Background

The client approached us at the onset of a 200-bed Greenfield hospital project in north-west Delhi, just as the bank began claiming instalments. The project faced significant resource constraints for the promoters, stemming from cost overruns and delayed construction due to waterlogged site conditions.

Issues Identified

Inaccurate Cost Estimation: The initial project cost did not include adequate contingencies or margin for working capital, which should have been factored into the project budget.
Project Scale Misalignment: Originally sanctioned for 120 beds, the promoters, as first-generation entrepreneurs, lacked the financial wherewithal to scale up to the planned 200 beds, despite favorable feasibility projections.
Site Accessibility Delays: Delays occurred due to the site not being available on time, exacerbated by waterlogging issues.
Lack of Expertise: The promoters lacked sufficient experience in constructing hospital projects, complicating the execution process.
Gestation Period Oversight: Both the banks and promoters underestimated the necessary gestation period of 3 to 5 years required for the hospital to reach breakeven.

Solution

To address these challenges, we undertook the following steps:

Recasting Financial Projections: We revised the financial model, incorporating all identified factors, including increased project costs and the need for funded interest during construction.
Fresh Feasibility Study: A new feasibility report was commissioned to assess the project’s viability based on updated parameters.
Engagement with Bankers: Detailed discussions with bankers were initiated to present the recast projections and the revised feasibility analysis.
Appraisal Revision: After thorough discussions, the bankers agreed to a fresh appraisal of the project, recognizing the revised cost and increased promoter contributions.
Project Completion: With the revised funding and a clear understanding of the extended timeline, the project was successfully completed after one and a half years.

Outcome

The hospital opened its doors successfully and played a crucial role in providing medical care during the COVID-19 pandemic, ultimately benefiting the community in North-West Delhi.