Professional Documents
Culture Documents
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SUBMITTED TO:
By
Miss. Tanushri Balkhande
(PGPM - 32)
Reg.no.-215-05-31-12440-2173
PGPM 32 Page 1
PROJECTS FORMULATION & APPRISAL
PGPM 32 Page 2
PROJECT FORMULATION AND APPRAISAL
Assignment
Any company that has to survive in a competitive environment cannot remain complacent with the
present. It has to continuously bring about change in order to adapt to the altered environment.
Investment opportunities in India are today perhaps at a peak. Supported by India s natural strengths,
the country offers investment opportunities in excess of $500 billion in diverse sectors over the next five years.
Projects that are endeavors to create unique products and services are basically the instruments leading to
organizational growth. Projects have a long term impact on the character of the organization. Projects create
wealth not only for the organization but also for the nation. Projects, therefore, form a very important part of
the organizations strategy for survival & growth and therefore are the main concern of the corporate
management.
Realizing the tremendous opportunities, the most of the pragmatic organizations are planning to invest in
new projects. Every project starts with the perception of an opportunity. The better this is characterized, the
easier it will be to judge the levels of expenditure and risk that are justified. Identifying the pattern by which
technology creates new products & services and exploiting them early gives the company a significant
competitive advantage.
In the light of your studies prepare an assignment on project formulation, evaluation and appraisal of a
hypothetical project by covering the following:
Market Analysis
Technical Analysis
Financial Analysis
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INTRODUCTION
The project evaluation process involves more than just determining a project's expected revenues and
profitability; it also involves a study of the key factors that affect a project and their financial impact on the
project. In addition, a project evaluation includes strategic evaluation, economic evaluation and social impact
ASPECTS OF PROJECT APPRAISAL Source: Desai Vasant, Project Management, Pg. No. 153
While the financial evaluation of a project aims at ascertaining the most efficient strategy for delivering
the desired output, the strategic evaluation ensures that the project is consistent with the output objectives of
the firm.
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PROJECT EVALUATION TECHNIQUES Source: Pamela Peterson Financial Management and Analysis,
Pg. No. 433
The economic evaluation of the project, however, seeks to ensure that the delivered output is benefiting
the public at large. The evaluation of social impact aims at ensuring that the consequences of a project (in
terms of employment, output, savings and so on) are beneficial to the public.
Govindam Infrastructure Company is focusing on investments in emerging retail sector throughout India.
It has proposed to develop a commercial space in Panaji-Goa. This gives an opportunity to enter a market not
tested so far by the big players in retail sector and reap benefits of the first footer.
Goa State has established itself among the fastest growing industrial & commercial centers in India. It has
made impressive progress in all round development, measured by socio-economic indicators and ranks among
the leading union territory states of India. This is one of the most urbanized states in India. Tourism and mining
are the main sectors of the state economy. Sizeable percentage of population works in the Middle East and
western countries and brings home not only valuable foreign exchange kitty but also a new consumer test of
those places. The tourists from India and all over the world are spending much on leisure while on holidays in
MARKET ANALYSIS
Situational analysis
Company proposes to develop a Shopping Mall in Panaji-Goa. The market is mainly consisting small-
scale retail outlets, virtually monopolized by the sellers. The market also lacks presence of strong cooperative
sector. Due to scattered and satellite patterns of development, the city lacks cohesive and homogenous volume
of population compared to other Indian cities. However, excellent infrastructure, importance of capital place,
large base of floating population, high purchasing power of consumers and higher level of consumer spending
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Hence, we decided to develop a commercial space it consisting mainly of following facilities.
Secondary Information
Economic Profile of Goa: The Eleventh Finance commission Report, 2000 ranked Goa as the premier
state in terms of social and economic infrastructure. Goa is an attractive destination for foreign Direct
Investment (FDI). The contribution of FDI to the states economy has increased tenfold in the past years.
Census of India has projected population by Sex i.e. 16,28,000 for Goa as on 1st March 2008
Out of every rupee spent in 2006-07 by the average urban Indian on consumption, 39 paise were spent on
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food. Of this, 9 paisa was spent on cereals and cereal substitutes, 7 paisa on milk and milk products, 6 paise on
beverages, refreshments and processed food, and 4 paise on vegetables. There was little difference between
rural and urban households in the share of the budget allocated to fuel and light (10% for rural, 9% for urban)
and clothing, including bedding and footwear (7% for rural, 6% for urban).
The average urban Indian differed noticeably from the rural mainly by spending only 9 paise out of one
rupee on cereals, but as much as 14 paise on consumer services, 7 paise on education and 5 paise on rent. In
fact the urban Indian devoted only 39 paise of the rupee on food, spending a smaller portion of the rupee than
the rural Indian on every food group except the category "beverages, refreshments and processed food".
Percentage of population below specific MPCE: (Ref. annexure no. lll & VI)
In 2006-07, roughly one-half (50.3%) of the rural population of India had MPCE less than RS.580
(column 2 of Table P1) compared to only 17.4% of the urban population column 6). For urban India, the
For urban area applicable to Group of union territories shall be applicable to Goa.
