INTERNSHIP PROJECT

ON
“PF 104 - Financial Modelling and Analysis of 50 Flats Housing
Project in Gurgaon, Haryana IN”

Company- Vardhan Consulting Engineers

POST GRADUATE DIPLOMA IN MANAGEMENT

(Batch 2019-21)

Under the Supervision of-

Mr. Ashish Kumar (Mentor)
Neha Kumari (HR)

Submitted By-
Lavish Dhingra

JAIPURIA INSTITUTE OF MANAGEMENT,

NOIDA
 ACKNOWLEDGEMENT

I am grateful to Vardhan Consulting Engineers for giving me

this opportunity to work under them. I want to express my
sincere thanks to Mr. Ashish Kumar, for his guidance and
mentorship during the period of internship. He has helped in
understanding the business model and encouraged me at every
phase of submission of reports. Without his persistent aid and
valuable guidance, completing the assigned project would
have become very cumbersome.

The HR working with AIM India Pvt. Ltd. have also been a
helping hand in completing this internship. They have been
cooperative throughout my internship tenure.
 Executive Summary

Real Estate, one of the most recognised sectors around the world. It is
divided into 4 sub-sectors which are retail, housing, commercial and
hospitality. Residential segment contributes about 80% in this sector
and its demanded is expected to grow sharply in the years to come
due to urbanisation and rising household income. India is among the
top10 price appreciating housing markets internationally. Around 1
crore people migrate to cities every year. The key growth drivers for
this residential segment are rise in population, rise in number of
nuclear families, rise of disposable income, easy availability of
finance, repatriation of NRIs and HNIs.

On the other hand, in order to protect home-buyers and to boost

investment in real-estate industry, the Real Estate (Regulation and
Development) Act, 2016 was passed, which has made mandatory for
all commercial and residential real estate projects to register with it
where the land is over 500 sq. metres or 8 apartments. And it
establishes a Real Estate Regulatory Authority (RERA) in each sector
to regulate and act as an adjudicating body for speedy dispute
resolution. There are some other key policies launched by government
for this sector-
 Benami Transactions Act
 Change in arbitration norms
  Dividend Distribution Tax (DDT) exemption
 PR for foreign investors
 Boost to affordable housing construction
 Service tax exemption
 Goods and Services Tax
 Demonetisation
 Interest subsidy to home buyers

The commercial space has few players with presence across India and
they have shown rapid increase in IT and ITEs, BFSI, and Telecom
sector. Their operating model has been shifted from sales to
maintenance and lease and with time demand for office space in Tier-
II cities could be seen.

The retail segment forms a small portion Indian Real Estate market.
There are small number of organised retailers in India and are mostly
developed by residential and office space developers.
In case of hospitality segment, Delhi/NCR, Bengaluru, Mumbai,
Chennai and Hyderabad forms the biggest hospitality market in India.
They have services apartments and convention centres alongwith
hotels. The key growth driver is rise in tourism and tax incentives for
hotels.

With the changing time and with increase in the number of cities
demand for housing is increasing. So, in order to boost real estate
sector, government is providing housing loans up to Rs 3.5 million in
metro cities and they are included in priority sector lending by the
RBI in June 2018. The government has allowed 100 % FDI for
townships and settlements development projects. And in order to
promote affordable housing in India, government in the Union Budget
2019-20 has extended benefits under Section 80 - IBA of the Income
Tax Act.

The top players in real estate sector are- Godrej properties, Omaxe,
DLF, Eldeco, Prestige Group, Kotle Patil developers, Ericsson India
Global Services, Punj Lloyd Ltd., Signature Global India Pvt. Ltd.and
many more.
 Table of Content
1 Executive Summary
2 Introduction
3 Analysis
4 Results
5 Conclusion
 Introduction
Techvardhan Infra Pvt. Ltd is a pioneer organization involved in Real Estate
activities. It is a non-government, incorporated in the year 2018 and have a
registered office at VARDHAN HOUSE, Anand Bazar, Danapur Cantt, Patna
801503, Bihar. They do what a real estate developer needs to do, they have
adopted chic and smart projects alongwith regular announcement of new
feasible projects, adopted a consumer-friendly approach, which in turn leads to
fewer or no complaints. They believe in having a good track record of events
and provide affordable housing solutions to individuals.

The company has completed more than 30 projects and are expanding its
services all over India. They firstly do the research and then plan accordingly
keeping in mind the customers. It has developed several projects in Hyderabad,
Gurgaon and Bengaluru region. They are planning to diversify its business into
developing an industrial warehousing parks and IT parks for the next stage of
growth.

