,00,00,000) (50,00,000) (30,00,000) (40,00,000)

(2,00,00,000)

(2,20,00,000)

(3,25,00,000)

(2,00,00,000)

-

-

(1,32,30,000)

(1,32,30,000)

(1,32,30,000)

(1,32,30,000)

(84,34,125)

(62,51,175)

(36,71,325)

(12,89,925)

(2,16,64,125)

(1,94,81,175)

(1,69,01,325)

(1,45,19,925)

20,77,875

(99,555)

1,46,663

2,47,91,567

(2,00,00,000)

Opening Balance of Cash

-

29,08,475

49,86,350

48,86,795

50,33,458

Closing Bank Balance

29,08,475

49,86,350

48,86,795

50,33,458

2,98,25,025


“

”


5.8 ANNEXURE A…Income from hotel room rent Particular

2012-13

2013-14

2014-15

2015-16

2016-17

Plant Capacity Usage (In %)

62%

74%

83%

87%

95%

Standard (Rs.2500) (50 Rooms)

77,500

92,500

1,03,750

1,30,500

1,42,500

Deluxe (Rs.4000) (30 Rooms)

74,400

88,800

99,600

1,17,450

1,28,250

Total Usage Days

1,51,900 30

1,81,300 30

2,03,350 30

2,47,950 30

2,70,750 30

Multipurpose hall (Rs. 500000)

3,10,000

3,70,000

4,15,000

4,35,000

4,75,000

Total Month Total Sales

48,67,000 12 5,84,04,000

58,09,000 12 6,97,08,000

65,15,500 12 7,81,86,000

78,73,500 12 9,44,82,000

85,97,500 12 10,31,70,000

Rooms:

A…Income from Restaurant Particular

2012-13

2013-14

2014-15

2015-16

2016-17

Total table

100

100

100

100

100

Capacity Usages

62%

74%

83%

87%

95%

62

74

83

87

95

Average Amount of Bill (4-persons)

3,000

3,500

4,000

4,300

4,700

Total Usage

1,86,000

2,59,000

3,32,000

3,74,100

4,46,500

Days

30

30

30

30

30

Total

55,80,000

77,70,000

99,60,000

1,12,23,000

1,33,95,000

Month

12

12

12

12

12

Total Sales

6,69,60,000

9,32,40,000

11,95,20,000

13,46,76,000

16,07,40,000

Total Revenue

12,53,64,000

16,29,48,000

19,77,06,000

22,91,58,000

26,39,10,000


“

”


B…Operating Expenses Particular

2012-13

2013-14

2014-15

2015-16

2016-17

Salary Expenses

4,50,00,000

5,70,00,000

7,70,40,000

8,72,10,000

9,72,00,000

3,00,000

3,30,000

3,69,600

4,13,952

4,76,045

1,20,00,000

1,32,00,000

1,51,80,000

1,74,57,000

2,09,48,400

5,73,00,000

7,05,30,000

9,25,89,600

10,50,80,952

11,86,24,445

Consumable Items Gas & Fuel Expenses

Total

Salary Expense Statement Particular

2012-13

2013-14

2014-15

2015-16

2016-17

Staff

300

350

400

425

450

Months

12

12

12

12

12

10,000

11,000

12,750

13,500.00

14,000

3,60,00,000

4,62,00,000

6,12,00,000

6,88,50,000

7,56,00,000

25

30

40

45

50

30,000

30,000

33,000

34,000

36,000

90,00,000

1,08,00,000

1,58,40,000

1,83,60,000

2,16,00,000

4,50,00,000

5,70,00,000

7,70,40,000

8,72,10,000

9,72,00,000

Average Salary per Month Total Salary of Restaurant Staff

Manger Average Salary of Manger Total Salary of Mangers

Total Salary Expenses


“

”


