Financial Anlaysis is very important for every project. Today, I will show the financial analysis of Surat Metro Project that I undertook as part of my post-graduate program. All of this is original work. I have also attached the complete excel worksheet in this
link.
Financial Analysis of a project is the mechanism to find out
the financial viability of the project in terms of IRR, NPV, DSCR, and other
ratios and tools. Keeping this in mind, the financial model for the Surat Metro
Project was prepared by us, which is shown in the excel sheet attached to the
report. The major results and noteworthy points are discussed here in this
report. By the end of the report, we shall find out the financial viability of
the project.
To create the model, some input was required in the form of
demand projections, tariff rates, funding sources and cost models. These
factors are all calculated as per previous studies, and their results used in
the model. The detailed discussion of these models is done further in this
section.
1.1.1.1
Revenue Assumptions
1.1.1.1.1
Demand Projections
As calculated in Demand Analysis, the demand projections are
used here to calculate expected daily ridership. The demand projections are in
PPHPD for each station. This is converted to daily ridership by using the
maximum PPHPD among all stations (two-way), and multiplying by 10 (as per the
calculations for Delhi Metro). This gives the daily ridership per km. Maximum
PPHPD of the city is forecasted to be 15,000. So, based on it, daily ridership
would be 15,000*2*10 which would be 3, 00,000 per km.
To get the total annual ridership, the daily ridership is
multiplied by average trip length, 7.46 km, and then by no. of days of
operation annually, which is 365. This provides us with the annual ridership
for the first year of operation. The operation period has been assumed to be
from FY 2021-22.
1.1.1.1.2
Annual Increment in Passengers
Now, as per the calculations for Ahmedabad Metro, the annual
increment in passengers is assumed to be 10% p.a. for the first 10 year from
start of operation, then 6% p.a. for the next 5 years, 3% p.a. for the next 5
years and 1% p.a. beyond that.
1.1.1.1.3
Fare Structure
As shown in the Tariff Sustainability section of the
Procurement Strategy, that fare structure is used. The average fare per km is
calculated by using WTP surveys of the trip length. This comes out to INR 1.82
per person per km. This is used to estimate box-fare revenues. Table shows the fare structure that we propose for Surat Metro.
|
Distance (Km)
|
Fare (INR)
|
|
0-2
|
17
|
|
2-4
|
22
|
|
4-6
|
26
|
|
6-9
|
32
|
|
9-12
|
35
|
|
12-15
|
39
|
|
15-18
|
41
|
|
18-21
|
45
|
|
21-24
|
47
|
|
24-27
|
50
|
|
27-31
|
54
|
|
31-35
|
59
|
1.1.1.1.4
Non-Fare Revenue
Non-fare revenues are assumed to be from property
development and advertisement at 10% p.a. of the box-fare revenue. This income
will be directly accrued to the SPV. This helps in increasing the revenue
options for the project. Using the above-mentioned assumptions, the revenues
for 40 years from start of construction are calculated. The revenues are calculated
till the year FY 2057-58.
1.1.1.2
Office Expenses
1.1.1.2.1
Corporate Office Expenses
The staff is divided as per the Organization Breakdown
Structure. The salaries are as per the standard market salary of October 2018
price level, with an escalation of 7.5% every two years. Apart from that,
office rent is assumed at Rs. 7,50,000 per month, office supplies at Rs.
1,00,000 per month and travel expenses at Rs. 2,10,000 per month. These are
standard assumptions and the travelling expense is calculated by taking no. of
estimated travel done by officials and no. of vehicles deployed for that
purpose.
1.1.1.2.2
Station Expenses
The staff at station is assumed as 35 persons per station,
with the average salary of Rs. 10,000 per month and an escalation of 1.25%
every two years. Annual traction power (in kVA) required per car per km is
calculated and then multiplied by the length of track, no. of cars and the
cost. This is added to the station operating expense.
1.1.1.3
Capital Expenditure
Capital expenses are derived from the Cost Breakdown
Structure. These include cost of construction, cost of feasibility studies and
designing, and the cost of rolling stock, electrification et al. The complete
breakdown is shown in the Cost Breakdown Structure. The dispatch of funds for
capital expenditure annually is given in the table.
|
Year
|
Cost (INR in
crore)
|
|
2018-19
|
2,000
|
|
2019-20
|
2,986
|
|
2020-21
|
3,699
|
|
2021-22
|
1,989
|
1.1.1.4
Operating Expense
The operating expense includes the station expenses,
electricity expense, housekeeping expenses for depot and stations, and the
maintenance of P-way.
1.1.1.5
Funding Sources
Funding is assumed in three ways – equity, debt and grant.
Equity is assumed to be provided by government of India and government of
Gujarat in equal proportions, with total equity as 20.8%. The total debt is
proposed as 62.2 %, all of which is to be taken from any international agency
like JICA, ADB, World Bank. Assuming the loan is taken from JICA, the interest
rate shall be 1.45% p.a. The loan repayment period is 40 years for such
projects, with first 10 years as grace period and the repayment only starts
from 11th year. Land is provided free of cost by the government, or
an interest-free subordinate debt is issued of the same amount. We have assumed
the provision of subordinate debt, which comes to be 7% of total funding.
1.1.1.6
Depreciation
The depreciating assets are first identified. The list of
these assets is shown in table.
|
Depreciating Assets
|
Opening Value
(INR)
|
Useful Life (years)
|
Rate (%)
|
|
Rolling Stock
|
12,210,000,000
|
30
|
6.67
|
|
Automatic Fare
Collection Equipment
|
2,464,500,000
|
15
|
40
|
|
Stations
|
32,773,100.000
|
100
|
3.02
|
|
Depots
|
3,200,000,000
|
100
|
3.02
|
|
Viaduct
|
29,742,450,000
|
100
|
8.00
|
|
S&T
|
4,603,100,000
|
50
|
20
|
|
Traction
|
3,373,300,000
|
50
|
7.84
|
|
Trackwork
|
2,864,900,000
|
100
|
6.00
|
|
Bridge
|
257,600,000
|
100
|
3.02
|
The depreciation rates for Rolling Stock, Track Work,
Traction and S&T are taken from the Indian Railways Manual. All others are
as per standard manuals. The depreciation for Viaducts and Stations will start
from FY 2022-23, while for all others it will start form FY 2021-22.
1.1.1.7
Financial Parameters
To check the financial viability of the project, the
financial parameters used are FIRR and NPV. The NPV for the project at 7.5%
interest p.a. comes out to be INR 3,315 crore. Since the NPV is positive, the
project is financially viable. The IRR comes out to 12.37%.
As IRR is 12.97%, NPV is positive before that interest rate. Figure shows the yearly cashflow closing balance. The graph starts high because the
loan amounts are assumed to be acquired initially. As the graph shows, the
outflows are higher than the inflows for latter years when maintenance cost
becomes prominent.
