Corporate Finance

Bharti Dredging and Construction Limited 
 303

ASSESSMENT AND JUSTIFICATION OF LIMITS

Fund Based BDCL enjoys regular working capital limits of Rs 2 crore. Based on the cash flow statement

for the Paradip Port Trust order, the company’s peak requests are to the limit of Rs 1.80 crore. The present

cash credit provides a liquidity of Rs 0.80 crore. Therefore, a gap of Rs 1 crore is assumed. Thus an ad hoc

cash credit of Rs 1 crore is justified.

Non-Fund Based
Bank Guarantee: Keeping in view the order book position of March 2002, and the requirements of the
anticipated order, ICICI had restricted the BG limit to Rs 7 crore. It proposed to continue the BG limit of Rs
7 crore, for a further period of one year.
Letter of Credit: BDCL’s existing LC limit is Rs 1 crore. The company, to undertake the Paradip Port Trust
order of Rs 13.85 crore, is in urgent request to procure:

Stand by spares Rs 0.50 crore

Pipeline for dredging Rs 1 crore

HSD oil Rs 3 crore

Under the arrangement with IOCL/HPCL, the company procures HSD oil against the LC. The usance
permitted by the oil companies is for 60 days. Thus an LC request for procuring HSD oil is for Rs 1 crore, on
revolving basis, for a period of six months. Therefore the total LC request is for Rs 2.50 crore. The existing
limits provided can absorb Rs 0.50 crore. Thus the ad hoc LC request is Rs 2 crore.

RISK ANALYSIS

A risk assessment matrix of M/s Bharati Dredging and Construction Limited is as shown:

Sl. Nature of Rating

No. risk Remarks (H/M/L)

1. Promoters The promoters have been with the company since its inception. They are Low
   technically qualified and have wide experience in the industry


2. Product This company is in the service sector and as such does not produce any Low
   obsolescence products. The risk of product obsolescence is minimal. Its services are
   likely to be increasingly of use considering the potential of growth in the
   infrastructure industry


3. Technology The company has successfully undertaken the projects and technical Low
   competencies are proven


4. Market With the government increasing its focus on infrastructure development, Medium
   there is expectancy of high growth in the next decade


5. Raw Materials The company has adequate machinery and manpower. But new machinery Medium
   may be needed if the level of work increases.


6. Payment delays The employees of DDCL are government agencies/public sector Medium
   undertakings wherein payment delays are expected. Though the agreement
   terms provide for liquidated damages, but in such contracts, the matter
   takes longer time due to procedural/arbitration issues.
   Table contd.