C…Administrative Expense

Particular

2012-13

2013-14

2014-15

2015-16

2016-17

Office Expense

15,00,000

16,50,000

18,64,500

20,88,240

24,01,476

Stationary Exp

3,00,000

3,30,000

3,72,900

4,17,648

4,80,295

Miscellaneous Exp

2,50,000

2,75,000

3,10,750

3,48,040

4,00,246

Accountant Fees

1,50,000

1,65,000

1,86,450

2,08,824

2,40,148

Advertisement Exp

15,00,000

16,50,000

18,64,500

20,88,240

24,01,476

Telephone Exp

3,00,000

3,30,000

3,72,900

4,17,648

4,80,295

Decoration Expenses

5,00,000

5,50,000

6,21,500

6,96,080

8,00,492

House Keeping Expenses

8,00,000

8,80,000

9,94,400

11,13,728

12,80,787

Insurance Expenses

10,00,000

10,00,000

10,00,000

10,00,000

10,00,000

9,00,000

9,90,000

11,18,700

12,86,505

14,79,481

4,00,000

4,40,000

4,97,200

5,71,780

6,57,547

48,60,000

53,46,000

60,40,980

69,47,127

79,89,196

Cleaning and Laundry Expenses Repair and maintenance Expenses Electricity

Total

1,24,60,000 1,36,06,000 1,52,44,780 1,71,83,860

1,96,11,439

D…Depreciation

Particular Buildings

2012-13

2013-14

2014-15

2015-16

2016-17

3,00,00,000

2,70,00,000

3,43,00,000

3,08,70,000

4,77,83,000

30,00,000

27,00,000

34,30,000

30,87,000

47,78,300

2,70,00,000

2,43,00,000

3,08,70,000

2,77,83,000

4,30,04,700

Furniture

80,00,000

72,00,000

1,14,80,000

1,03,32,000

92,98,800

Less: Depreciation (10%)

8,00,000

7,20,000

11,48,000

10,33,200

9,29,880

72,00,000

64,80,000

1,03,32,000

92,98,800

83,68,920

Motor Car

50,00,000

42,50,000

76,12,500

64,70,625

55,00,031


7,50,000

6,37,500

11,41,875

9,70,594

8,25,005

42,50,000

36,12,500

64,70,625

55,00,031

46,75,027

Computers

5,00,000

2,00,000

30,80,000

12,32,000

4,92,800


3,00,000

1,20,000

18,48,000

7,39,200

2,95,680

2,00,000

80,000

12,32,000

4,92,800

1,97,120

48,50,000

41,77,500

75,67,875

58,29,994

68,28,865


Total Depreciation


“

”


5.9 PROJECTED RATIO  Current Ratio Year Particulars 2012-13

2013-14

2014-15

2015-16

2016-17

Current Asset (A)

33,08,475

54,86,350

54,36,795

56,13,458

3,04,25,025

Current Liability (B)

27,50,000

1,22,80,000

1,68,00,000

2,08,80,000

2,39,00,000

Current Ratio (A/B)

1.20

0.45

0.32

0.27

1.27

Current Ratio 1.40 1.20

1.27

1.20 1.00 0.80 0.60 0.40

0.45 0.32

0.20

0.27

0.00 2012-13

2013-14

2014-15

2015-16

2016-17

Interpretation This ratio shows the proportion of current assets to current liabilities. It is measures of working capital available at a particular time. It indicates short-term financial strength of the firm and it is measure of whether firm will be able to meet its current liability. Here firm‘s current ratio decreased for 4 years and then it increases to 1.27 which indicate that firm has in strong position to meet its current liabilities.


“

”




Operating Profit Ratio Year Particulars 2012-13

2013-14

2014-15

2015-16

2016-17

PBIT (A)

2,07,54,000

4,16,34,500

4,53,43,745

5,96,67,994

7,24,82,628

Net Income (B)

12,53,64,000

16,29,48,000

19,77,06,000

22,91,58,000

26,39,10,000

OPERATING PROFIT RATIO ((A)/(B))*100

16.55%

25.55%

22.93%

26.04%

27.46%

Operating Ratio 30.00% 25.00%

27.46%

22.93%

20.00% 15.00%

26.04%

25.55%

16.55%

10.00%

5.00% 0.00% 2012-13

2013-14

2014-15

2015-16

2016-17

Interpretation It shows efficiency of the management. The higher the ratio, the less will be margin available to proprietor. Here firm operating profit ratio fluctuated in moderate level which indicates more margins available to proprietor and it increases year by year. And it increases is last year compare to first year.