Average MPCE for urban area applicable to Goa may be considered as 1944.88 for food and non-food
group of expenditure
DEMAND FORECASTING
Demand forecast was done using casual method of forecasting. As the project involves products of direct
consumption, Consumption Level Method suits best to forecast demand of the products
Estimate based on income and price elasticity of demand: (Ref. annexure no. I & IV)
Aggregate demand can be worked out from secondary information available with us (ref. Annexure)
1347668 x 8yrs.
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= 21100734
e) Projected population for north Goa in the Year 2010 : 7,58,573 x (1+2.6)2
2) From above study, we can project- Rise in level of income = (+) 17.00%
3) From above study, we can project- Rise in Aggregate supply (avg.) = (+) 15.75%
4) From above study, we can project- Rise in MPCE = (+) 2.70 times
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The proposed shopping mall may have outlets as detailed below
- Departmental Store
- Food
- Sports and outdoor
- Jewelers
- Children
- Miscellaneous
The project work may be taken up on E.P.C Contract basis in a time bound manner.
Sound arrangements for Power back up, air-conditioning, Escalators, capsule lifts, waste disposal etc
Capacity strategy:
The only limiting factor from aggregate demand point of view discussed in the last chapter is population
growth rate. This is lesser than other Indian states; hence, we should adopt 'CHASING' strategy.
The projected demand and existing demand to be diverted may take longer time span.
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Location of Site:
The project site is located in the capital city of Panaji. The proposed site is situated in the EDC Plaza behind
central bus stand and hence a very convenient and crowd pulling location.
Proximity to markets geographically, the place is centrally located between the two districts of the state.
The city is being an important cultural, political and economic centre attracts sizeable population from all over
the state and huge flow of domestic and worldwide tourist ready to spend.
Proximity to Raw material sources: The neighboring districts of Sindhudurg Kolhapur and Belgaon offers
cheap sources of commodities agriculture produce and dairy products. Supply of beverages is locally available
and further can be strengthened through tie up with local producers. Supply of Consumer durables Garments
and textile products can be directly arranged through supply agreements with the manufacturers.
Industrial infrastructure: Goa has one of the best infrastructures in place. Uninterrupted power supply at
reasonable tariff, advanced telecommunication facilities, Road network with better quality riding surface,
Convenient Railway network, proximity to port and inland navigation are available.
Urban infrastructure: Apart from industrial infrastructure, proper urban facilities are available such as
Labour situation & Availability: The city boasts better quality and educated labour force suitable for trading
activities. The level of labour union activism is low due to migration, heterogeneous mix of labour force from
Govt. policies: As per data published by RBI, FDI Equity inflows (from April 2000 to September 2008) in
Goa are RS.1 047crore, which is 0.33% of total FDI inflows in India and ranks ninth in attracting investment.
Climatic condition: Except two months of active heavy monsoon, climate is moderate and hardly disrupts
economic activities taking place. It does not pose any significant challenge to our proposed business.
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Proposed Site
The site is completely developed by the EDC (Economic Development Corporation) of Goa. The site is a
leveled plot with flat topography. It is located near the city entry point and emerging fast as a central business
zone. The place has become popular and very convenient to the people all over Goa due to location near the
Many of the business activities are concentrated in this area due to its suitability. A foundation stratum is
marshy soil due to reclamation of backwater area and hence needs extra cost. Supply of power, water is
available in the vicinity and a waste disposal system available in the area.
The work schedules shall be thoroughly prepared and correlated to activities and time estimates.
Following activities required with distinct and meticulous planning of the interior and exterior. The total area
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Sr. Component of Project Quantity in Unit rate / Cost percentage Cost
No. Sqmt of development
Calculation of Revenue
Year 1910 1921 1931 1940 1950 1960 1971 1981 1991 2001 2011
Population 2.36 (3.55) 7.62 7.05 1.21 7.77 34.77 26.74 16.08 15.21
Growth Rate
Three Months 2.14 3.71 5.29 5.34 14.58 23.09 25.86 19.34
Moving Average
Two Months 0.59 2.04 7.34 4.13 4.49 21.27 30.75 21.41 15.64
Moving Average
Sum of square error (three months) = 2.14 + 3.71 + 5.29 + 5.34 + 14.58 + 25.86
= 216.83
1. Hence, we can assume, population growth rate applicable to year 2011 i.e. 19.34% due to lower average
square error i.e. 216.83
2. Projected population in the year 2011 i.e. 50 percentage of North Goa district plus 50% of south Goa
district, which will serve as a consumer base.
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Expected sales per Month ( Revenue)
Here, we assume 10% of the population uses this mail mall to fulfill their needs
Hence = 10% 260638 = 26063.00 Nos.
MPCE for Goa = Rs. 1974.88 for urban India in the year 2007.
(Ref. group of UTs as per ANNEXURE NO.)
Calculation of Costs
Financial Structure
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Cash for repayment of loan @ 11% and 05 years term Rs. 3,62,,91,046.00
Closing Balance Rs. (56,01,013)
= 4,05,75,361.00
Assuming earnings remain same in the sixth year, period required to recover above amount Rs.
NPV = [ CF1 / (1+K) ] + [ CF2 / ( 1+K) ] + [CF3 / ( 1+K) ]+up to CF5 INVEST
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PV3 = Rs. (56,01,013) / ( 1+ 0.11)3 = (40,95,42.43)
References:
4. Website: http:/indiabudget.nic.in
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