Now, it is planning to develop a project near Gurgaon, Haryana and has

acquired a land for the same wants to develop it as a residential building having
50 flats of 900 sq. ft each. And they are expecting to sell the flats at a rate of Rs.
4000 / sq. ft. They have expected a Capital expenditure on this project to be Rs.
8 Crore and Operating Expenses to be Rs. 50 Lacs / per annum for the whole
project. And for this, they are seeking a non-recourse debt (project financing)
with 70:30 as Debt to equity ratio from leading commercial banks in India as a
12 years term loan.
Analysis of the financial model

The Financial Model is prepared in which all the information regarding the Flat
construction and cost and revenue related to the project are given below:
Details of the assumptions made for the Project are-
For Cost,
Capex
Capex is the total investment done for the project company. Investment
breakdown is done in detail:
1) It is assumed that the total cost incurred on flat will be 74% of the total
capital expenditure which is Rs. 58997050 , which means that the cost
of constructing 1 flat is Rs. 1179941
2) For interior decoration it will cost 3.7% of the total capex which means
for 1 flat it will cost up to Rs. 58997
3) For furnishing all the flats it will cost 7.4% of the total capex i.e., 29
lakhs of the total cost.
4) Fixtures will cost around 2 lakhs which is 0.3% of the total cost.
5) The fees and the duties which includes Stamp Duty, Broker Fee, Fund
Raising Fee and Transfer fee will contribute 11.8% of the total capex.
6) Interest during Moratorium is 1.8%, which accounts to approx. Rs. 14
lakhs.
7) Loan and documentation fee incurred will be 0.7% of capex
8) CSR, HSE and Training will contribute to 0.3% of Capex.
 Capex

Loan and
Interest
Documentati
CSR,ofHSE,
During
Tranfer
Fund Raising
onTraining
Fee
Moratorium
FeeDeed Fee
Stamp Duty 1% 1%2% 0%
1%
Building 7%
Broker Fee
Registration
Fixtures
2%
0%0%
Furniture
7%
Interior
Decoration
4%

Flat
74%

OpEx
The total operating and maintenance cost per year is 50 lakhs

1) For maintaining the overall building, it will cost 68% of the total opex
which means that Rs.34 lakhs will be incurred every year per flat.
2) For providing the amenities like electricity, water and internet it will cost
7% of the total opex i.e., Rs. 7000 per year for every flat.
3) The salary that will be paid to maid and accountant will account to 13%
of the operating expenses.
4) For plumber, electrician and other miscellaneous expenses it will account
to 9% of the operating expenses every year.
5) And for insurance charges it will cost 3% of the total opex.
 Opex
O & M Cost (Monthly Breakdown) (OpEx) Building Maintainence
Utilities (Electric + Water + Internet) Salary (Maid + Acountant)
Plumber + Electrician + Misc etc Insurance

3%
9%

13%

7%
68%

For Revenue,
Revenue growth rate assumptions are one of the most important assumptions in
a financial model. Small variances in top-line growth can mean big variances
in earnings per share (EPS) and cash flows and therefore stock valuation. For
this reason, analysts must pay a lot of attention to getting the top-line projection
right.
 Total expected revenue from flat sales will be Rs 18 crores.
 The instalment amount is fixed that is Rs.1.2 crores per year that will be
deposited in bank.
 So every year the sum of sales receivable and interest is the revenue for
the project.
 The instalments will be received till 15 years.
 The interest received form the bank is 5 percent of Principle of every
year.

For Debts
The Capital structure of the firm is formed in such a way that 30 percent is raise
through equity and 70 percent is raised through Debts.
  The Debt is raise d by the firm for 12 years at rate of 8 percent per year.
 The Moratorium is 0.5 years and the total number of periods is 24.
 Than the debt is being estimated first the interest payment is calculated.
 Than the principal payment.
 Than final the total is taken of both payments and subtracted from year
wise debts till it becomes zero.

FINANCIAL MODEL
In this step the Cash flows will be calculated by taking some of the
assumptions.

ASSUMPTIONS
Inflation 4.50% Debt rate 8% USD/INR 70.00
DDT 0.00% Moratorium 0.5 years Discount 7%
Tax Holiday 0 yrs Debt tenure 10.0 yrs Construction 0.25 yrs
20.00
Tax rate Depreciation 7.00% MAT 18.5%
%

These are some of the assumptions which had been taken for the estimation of
Cash flows, IRR and DSCR.

 Inflation rate is taken to be 4.5% by seeing the current economic

situations.
 Tax rate is taken to be 20%
 Debt rate is 8%.
 The depreciation is charged at the rate of 7%
 The discount rate for the investments is 7%.

So, after considering all the assumptions the estimation of Cash flow started.

The steps involved were: -

1. The revenue is being calculated and other incomes are also added in it.
2. The operation cost is being calculated.
 3. The operating cost is subtracted from the Revenue and EBTIDA is being
calculated.
4. After this non-operating expenses is been deducted from the EBTIDA.
5. Income before tax is generated.
6. Than tax is been deducted and finally income after tax is calculated.
7. The depreciation is added back to get the final cash flows.

Results: -
RESULTS
Equity IRR 3.96%
Min DSCR -0.21
Avg DSCR 0.32
Project IRR -5.30%

These were the findings from the final calculations.

The Equity IRR turn out to be 3.96% which is lower than the discount rate so it
is clear that the project is not giving the promising return so investors doesn’t
need to take high risk for such a low return.

The Project IRR is -5.30% which is negative and negative IRR are consider
worst for any project so it is clear that this project is not making the good
amount of returns also.