“

”


 Net Profit Ratio

Year Particulars 2012-13

2013-14

2014-15

2015-16

2016-17

PAT (A)

79,38,475

2,17,00,375

2,30,92,570

3,59,96,669

4,81,92,703

SALES (B)

12,53,64,000

16,29,48,000

19,77,06,000

22,91,58,000

26,39,10,000

NET PROFIT RATIO ((A)/(B))*100

6.33%

13.32%

11.68%

15.71%

18.26%

Net Profit Ratio 20.00% 18.00%

18.26%

16.00%

15.71%

14.00%

13.32%

12.00%

11.68%

10.00% 8.00% 6.00%

6.33%

4.00% 2.00% 0.00% 2012-13

2013-14

2014-15

2015-16

2016-17

Interpretation It shows efficiency of the management. The higher the ratio, the less will be margin available to proprietor after deducting interest and tax. Here firm operating profit increases year by year which indicates more margins available to proprietor due to the increase in revenue.


“

”




Debt Equity Ratio Year

Particulars 2012-13

2013-14

2014-15

2015-16

2016-17

Total Long Term Debt (A)

5,29,20,000

3,96,90,000

2,64,60,000

1,32,30,000

0

Capital (B)

2,83,50,000

2,83,50,000

2,83,50,000

2,83,50,000

2,83,50,000

Reserve (c)

7938475

29638850

52731420

88728089.25

136920791.8

Debt Equity Ratio (A/(B+C))

1.46

0.68

0.33

0.11

0.00

Debt Equity Ratio 1.60 1.40

1.46

1.20 1.00 0.80 0.60

0.68

0.40

0.33

0.20

0.11

0.00

2015-16

2016-17

0.00 2012-13

2013-14

2014-15

-0.20

Interpretation This ratio established relationship between the outside long-term liabilities and owners fund. If this ratio rises, it shows that the financial risk of firm has decreased. Here firm debt equity ratio decreased by year which indicate there will be no high business risk for the firm.


“

”


 Debt Service Coverage Ratio

Year

Particulars

2012-13

2013-14

2014-15

2015-16

2016-17

PBIT (A)

2,07,54,000

4,16,34,500

4,53,43,745

5,96,67,994

7,24,82,628

Depreciation (B)

48,50,000

41,77,500

75,67,875

58,29,994

68,28,865

1,08,15,525

84,34,125

62,51,175

36,71,325

12,89,925

1,32,30,000

1,32,30,000

1,32,30,000

1,32,30,000

1,32,30,000

1.51

2.50

3.04

4.09

5.55

Interest on Term Loan (C) Instalment of Loan (D) DSCR ((A+B+C)/(C+D))

Debt Service Coverage Ratio 6.00

5.55

5.00

4.00

4.09

3.00

3.04 2.50

2.00

1.00

1.51

0.00 2012-13

2013-14

2014-15

2015-16

2016-17

Interpretation This ratio is calculated by bank when it has to considered term loan application. This ratio indicates the measure of safety available for payment of instalment of the term loan and interest due. If this ratio is high, lower the currency on the loan. Here firm DSCR ratio increase with a high amount.


“

”


 Return on Assets

2012-13

2013-14

Year 2014-15

FIXED ASSETS

8,86,50,000

10,44,72,500

11,89,04,625

14,55,74,631

15,87,45,767

PAT

79,38,475

2,17,00,375

2,30,92,570

3,59,96,669

4,81,92,703

Return on Assets ((B)/(A))

8.95%

20.77%

19.42%

24.73%

30.36%

Particulars

2015-16

2016-17

Return on Assets 35.00%

30.00%

30.36%

25.00%

24.73% 20.00%

20.77%

19.42%

15.00%

10.00%

8.95% 5.00%

0.00% 2012-13

2013-14

2014-15

2015-16

2016-17

Interpretation Return on assets indicate the profitability of firm and is very much in use among financial analysts. If this ratio is more it means assets are being used effectively to earn profit of the firm. Here ratio increased then it decreased then after it also increased which indicate moderate management style of the firm. And at last it increases constantly which suggest that the management of firm is going to be best.


“

”


 Return on Capital Employed

2012-13

2013-14

Year 2014-15

8,92,08,475

9,76,78,850

10,75,41,420

13,03,08,089

16,52,70,792

79,38,475

2,17,00,375

2,30,92,570

3,59,96,669

4,81,92,703

8.90%

22.22%

21.47%

27.62%

29.16%

Particulars Capital Employed (A) PAT (B) Return on Capital Employed

2015-16

2016-17

Return on Capital Employed 35.00%

30.00%

27.62%

25.00%

22.22%

20.00%

29.16%

21.47%

15.00%

10.00%

8.90% 5.00%

0.00% 2012-13

2013-14

2014-15

2015-16

2016-17

Interpretation Return on capital employed indicate the profitability of firm and is very much in use among financial analysts. Here ratio increased by year which indicate moderate management style of the firm. It shows the profitability of firm against capital employed.


