Financial Planning for the Ecotrendy firm who is planning to enter Bhopal Solid waste management project . Additionally Preparing a financial model to evaluate the return expected from project

Assignment Taken

TO Prepare a self sufficient financial Plan demonstrating the risk and return involved in the project to be undertaken

Case Understanding

The Madhya Pradesh Government plans to build region-based integrated waste management facilities that will serve surrounding ULBs in order to make trash management procedures in Bhopal more effective and financially sustainable. Primary and secondary collection of municipal solid waste (MSW) produced by urban local authorities is also a part of the project. The government of Madhya Pradesh is calling for private sector businesses to take part in Design, Build, Finance, Operate, and Transfer Integrated Municipal Solid Waste Management Projects and turn Waste into Wealth for the same purpose. Our company has chosen to take part in the M.P. government's "Waste to Wealth" Scheme for the city of Bhopal. To be considered for this project, our organisation must develop a comprehensive plan and proposal taking into account marketing, financial, human resource, and IT requirements. Additionally, we need to process this case as an PPP model (Public Private Partnership model) as we need to handover the project after certain amount of time. Company has spare financial deposit of 60 Crores, which can be used for any project, additionally company also have borrowing capacity of 150 Crores through credit line from banks.

BCS Solution Summary

The assessment of the financial feasibility for an identified set of components which form the Project is imperative to determine if the proposed project offers reasonable returns on the investments, hence, evincing sufficient interest for private sector participation in the project. Our view at Trash Gold Pvt Ltd. is to obtain waste to wealth by capitalising on all the stream of revenues. There are majorly 3 potential streams of revenue to be earned by organisation that are revenue from household tax collection, Revenue from the government Schemes and the revenue form the Resale of manufacturing of waste. We have considered a one-time investment in marketing for the by product sales to be 2 crores for a period of 5 years. In terms of cost, we have calculated this in three phases that are cost for capital expenditure, cost for Human resource renumeration and all other cost under one bracket. Also, we have considered a high depreciation rate of 20% on annual basis at SLM. For the plant and property, we have assumed that the present operation can be performed for some time period in the existing plant and additional allotted 10 Crores for the manufacturing of new Plant. We are basically targeting the Triple Bottom Line, i.e. People, Planet and Profit. Hence, we aim to develop a sustainable business which can be rendered back to the government after the usage.

Solution

Initially in the financial aspects we need to observe this project from two different perspectives i.e.,

1. A project being done to earn profits by operating with higher margins
2. A Project to recover out investment an gain a brand value that can be levied upon in upcoming projects

Our Team has approached this case as an amalgamation of both the solution as we need to get our brands positioned properly with our net recovery of investment in comparatively medium term.

The Approach for the financial department had a 3 step approach:

1. Preparing a Financial Model with presumed assumptions to come up to a cost estimation
2. Discussing with the team if the assumption aligns with their requirement
3. Preparing final model with 3 distinct scenarios and reaching up to a pre-defined margins for the sale of the recycled products

STEP 1: Preparing A Financial Model

Assumptions:

1. There are 5 people on an average per house in Bhopal
2. Our company is authorised to take ₹ 300 per annum as the cleaning charges which is included in property taxes
3. Government Grant is directly proportional to the amount of Solid Waste collected by the organisation
4. We will also be eligible for all the grants allotted by the Government Schemes
5. The company is able to recycle 10% of the waste to resalable item and sell them at 30% OPM and 1 Kg of recycled Waste at ₹50
6. 5% of the waste can be converted to Manure which can be sold at ₹7 per KG

Revenue Stream: There are majorly 3 potential streams of revenue to be earned by organisation that are:

1. Household Tax Collection

Total Number of Houses in Bhopal = 501805/5 =100361 Houses

Total Revenue from House Holds =100361 * 300 = ₹ 3.01 Crores Annually

2. Revenue from Government Schemes

Revenue from Government Grants=  Under the 12th finance commission, an award of Rs. 2500 crore was made to ULBs of all 423 Class I cities in the country.

