TERM PAPER ON

ADVANCED FINANCIAL
MANAGEMENT

Submitted by:
TEAM 11
SUSHOBHAN DAS - 16BSP2659KK
TONMOY DEY- 16BSP2731KK
URVASHI- 16BSP3424KK
VATSAL GOHIL- 16BSP2811KK
YASH EHELANI- 16BSP2928KK
YUDHAJIT MUKHERJEE- 16BSP2951KK
 ABSTRACT
Dialysis is essential for patients suffering from End Stage Renal Disease (ESRD)
and it is observed from preliminary studies that the prevalence of Chronic Kidney
Disease (CKD) the precursor to ESRD is 0.8% in India. The major contributing
causes to CKD are diabetes and high blood pressure among others; these diseases
are increasing at an alarming rate across the country.
Hypertension is observed in 20-40 percent adults in urban areas and 12-17
percent adults in rural areas, the number suffering hypertension was
estimated to be 118.2 million in 2000 and is expected to increase to 213.5
million in 2025.
India is the world capital for diabetes cases with 19.3 million cases in 1995
to a projected increase to 57.2 million in 2025, but a 2004 study has
projected the number of diabetes cases in India as 34.7 million already.
The cost of supporting the treatment of patients undergoing dialysis and
suffering from ESRD is very high in the order of Rs 10,000 to Rs 20,000 per
month; with 37% of the countrys population below the international poverty
line of USD1.5 per day, it is impossible to support such high treatment costs.
Other major factors which make this sector prepared for new ventures would be
Demand for dialysis is growing at a rate of 31 percent in India, compared to
eight percent globally.
Indias high rates of diabetes and hypertension, as well as increased
awareness of CKD and treatment options.
Despite the importance of dialysis, more than 90 percent of the 230,000
Indians newly diagnosed with CKD each year die within months due to lack
of treatment.
Services are fragmented and largely concentrated in big cities. Also, high
prices and the need for frequent treatments make dialysis a financial burden
for many patients and unaffordable for others.
A kidney transplant is a permanent solution, but availability is extremely
limited due to stringent regulation, low kidney donation rates, and poor
infrastructure in the country. Moreover, kidney transplants can fail. This
makes dialysis a critical alternative for people living with CKD.
Project Overview
The basic plan of this project is to set-up a dialysis center with 6 dialysis machines
in an area lacking dialysis centersand having enough target customers. The major
costs involved would be:
A Basic Dialysis machine from a reputed company would cost Rs.5,50,000.
In Kolkata one technician would be required for 3 machines at a salary of
about 25000/month.
A Staff nurse would be required for every two patients and her salary would
be about 15000/month.
Single dialyzer dialysis would costRs. 1000 for Consumables.
A Nephrologist would also be required on retainer ship for supervision and
he would charge about Rs. 60000 per month for 1 hour per day retainer-
ship.
Reception, maintenance and electricity cost would be around Rs. 35000 per
month.
Renting would cost about Rs.40000 per month.

Revenue
It takes about three to four hours to complete one dialysis. Since our plan is to
setup six dialysis machines, we could attend to around 18 patients. In the private
market the rates of dialysis varies from Rs.1200 to Rs.3000 per session. We plan to
keep the rates at mid-range of Rs.2000. The required funds would be borrowed
from banks, the rate of debt would be around 14%.
The machine is expected to have a life of seven years. So to calculate feasibility of
the project weuse different capital budgeting tools such as pay back period (PB),
net present value (NPV) and internal rate of return (IRR).

NPV method is a process of calculating present value of project cash flows, using
the cost of capital as discount rate, and finding out the net present value by
subtracting the initial investment from the present value of cashflows
A project can be accepted if its NPV is positive

Where,

Ct = net cash inflow during the period t

Co = total initial investment costs
r = discount rate, and
t = number of time periods

Payback period is the time duration required to recoup the investment

committed to a project

IRR of a project/investment is defined as the rate of discount at which the

present value of cash inflows and present value of cash outflows are equal
IRR can be restated as the rate of discount, at which the NPV associated
with a project equals to zero.

