Insights Capital Advisory
What a CFO Should Review Before a ₹500 Cr+ Expansion Programme
A major expansion is not one decision. It is a sequence of commitments made over several years, most of which become difficult to reverse well before the asset begins to generate cash.
The gap between commitment and cash
The defining feature of a large capital programme is the period between spending and earning. Capital is committed early and in full; returns arrive late and are contingent on commissioning, ramp-up and demand.
Most difficulties in large programmes originate in how that gap is funded rather than in whether the underlying investment case was sound.
What to establish before commitment
- The full cost including financing costs during construction, not just the project cost
- A contingency sized against the realistic risk of overrun, and where that contingency will come from
- The funding architecture across the whole programme, not just the first tranche
- The servicing profile through commissioning and ramp-up, when the asset is not yet earning
- The effect on existing covenants and on the security available for future requirements
- What the business would do if commissioning were delayed by two or three quarters
Sequencing and drawdown
The order in which capital is raised and drawn matters. Committing to the full obligation before the programme requires it creates cost with no benefit; arranging it too late creates dependence on terms available at the moment of need rather than terms negotiated from strength.
Sequencing should follow the construction and commissioning schedule, with commitments in place before they are needed and drawdowns matched to actual deployment.
Promoter exposure
Large programmes frequently require promoter support — to complete the project, to fund finance costs or to carry working capital through the ramp-up. That exposure should be quantified and planned at the outset rather than discovered under pressure.
