The Poultry Loan File
Rupam, 24, wants to set up a 2,000-bird broiler unit in Barpeta on one bigha of family land. A bank has asked for a project report before considering a ₹6.5 lakh loan. His assumptions: chicks at ₹42 each, feed conversion ratio 1.7, feed at ₹38 per kg, mortality 5%, sale at 2.2 kg live weight and ₹105 per kg. Medicines, litter, electricity and hired labour come to about ₹35,000 per cycle; six cycles a year are planned. The loan would carry about 10% annual interest with a three-year repayment, and sheds and equipment would depreciate by roughly ₹40,000 a year. A district officer mentions a subsidy for new micro-enterprises but says the file must show margin money, quotations and a training certificate. Rupam has ₹50,000 saved and no collateral.
1. Calculate the profit or loss per cycle and per year before and after interest and depreciation. Is the project bankable as described?
Read the worked answer
Per cycle:
- Birds sold: 2,000 × 0.95 = 1,900
- Live weight: 1,900 × 2.2 = 4,180 kg
- Revenue: 4,180 × ₹105 = ₹4,38,900
- Feed: 4,180 × 1.7 = 7,106 kg × ₹38 = ₹2,70,028
- Chicks: 2,000 × ₹42 = ₹84,000
- Other variable costs: ₹35,000
- Total variable cost: ₹3,89,028
- Gross margin: ₹49,872 per cycle
Per year: 6 × ₹49,872 = ₹2,99,232. Less interest ₹65,000 and depreciation ₹40,000 = ₹1,94,232 before tax.
Bankability: annual debt service is roughly ₹65,000 interest + ₹2,16,667 principal = ₹2,81,667. Cash available is profit + depreciation + interest = ₹2,99,232. Debt-service coverage is only about 1.06 - technically above 1 but with almost no cushion. A ₹5 drop in price or a disease outbreak would turn it negative. The project is too thinly capitalised to be comfortably bankable as described.
2. What three changes would most improve viability, and what evidence should Rupam gather before submitting the file?
Read the worked answer
- Attack feed cost. Feed is about 62% of revenue. A bulk purchase agreement, a maize-based mix, or improving FCR from 1.7 to 1.6 saves roughly 4,180 × 0.1 × ₹38 ≈ ₹15,900 per cycle. Even ₹2 per kg off feed saves about ₹14,200.
- Reduce mortality and spread price risk. Improving survival from 95% to 97% adds about 40 birds, worth roughly ₹9,240. Staggering batches avoids selling all birds into a weak market at once.
- Confirm the selling price and market. ₹105 per kg is an assumption. Get written or recorded price indications from two or three local traders and one institutional buyer.
Before submitting, gather three quotations for sheds and equipment, land records and a no-dues certificate, a training certificate, a feed supplier's quotation, a market-price letter, an insurance quote, and a realistic monthly cash-flow statement. The file should show the loan being repaid from a conservative price, not the best price.
3. How should Rupam handle the margin-money and subsidy requirement without overstating his contribution?
Read the worked answer
He should first establish the actual margin requirement, for example 15% of ₹6.5 lakh ≈ ₹97,500. He has ₹50,000, so there is a genuine gap of about ₹47,500.
He must not show a temporary borrowal as his own margin, and must not inflate the project cost to make the subsidy look larger. Safer options:
- Reduce the project to about ₹4.5–5 lakh by phasing the shed and starting with 1,500 birds.
- Ask a family member for a gift or documented contribution with a declaration, not an undeclared loan.
- Apply for a smaller loan that matches his own contribution.
- Ask the district office whether the scheme permits a lower promoter contribution for his category.
He should also verify the scheme's current eligibility, project-cost ceiling and subsidy release conditions at the office rather than relying on verbal statements. A file that survives scrutiny is better than a larger loan that fails at verification.