“

”


5.10 REPAYMENT OF LOAN SCHEDULE

E…Interest No

Amount

Interest

Instalment

Ins+Int

Total

1

6,61,50,000

9,92,250

11,02,500.00

20,94,750

6,50,47,500

2

6,50,47,500

9,75,713

11,02,500.00

20,78,213

6,39,45,000

3

6,39,45,000

9,59,175

11,02,500.00

20,61,675

6,28,42,500

4

6,28,42,500

9,42,638

11,02,500.00

20,45,138

6,17,40,000

5

6,17,40,000

9,26,100

11,02,500.00

20,28,600

6,06,37,500

6

6,06,37,500

9,09,563

11,02,500.00

20,12,063

5,95,35,000

7

5,95,35,000

8,93,025

11,02,500.00

19,95,525

5,84,32,500

8

5,84,32,500

8,76,488

11,02,500.00

19,78,988

5,73,30,000

9

5,73,30,000

8,59,950

11,02,500.00

19,62,450

5,62,27,500

10

5,62,27,500

8,43,413

11,02,500.00

19,45,913

5,51,25,000

11

5,51,25,000

8,26,875

11,02,500.00

19,29,375

5,40,22,500

12

5,40,22,500

8,10,338

11,02,500.00

19,12,838

5,29,20,000

13

5,29,20,000

7,93,800

11,02,500.00

18,96,300

5,18,17,500

14

5,18,17,500

7,77,263

11,02,500.00

18,79,763

5,07,15,000

15

5,07,15,000

7,60,725

11,02,500.00

18,63,225

4,96,12,500

16

4,96,12,500

7,44,188

11,02,500.00

18,46,688

4,85,10,000

17

4,85,10,000

7,27,650

11,02,500.00

18,30,150

4,74,07,500

18

4,74,07,500

7,11,113

11,02,500.00

18,13,613

4,63,05,000

19

4,63,05,000

6,94,575

11,02,500.00

17,97,075

4,52,02,500

20

4,52,02,500

6,78,038

11,02,500.00

17,80,538

4,41,00,000

21

4,41,00,000

6,61,500

11,02,500.00

17,64,000

4,29,97,500

22

4,29,97,500

6,44,963

11,02,500.00

17,47,463

4,18,95,000

23

4,18,95,000

6,28,425

11,02,500.00

17,30,925

4,07,92,500

24

4,07,92,500

6,11,888

11,02,500.00

17,14,388

3,96,90,000

25

3,96,90,000

5,95,350

11,02,500.00

16,97,850

3,85,87,500

26

3,85,87,500

5,78,813

11,02,500.00

16,81,313

3,74,85,000

27

3,74,85,000

5,62,275

11,02,500.00

16,64,775

3,63,82,500

28

3,63,82,500

5,45,738

11,02,500.00

16,48,238

3,52,80,000

29

3,52,80,000

5,29,200

11,02,500.00

16,31,700

3,41,77,500


“

”