The Min DSCR for the project is -0.21

The average DSCR is 0.32.

 LEARNINGS

These were 4 tasks provided to us. Each task has its own importance and each task
gave its own leanings and knowledge. But before starting with the task, the main
task was given to us was regarding the corporate skill development. In which we
have to analyse our skills and measure them, and has to work on the skills which
were not appropriate for us. Starting with the task1 –

Task1- Under this we have to read and work on some basic concepts like the
difference between the finance project and accounting project. The relevance of
project finance with the corporate finance was made. Then I was able to learn or you
can say I was able to recall various finance terminologies like Amortization, Angel
Investor, Annuity, Bond, IRR, NPV, Sunk cost, Future Value and many more. Then
though this task I was able to learn that infrastructure, mining and transportation, etc.
comes under finance project.
Learnings: I get to know about the finance project that it is used for particular long-
term project through a Non- recourse source. This means that the investor has no
resources to invest except the cash flow of the project and collateral of that project.
The investor will only invest in that project which will give him profit. Risk and the
returns of these types of projects is low. The sector having low market volatility and
reasonably predictable market is suitable for these types of projects such as
Infrastructure, mining and transportation.

Task2- A financial model was provided to us which was related to the selling of flats
in Hyderabad which were 3000 sq ft in total.
Through this we were able to learn how to prepare a financial model with cost sheet,
revenue sheet and the debt flows. The coast sheet includes all the building,
infrastructure and maintenance cost and also the operation cost. All this cost was
calculated per sq ft. and then total cost was calculated.
The revenue sheet consists of all the income earned to the project. This includes the
rent income and other incomes. After that appreciation is applied and the rent is
calculated for the coming 25 years (this can be done for any no. of coming years). All
the revenue is sum up.
3rd sheet was a debt sheet which show the amount of loan taken from the band and
the no of installments to be paid. The time period within which the loan will be repaid
along with the interest amount.
The 4th sheet was of the finflow, which tells about the FCFF with the revenue of the
project. From EBITDA the interest and depreciation are deducted to get EBT (i.e.
earning before tax). From EBT, tax rate is deducted to get at PAT (i.e. Profit after
tax).
The method of calculating the FCFF includes adding back the depreciation amount,
deduct the principal payment. But the CSR is calculated on total income. It is the
duty of banks to check the financial position of the business
To know that whether the company is able to pay back its loan or not. The bank must
need to be sure that there is no amount of risk involved at all. This is way I have
analyzed all the modelling of the project and calculate IRR & DSCR to arrive at the
future cash flow.
Learnings: Through this assignment I was able to learn how to analyze the financial
model.

Task3- I was able to learn the various terms like NPV, IRR, DSCR, Debt repayment,
Inflation, depreciation, revenue and cost. I was able to learn and understand the
basic concepts and the conditions of the project. Different types of the ventures were
also studied like solar power, infrastructure, utilities and etc. various factors are
taken into consideration wile approving the finance project. There factors are the
assessment of the promoter history and background, evaluation of the company and
project business model, legal obligations, and analysis of the financial statements
and the structure. Then the revenue model for the solar power, real estate was
studied in detail their revenue sources were analyzed.
Learning: I was able to learn all the aspects of the finance project.

Task4A- We got various cases under this task. I choose the case of constructing
expressway between the Hyderabad and Anantapur AP. The total capex was 200
crores and the revenue from the toll was 373750000Rs as the income with the
inflation rate of 5%. With this the client was incurring loss for more than 5 year where
ass the project was given to us was to estimate the income of the client for next 25
years.
Learnings: with this I was able to prepare a financial model by my own. It requires
various types of assumptions to be taken into mind regarding the revenue of the
project.
 Conclusion

Project finance is the funding (financing) of long-term infrastructure, industrial

projects, and public services using a non-recourse or limited recourse financial
structure. The debt and equity used to finance the project are paid back from the
cash flow generated by the project.

Project financing is a loan structure that relies primarily on the project's cash
flow for repayment, with the project's assets, rights, and interests held as
secondary collateral. Project finance is especially attractive to the private sector
because companies can fund major projects off-balance sheet.

Cash flows generated by the SPV must be sufficient to cover payments for
operating costs and to service the debt in terms of capital repayment and
interest. Because the priority use of cash flow is to fund operating costs and to
service the debt, only residual funds after the latter are covered can be used to
pay dividends to sponsors undertaking the project.

The cash flows generate in these projects are totally dependent upon the
economy and project is going to react. Usually they are high investment project
for the long period.
It is not always true that the projects which giving good amount of revenue will
lead to a successful project.
There are many factors on which the cost and life of the project is dependent.

The negative IRR is really bad for the projects and will lead to make loss so the
investors need to decide how much risk he/she is interested in taking in for the
project.

References
1) https://www.cbre.co.in/en/research-reports/India-Real-Estate-Market-
Outlook-2019

2) https://www.asiapropertyhq.com/india-property-developers/
3) https://www.ibef.org/industry/indian-real-estate-industry-analysis-
presentation