MARKETING
Target customers would be patients suffering from End Stage Renal Disease
(ESRD) who can either afford the services or have medical insurance or claims
from the government. Marketing would be done at the hospitals around the region.
Pamphlets can be distributed and banners can be hung around. Online marketing
would be another way that could boost awareness.
PLAN OF WORK
SL NO. ACTIVITY DONE BY DEADLINE

1. Data Collection YUDHAJIT END OF 1ST

MUKHERJEE WEEK
2. The Usefulness & Quality of URVASHI 2ND WEEK
the Business Plan
3. The Usefulness and Quality YASH EHELANI 2ND WEEK
of the Business Model
4. The Marketability of the YUDHAJIT MID OF 2ND
Proposed Venture MUKHERJEE WEEK
5. Cash-flow Projections SUSHOBHAN MID OF 2ND
DAS WEEK
RD
6. Data Sufficiency , basis of TONMOY DEY 3 WEEK
Assumptions & Reasoning
7. Financial Analysis, VATSAL GOHIL 4TH WEEK
Modelling & Investment
Viability

Methodology
Primary data would be collected from
Patients suffering from ESRD: costs incurred, how they heard(learnt) about
their current dialysis center, problems faced by them, suggestions.
Currently running dialysis center: Costs involved, different challenges faced
by them, government regulations.
Secondary data would be collected for
Finding the macroeconomic conditions.
Growth rate of the industry.
Finding the major competitions in the market.
Compare various models in the market.
INTRODUCTION
Dialysis is essential for patients suffering from End Stage Renal Disease (ESRD)
and it is observed from preliminary studies that the prevalence of Chronic Kidney
Disease (CKD) the precursor to ESRD is 0.8% in India. The major contributing
causes to CKD are diabetes and high blood pressure among others; these diseases
are increasing at an alarming rate across the country. Hypertension is observed in
20-40 percent adults in urban areas and 12-17 percent adults in rural areas, the
number suffering hypertension was estimated to be 118.2 million in 2000 and is
expected to increase to 213.5 million in 2025.
The burden of Chronic Kidney Disease (CKD) is increasing in alarming proportion
all over the world. In India, due to lack of financial resources, lack of trained
manpower & infrastructure leads to severe strain on existing health policies in the
light of the increasing burden of CKD. Kidneys are probably the only vital organs
which can be realistically replaced by artificial means. Maintenance dialysis is a
well-recognized modality of treating patients having end stage renal disease.

Why Dialysis?
The human kidney performs the following functions,
1. Removes the waste and water from the blood stream a. Excess salt, and other
chemicals are filtered by the blood to maintain the appropriate balance required for
the body, these chemicals and salts are along with the excess water is removed
from the body in the form of urine by the kidneys. Excess water in the body results
in high blood pressure and swelling of body parts leading to failure.
2. Balancing the chemical composition of the body a. By balancing the fluid levels
in the body the kidneys assist in maintaining the chemical composition of the body.
Chemical imbalance in the system disrupts the normal metabolism resulting in
multiple diseases.
3. Assist in producing Red Blood Cells (RBC) a. Kidneys produce Erythropoietin;
this hormone simulates the production of RBC cells in the body. RBC cells act as
oxygen carriers in the blood stream, reduction of RBC count results in anemia and
ultimately weakening of the body.
4. Assist in maintaining the blood pressure a. The kidneys release hormones such
as renin and angiotensin, these hormones regulate the salt and fluid content of the
body and assist in contracting and relaxing the blood vessels that manage the blood
pressure. Failure of kidneys increases blood pressure, resulting in contraction of
blood pressure leading to high blood pressure, which strains the heart.
5. Assist bone development a. Kidneys produce a hormone called Calcitriol, this
maintains the correct level of calcium and phosphate in the blood and bones,
failure of kidneys causes reduces calcitriol production and leads to renal bone
disease

PRIMARY COSTS
A Basic Dialysis machine from a reputed company would cost Rs.5,50,000.
In Kolkata one technician would be required for 3 machines at a salary of
about 25000/month.
A Staff nurse would be required for every two patients and her salary would
be about 15000/month.
Single dialyzer dialysis would costRs. 1000 for Consumables.
A Nephrologist would also be required on retainer ship for supervision and
he would charge about Rs. 60000 per month for 1 hour per day retainer-
ship.
Reception, maintenance and electricity cost would be around Rs. 35000 per
month.
Renting would cost about Rs.40000 per month.
Financial projections
Operating Costs
Salary of two technicians= 2 *Rs.25000= Rs.50000 per month
Charge of Nephrologist=Rs.60000 per month
Salary of three nurses=3*Rs.15000=Rs.45000 per month
Salary of receptionist= Rs.10000 per month
Cost of Electricity and maintenance =Rs. 25,000 per month
Rent=Rs.40000
Costs of salaries, rent and electricity increase at 5% per year