30

3,41,77,500

5,12,663

11,02,500.00

16,15,163

3,30,75,000

31

3,30,75,000

4,96,125

11,02,500.00

15,98,625

3,19,72,500

32

3,19,72,500

4,79,588

11,02,500.00

15,82,088

3,08,70,000

33

3,08,70,000

4,63,050

11,02,500.00

15,65,550

2,97,67,500

34

2,97,67,500

4,46,513

11,02,500.00

15,49,013

2,86,65,000

35

2,86,65,000

4,29,975

11,02,500.00

15,32,475

2,75,62,500

36

2,75,62,500

4,13,438

11,02,500.00

15,15,938

2,64,60,000

37

2,64,60,000

3,96,900

11,02,500.00

14,99,400

2,53,57,500

38

2,53,57,500

3,80,363

11,02,500.00

14,82,863

2,42,55,000

39

2,42,55,000

3,63,825

11,02,500.00

14,66,325

2,31,52,500

40

2,31,52,500

3,47,288

11,02,500.00

14,49,788

2,20,50,000

41

2,20,50,000

3,30,750

11,02,500.00

14,33,250

2,09,47,500

42

2,09,47,500

3,14,213

11,02,500.00

14,16,713

1,98,45,000

43

1,98,45,000

2,97,675

11,02,500.00

14,00,175

1,87,42,500

44

1,87,42,500

2,81,138

11,02,500.00

13,83,638

1,76,40,000

45

1,76,40,000

2,64,600

11,02,500.00

13,67,100

1,65,37,500

46

1,65,37,500

2,48,063

11,02,500.00

13,50,563

1,54,35,000

47

1,54,35,000

2,31,525

11,02,500.00

13,34,025

1,43,32,500

48

1,43,32,500

2,14,988

11,02,500.00

13,17,488

1,32,30,000

49

1,32,30,000

1,98,450

11,02,500.00

13,00,950

1,21,27,500

50

1,21,27,500

1,81,913

11,02,500.00

12,84,413

1,10,25,000

51

1,10,25,000

1,65,375

11,02,500.00

12,67,875

99,22,500

52

99,22,500

1,48,838

11,02,500.00

12,51,338

88,20,000

53

88,20,000

1,32,300

11,02,500.00

12,34,800

77,17,500

54

77,17,500

1,15,763

11,02,500.00

12,18,263

66,15,000

55

66,15,000

99,225

11,02,500.00

12,01,725

55,12,500

56

55,12,500

82,687

11,02,500.00

11,85,188

44,10,000

57

44,10,000

66,150

11,02,500.00

11,68,650

33,07,500

58

33,07,500

49,612

11,02,500.00

11,52,113

22,05,000

59

22,05,000

33,075

11,02,500.00

11,35,575

11,02,500

60

11,02,500

16,537

11,02,500.00

11,19,038

-0.00


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5.11 NET PRESENT VALUE Total Cost of Project

9,45,00,000

Year

2012-13

2013-14

2014-15

2015-16

2016-17

PBIT

2,07,54,000

4,16,34,500

4,53,43,745

5,96,67,994

7,24,82,628

Interest @ 10%

1,08,15,525

84,34,125

62,51,175

36,71,325

12,89,925

PBT

99,38,475

3,32,00,375

3,90,92,570

5,59,96,669

7,11,92,703

Tax @ 30%

20,00,000

1,15,00,000

1,60,00,000

2,00,00,000

2,30,00,000

Profit After Tax

79,38,475

2,17,00,375

2,30,92,570

3,59,96,669

4,81,92,703

Add: Depreciation

48,50,000

41,77,500

75,67,875

58,29,994

68,28,865

Net Cash Accruals

1,27,88,475

2,58,77,875

3,06,60,445

4,18,26,663

5,50,21,567

PV FACTOR

0.8929

0.7972

0.7118

0.6355

0.5674

Present value of future cash flow @ 12 %

1,14,18,281

2,06,29,683

2,18,23,499

2,65,81,600

3,12,20,714

Total Cash Inflow

11,16,73,779

Total Cash Outflow

9,45,00,000

Net Present Value

1,71,73,779

Interpretation Here NPV is positive, which helps to take decision regarding to invest in this project will be feasible or not. Here NPV is getting positive, so that it can be proved that this project is feasible and viable to invest money.


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5.12 PAY BACK PERIOD Year

Net Cash Accruals

Cumulative cash flow

2012-13

1,27,88,475

1,27,88,475

2013-14

2,58,77,875

3,86,66,350

2014-15

3,06,60,445

6,93,26,795

2015-16

4,18,26,663

11,11,53,458

2016-17

5,50,21,567

16,61,75,025

Net Investment

9,45,00,000

Pay Back Period

3 Years 2 months and 22 days

Interpretation PB indicates the period at the end of which investment will be received back. It worked out on the basis of net cash flow. In above table it shows that firm can received its investment back in 3 Years 2 months and 22 days, which indicates the more feasibility of investment opportunity.


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5.13 INTERNAL RATE OF RETURN RETURN (IRR) Total Investment

9,45,00,000

Year

Net Cash Accruals

Discount factor @ 10%

Present value

2012-13

1,27,88,475.00

0.8496

1,08,65,314.36

2013-14

2,58,77,875.00

0.7219

1,86,79,948.95

2014-15

3,06,60,445.00

0.6133

1,88,03,949.03

2015-16

4,18,26,663.00

0.5211

2,17,94,522.87

2016-17

5,50,21,567.20

0.4427

2,43,58,505.68

Total Present Value

9,45,02,240.89

Internal Rate of Return

17.70

Interpretation Internal rate of return (IRR) is the discount rate at which the net present value of an investment becomes zero. In other words, IRR is the discount rate which equates the present value of the future cash flows of an investment with the initial investment. Here IRR is 17.70, which means that at this rate the present value of all total cash flows will be zero.


