Business plan to open a Handicraft work

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it's about handicraft work , how to open handicraft work


EXECUTIVE SUMMARYIt has been a good learning experience to do the detailed project report on setting up of the Handicraft industry in the RIICO industrial area, Jhunjhunu as a part of my MBA program. The study has been made an attempt to gain better understanding about how actually the manufacturing plant is set up. Under this, at first I generated the product idea of handicraft, matching with my profile. The main objective of the project is to the study the feasibility analysis of the handicraft manufacturing plant. After the idea generation, the industry analysis at both the global and domestic level was done to understand the market trends and other factors. Then the market analysis was done through the survey in form of questionnaires and interviews of the manufacturers. After this using the statistical techniques did the demand analysis. With this the demand estimation, the technical analysis was done. After completing the technical analysis, the financial analysis was done to check the financial feasibility of the project. It involved the preparation of cash flow statements, working capital requirement schedules, profitability statements and the balance sheets of 3 years. This provided the data for using the performance indicators and other capital budgeting techniques. Lastly, the risk analysis was done to estimate the risk involved in the project. On the whole it was a wonderful experience & a great learning opportunity. The complete project was an eye opener which added to my theoretical knowledge. There were times when I was disheartened & disappointed, but there were times when things went right & made me feel proud. Success does not come at once; one has to start right from the scratch & struggle his way through all hardships with courage & determination.1PROMOTERS IDEAThe idea of handicraft manufacturing was conceived by looking the aptitude & qualifications of the conceiver (myself).Qualifications:- MBA in Marketing & HR - BCA Along with the above qualification belongingness to a Business, family will support my project. The idea was generated as my Uncle is a manufacturer and exporter of wooden handicraft. So this project would provide me an in-depth knowledge to set up a handicraft-manufacturing mill in Jhunjhunu. The Indian Handicraft Industry is showing continuous growth rate of 15% every year. The profitability with which the current firms are running nationally as well as internationally is also one of the factors for conceiving the idea of handicraft manufacturing mill. Thus, taking all of the above factors into account the idea of setting up a handicraftmanufacturing mill was established.2FIRM AND PROMOTERSFirm:The firm namely Shekhawati Handicrafts, Jhunjhunu will be a sole proprietorship firm and will function from Jhunjhunu under the concerned persons name (myself).Promoter:Decision for entrepreneurship is promoted by 5 major reasons. These are:Personal CharacteristicsPersonal EnvironmentPersonal GoalsDecision to Behave Entrepreneurially Business EnvironmentIdeaMoreover, it is an Idea/Innovation that leads towards Entrepreneurship i.e.; idea comes first and entrepreneurship follows afterwards.3HANDICRAFTIntroductionHandicrafts are unique expressions and represent a culture, tradition and heritage of a country. The Handicraft Industry is one of the important productive sectors. Various attempts have been made to define this broad and diversified industry. The following definition strives to cover diversity and complexity of Handicraft Industry. Defining Handicrafts: Definition According to United Nations Educational, Scientific and CulturalOrganization/InformationTechnologyCommunity(UNESCO/ITC)InternationalSymposium on Crafts and the International Market: Trade and Customs Codification, Manila, Philippines, October 1997: Handicrafts can be defined as products which are produced either completely by hand or with the help of tools. Mechanical tools may be used as long as the direct manual contribution of the artisan remains the most substantial component of the finished product. Handicrafts are made from raw materials and can be produced in unlimited numbers. Such products can be utilitarian, aesthetic, artistic, creative, culturally attached, decorative, functional, traditional, religiously and socially symbolic and significant. Definition according to Govt. of India: Handicraft can be defined, which is made by hand; should have some artistic value; they may or may not have functional utility.Importance of Handicrafts:The Cultural Importance: Handicrafts play very important role in representing the culture and traditions of any country or region. Handicrafts are a substantial medium to preserve of rich traditional art, heritage and culture, traditional skills and talents which are associated with peoples lifestyle and history.The Economic Importance: Handicrafts are hugely important in terms of economic development. They provide ample opportunities for employment even with low capital investments and become a prominent medium for foreign earnings. 