Cost of Marketing=Rs. 100000 per year

Repair and maintenance cost =Rs. 100000 from 3rd year as first 2 years are covered
under warranty
=Rs. 200000 for 6th and 7th year

Cost of consumables=Rs.1000 per dialysis

Approximate Number of patients that can be administered in a day in six machines
= 18
Number of days the facility will be available in a month= 25 days

Operating cost for first year

=12*(Technicians+Nephrologist+Nurses+Receptionist+Electricity+Rent)+Repair+
Marketing+ Consumables
=12*(50000+60000+45000+10000+25000+40000)+0+100000+(1000*18*25*12)
=12*230000+100000+5400000
=Rs.82,60,000

Revenue
Charge of one dialysis =Rs.2000
Approximate Number of patients that can be administered in a day in six machines
= 18
Number of days the facility will be available in a month= 25 days
Therefore, Revenue per month= Rs.2000*18*25= Rs.9,00,000.
Revenue in a year= Rs.900000*12=Rs.1,08,00,000.
Initial Cash Outflows
A decent dialysis machine from a reputed company would cost Rs.5,50,000.
Machine life is approximately seven years and scrap value is Rs.30000
Year Initial Cost Operating Cost Revenues Cash flows
1 3300000 8260000 10800000 2540000
2 8398000 10800000 2402000
3 8642900 10800000 2157100
4 8795045 10800000 2004955
5 8954797.25 10800000 1845202.75
6 9222537.11 10800000 157762.89
7 9398664 10800000 1401336
8 9383597.17+3600000 10800000+180000 -2003597.17
9 9577777 10800000 1222223
10 9881665.87 10800000 918334.13

Year Cash Flows in Rs. PVIF(14,n) PV of Cash Flows in

Rs.
1 2540000 0.8772 2228088
2 2402000 0.7695 1848339
3 2157100 0.6750 1456042.50
4 2004955 0.5921 1187133.86
5 1845202.75 0.5194 958398.31
6 157762.89 0.4556 718692.09
7 1401336 0.3996 559973.86
8 -2003597.17 0.3506 -702461.17
9 1222223 0.3075 375833.57
10 918334.13 0.2697 247674.71
Total 8877714.73

Payback period
3300000-2540000=760000
(760000/2402000)*12=3.796~ 4 months
Therefore, payback period= 1 year 4 months
NPV= 8877714.73-3300000= Rs.55,77,714.73

We see that NPV is quite high therefore investment is feasible.

Growth Rate
Demand for dialysis is growing at a rate of 31 percent in India, compared to
eight percent globally.
Indias high rates of diabetes and hypertension, as well as increased
awareness of CKD and treatment options.
Despite the importance of dialysis, more than 90 percent of the 230,000
Indians newly diagnosed with CKD each year die within months due to lack
of treatment.
Macroeconomic Conditions
According to IMF World Economic Outlook Update "India has positioned itself as
one of the most dynamic emerging economies. Growth is projected to reach 7.7 per
cent in 2017 and 7.6 per cent in 2018 amid strong private consumption" .So we can
say that the macroeconomic conditions are quite favorable.

Marketing Strategies
Positioning
1) Caters to Dialysis Patients
2) Who dont want to go to hospital & wants Value Added Service
3) Those who prefer a Stand Alone Center with modern infrastructures &
facilities
Marketing Mix
1) Serenity Package ( Dialysis + Spa, Facial, Massage)
2) Bliss Package ( Dialysis + Game Room/Movie Room)
3) Soul Package (Dialysis + Health Gourmet Meals)
Target Market & Segmentation
1) Demographics Patients with Chronic Kidney Disease need Dialysis
2) Lifestyle Lives a social life & does not want to get bogged down in
hospitals
3) Always looks at vale for money
 Marketing Techniques
1) Print Ads
2) Telecommunications
3) Word of Mouth & Buzz Marketing Strategy
4) Event Sponsorships
5) E-Marketing

INFERENCE
From the above projections, we see that the investment is feasible and we should
go ahead with starting the project. With this project, we see that there is also room
for some tie up with NGOs to provide low cost dialysis. We see that the NPV is
quite high and payback period is low.