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5.14 SENSITIVITY ANALYSIS

Situation: Sales Decreased by 10% Projected Profit & Loss Account Projected Profit & Loss Account Amount Particulars 2012-13 Income (Annexure A) Material Consumed Operating Expense (Annexure B)

2013-14

2014-15

2015-16

2016-17

11,28,27,600 14,66,53,200 17,79,35,400 20,62,42,200 23,75,19,000 3,00,00,000

3,30,00,000

3,69,60,000

4,13,95,200

5,73,00,000

7,05,30,000

9,25,89,600

10,50,80,952 11,86,24,445

Gross Profit

2,55,27,600

4,31,23,200

4,83,85,800

5,97,66,048

7,25,31,931

Gross Profit In Percentage

22.63%

29.40%

27.19%

28.98%

30.54%

1,24,60,000

1,36,06,000

1,52,44,780

1,71,83,860

1,96,11,439

48,50,000

41,77,500

75,67,875

58,29,994

68,28,865

82,17,600

2,53,39,700

2,55,73,145

3,67,52,194

4,60,91,628

1,08,15,525

84,34,125

62,51,175

36,71,325

12,89,925

(25,97,925)

1,69,05,575

1,93,21,970

3,30,80,869

4,48,01,703

Provision For Tax

-

56,00,000

64,00,000

1,10,00,000

1,49,00,000

Net Profit After Tax

(25,97,925)

1,13,05,575

1,29,21,970

2,20,80,869

2,99,01,703

Net Profit In Percentage

-2.30%

7.71%

7.26%

10.71%

12.59%

Administrative Exp (Annexure C) Depreciation (Annexure D) Profit Before Interest And Tax

Interest (Annexure E) Profit Before Tax (PBT)

4,63,62,624


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Projected Balance Sheet

Projected Balance Sheet Particulars Liabilities Own Capital Reserve and surplus Secured Loan Total Liabilities Assets Fixed Assets Land Buildings Furniture Motor Car Computer Total Fixed Assets Current Assets Stock Cash & Bank Balance Total CA

Amount 2012-13

2013-14

2014-15

2015-16

2016-17

2,83,50,000

2,83,50,000

2,83,50,000

2,83,50,000

2,83,50,000

(25,97,925)

87,07,650

2,16,29,620

4,37,10,489

7,36,12,192

5,29,20,000

3,96,90,000

2,64,60,000

1,32,30,000

0

7,86,72,075

7,67,47,650

7,64,39,620

8,52,90,489

10,19,62,192

5,00,00,000 2,70,00,000 72,00,000 42,50,000 2,00,000

7,00,00,000 2,43,00,000 64,80,000 36,12,500 80,000

7,00,00,000 3,08,70,000 1,03,32,000 64,70,625 12,32,000

10,25,00,000 2,77,83,000 92,98,800 55,00,031 4,92,800

10,25,00,000 4,30,04,700 83,68,920 46,75,027 1,97,120

8,86,50,000

10,44,72,500

11,89,04,625

14,55,74,631

15,87,45,767

4,00,000

5,00,000

5,50,000

5,80,000

6,00,000

(96,27,925)

(2,18,44,850)

(3,58,15,005)

(4,89,84,142)

(4,15,83,575)

(92,27,925)

(2,13,44,850)

(3,52,65,005)

(4,84,04,142)

(4,09,83,575)

7,50,000

7,80,000

8,00,000

8,80,000

9,00,000

Current Liabilities Sundry Creditors Provision for Tax Total CL

-

56,00,000

64,00,000

1,10,00,000

1,49,00,000

7,50,000

63,80,000

72,00,000

1,18,80,000

1,58,00,000

Total Assets

7,86,72,075

7,67,47,650

7,64,39,620

8,52,90,489

10,19,62,192


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Net Present Value Total Cost of Project Year 2012-13 PBIT 82,17,600 Interest 6,61,50,000 1,08,15,525 Rs. @ 10% PBT (25,97,925) Tax @ 30% 0 Profit After (25,97,925) Tax Add: Depreciatio 48,50,000 n Net Cash 22,52,075 Accruals PV FACTOR 0.89 Present value of 20,10,781 future cash flow @ 12 % Total Cash Inflow Total Cash Outflow Net Present Value