₹2500 crores for 5 years

For 1-year 2500 crores/5 = 500 crores for 423 cities

For 1 City Bhopal from Government Grant= ₹ 1,18,20,330

3. Recycling of the products

Revenue From Recycle

Total Waste Collected = 83,378 (Given Data) / 423 (Class 1 Cities)

= 197 Tons Per Day

Total Recyclable Waste = 197 * 0.05=9.85 Tons Per Day

Total Revenue = 9.85 * 50 * 365 * 100 = 1.8 Crores Annually

4. Revenue from Compost  

Total Compost Formed = 19.7* .05 = 9.85 Tons Per Day

Total Revenue from Compost = 9.85*100*7 = 0.25 Crores

5. Contractual Fixed Pay from Municipality  = 0.72 Crores Annually

Source of Revenue	Total Value (in Crores)
Household Tax Collection	3.01
Revenue from Government Scheme	1.18
Recycle of Product	1.8
Revenue from Compost	0.25
Municipality Pay	0.72
Total	6.96

Cost Analysis:

Capital Expenditure: Depreciation rate of 20% Annually

Component	Number	Cost (Crores)	Frequency	Total Cost (Cr)	Annual Cost
Waste Segregation Machine	2	0.26	1	0.52	0.52
IoT Module Deployment	5	0.0035	-	0.0165	0.0033
Incinerators for Toxic Waste	3	0.113	1	0.339	0.339
Payment Block Machine	1	0.10	-	0.10	0.20
Composting Unit	12	0.345	-	4.14	0.808
Incinerators	3	0.115	-	0.345	0.069
Total Cost				5.46 Crores	1.9393 Crores

Human Resource Cost

Department	Designation	Annual Revenue	Numbers	Total Cost
Finance	Director	36,00,000	1	0.36
	Manager	14,40,000	1	0.144
	Asst. Manager	10,20,000	1	0.102
Marketing	Director	39,60,000	1	0.396
	Graphic Designer	3,00,000	1	0.03
	Sales Manager	5,00,000	1	0.05
	Distribution Manager	5,00,000	1	0.05
	Digital Marketing	3,00,000	2	0.06
IT	CTO	34,80,000	1	0.348
	Manager	7,00,000	1	0.07
	Developer	3,00,000	3	0.09
	Networking	240000	2	0.048
	CRM	360000	2	0.072
HR	CHRO	39,60,000	1	0.396
	manager	7,00,000	1	0.07
	Recruiter	360000	2	0.072
Production	Waste Manager	7,00,000	1	0.07
	Labour	1,80,000	10	0.18
Other Staff				0.30
Total				2.908

Other Expenses:

Description	Cost	Number	Annual Cost
Utility charges	4,00,000	4	0.16
Licenses and approvals	40,000	1	0.004
Legal and Auditing	8000	4	0.0032
Incinerator Maintenance costs	200000	4	0.08
Marketing Expense	2,00,00,000 (5 Years)	-	0.04
Total			0.2872

Total Expense :

Capital Expenditure	1.9393
HR Expenditure	2.908
Other Expenses	0.2872
Total	5.1345 Crores

Net Profit of the organisation is 1.8255 Cr

And the IRR calculated on these terms is 18.25% which makes the payback period to be 5.47Years

Hence The Project with 10years contract on a PPP model shall be accepted by the firm

Management Principles:

Triple Bottom Line – We are impacting People’s lives through efficient waste management, generating Profits through the production and sale of recycled/upcycled products and also contributing towards the cause of Planet through our sustainability programs.

Conclusion

With the successful implementation of the above idea we can see that the triple bottom line principle can be achieved with the total payback period of the firm to be 5.47 years. This concludes the overall analysis stating that the organization can make a revenue of 6.96 Crores annual and the expense mounting to be 5.1345 crores. This hence make the organization operate in profits. Also, the Capital of 60 crores is sufficient to be invested in the plant but if the cost of debt is less then the IRR i.e. 18.25% the organization might look into borrowing through the credit line facility available.

Attached File Details

View Attachment file (Ecotrendy (1).pptx)

Video

https://youtu.be/5XpmFOhiWRk