9,45,00,000 2013-14 2014-15 2,53,39,700 2,55,73,145

2015-16 3,67,52,194

2016-17 4,60,91,628

84,34,125

62,51,175

36,71,325

12,89,925

1,69,05,575 56,00,000

1,93,21,970 64,00,000

3,30,80,869 1,10,00,000

4,48,01,703 1,49,00,000

1,13,05,575

1,29,21,970

2,20,80,869

2,99,01,703

41,77,500

75,67,875

58,29,994

68,28,865

1,54,83,075

2,04,89,845

2,79,10,863

3,67,30,567

0.80

0.71

0.64

0.57

1,23,43,013

1,45,84,267

1,77,37,858

2,08,41,910

6,75,17,829 9,45,00,000 (2,69,82,171)

Interpretation Here if we decreased sales by 10% then also NPV is negative, which indicate more risk and less profitability of the firm. By doing sensitivity analysis it is clearly seen that NPV we get is negative, this project is not viable.


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Internal Rate of Return Year

Net Cash Accruals

Discount facto @ 10%

Present value

2012-13

22,52,075.00

0.9780

22,02,518.34

2013-14

1,54,83,075.00

0.9565

1,48,09,165.42

2014-15

2,04,89,845.00

0.9354

1,91,66,760.81

2015-16

2,79,10,863.00

0.9148

2,55,34,067.28

2016-17

3,67,30,567.20

0.8947

3,28,63,290.92

Total Present Value

9,45,75,802.76

Internal Rate of Return

2.25

Interpretation Internal rate of return (IRR) is the discount rate at which the net present value of an investment becomes zero. In other words, IRR is the discount rate which equates the present value of the future cash flows of an investment with the initial investment. In sensitivity analysis, by decreasing sales by 10%, IRR is 17.70, which means that at this rate the present value of all total cash flows will be zero.


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”


Payback Period Year

Net Cash Accruals

Cumulative cash flow

22,52,075

22,52,075

1,54,83,075

1,77,35,150

2,04,89,845

3,82,24,995

2,79,10,863

6,61,35,858

3,67,30,567

10,28,66,425

2012-13

2013-14

2014-15

2015-16

2016-17 Net Investment

9,45,00,000

Pay Back Period

4 Years 3 months and 10 days

Interpretation PB indicates the period at the end of which investment will be received back. It worked out on the basis of net cash flow. In above table, in sensitivity analysis, by decreasing sales by 10%, it shows that firm can received its investment back in 4 Years 3 months and 10 days, which indicates the more feasibility of investment opportunity.


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”


CONCLUSION According to overall analysis, it is clear that the firm net present value is positive and its investment also recover its investment in shorter period of time, which indicate low risk and high profitability of the firm for the future. So it is advisable that the firm can go with this project. One more thing which needs attention is that, on one side situation if sales decreased by 10% still the firm net present value is positive but decreased. The firm also recover its investment within shorter period of time, which indicates low risk and high profitability of the firm for the future. So it is advisable that the firm can go with this project. There is always better to calculated risk rather than investing abruptly. And this kind of analysis will provide one with at least basic idea about risk and return characteristics of investment, thus, according to all over analysis of project investment in hotel will be beneficial for an investor.


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SUGGESTIONS This entire project is based on projected data rather than actual certain data. So some time it may he happened that the project may not be feasible in real manner. Since project is based on the projected estimated data, so sometime it may also happened that it is difficult to implement in real business life and practical life. The above all calculations do not guaranteed the profitable and successfulness of the project because rapid changes take place in today‘s financial market condition and market trend. One can applied more financial analysis tool in order to judge the efficiency and profitability of the firm in context of the present financial market situation and present market trend. Hence while preparing and analysis of the project one shall keep in mind the future uncertainty related with cosy of the project, expected return from the project, future competitions, expected demand in future and legal provisions; time element which refers that longer demand in future and legal provisions; time element which refers that longer the time element the greater would be uncertainty. So keep this factor in mind so as to more efforts not to eradicate it totally but definite to minimize.


Project Appraisal of Hotel

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