45Industry AnalysisIndia is a country of rich culture, history and traditions. India is one of the major producer and supplier of Handicrafts products in the world. India has been major producer and supplier of handicrafts products since very long time. Before the industrial development, this art and industry was a potential economic advantage for the country. During recent years, the importance of handicrafts has been surged due to their cultural and financial values. The small-scale industries including handicrafts can play a major role in the development of the economy of both developed and the developing countries equally. The 90-95% of the total industrial products of the world is produced in small workshops run by less than 100 people. For instance, Japan, which is at the peak of the economic development, has considered 84% of its industries as small and medium scale industries. In countries such as India and China, handicrafts are as high as the mechanized products in quality and volume, and are a major source of their foreign earnings. These countries are focusing on the development of handicraft industry, in order to strengthen the economy. The Indian handicrafts industry is highly labour intensive, cottage based and decentralized industry. The industry is spread all over the country mainly in rural and urban areas. Most of the manufacturing units are located in rural and small towns, and there is huge market potential in all Indian cities and abroad. Handicraft industry is a major source of income for rural communities employing over six million artisans including a large number of women and people belonging to the weaker sections of the society. The Handicraft sector is highly creative sector and produces large variety of crafts products. This industry is localized segment of the domestic and international market. In India the production of craft products are done on both large and small scale. Because of low capital investment people can start their business on small scale. Through this flexibility the demand and supply can be managed Hough Indian Handicraft industry is considered a cottage industry, but it has evolved as one of the major revenue generator over the years. There has been consistent growth of 15% over few years and the industry has evolved as one of the major contributor for export and foreign revenue generation.6There is huge demand for the Indian Handicraft products in both national and international market. To match the demand and supply with quality, there is need to have greater technological support and innovativeness with the uniqueness in industry.Key Facts of Indian Handicrafts IndustryIndias rich cultural diversity and heritage provides a unique and huge resource for developing craft products. The Indian Handicraft Industry is showing continuous growth rate of 15% every year. Handicrafts industry is one of the important segments of decentralized sector in India. Major parts of industry operates in rural and semi urban areas throughout the country and has potential Indian and International market with around 67000 exporters to tap the market.According to the national census of handicrafts, undertaken by the National Council for Applied Economic Research the value of handicrafts produced last year were of Rs 26, 213 Crores.This Industry provides huge employment opportunities to artisans that include women and people belonging to backward and weaker society. This is one of the major sources of income there. Indias contribution in world market is 1.2% The total exports of crafts items: - Rs. 134129.2 millions. Industrys share in India's exports:- 1.51 % In spite of having diversified products, some part of Indian market are still untapped and market is price sensitive.Products are high priced in big and metro cities, which are beyond, reach of people belonging middle and lower middle class. Craft producers have to compete on price, quality and delivery for different segments. There is poor promotion for craft products in national market. There is lack of awareness about new traditions and among craftsmen and there is need of technological support and training. 7Classification:Handicrafts industry comprises diversified products portfolio and there is large variety available in market. Handicrafts products can be distinguished into following: Metal ware, Wood ware, Hand printed textiles, Embroidered and crocheted goods, Shawls, Carpets, Bamboo products, Zari goods, Imitation jewellery, Paintings, Earthenware, Jute products, Marble Sculpture, Bronze Sculpture, Leather Products and other (are u going to produce all these ) miscellaneous handicrafts.SWOT Analysis Strengths: Large, diversified and potential market. There is large product variety and range is available because of diversified culture. It has strong, diversified and supportive retail infrastructure. Diversified product range that service different market. Cheap labour rates that result to competitive price. Need low capital investment. There is flexible production flexibility. Low barriers of new entry. Easy creation and development of production centres. There is no need for macro-investment. Industry provides potential sources of employment. Products are high value added, and handicrafts have various applications. It is the potential source of foreign revenue because of higher export.Weaknesses: Lack of infrastructure and communication facilities. Unawareness about international requirements and market. Lack of co-ordination between government bodies and private players. Inadequate information of new technology. Inadequate information of current market trends. Less interest of young people in craft industry. Lack of skilled labour. Still confined to rural areas and small cities and untapped market.8Lack of promotion of products.Opportunities:Rising demand for handicraft products in developed countries such as USA, Canada, Britain, France, Germany, Italy etc. Developing fashion industry requires handicrafts products. Development of sectors like Retail, Real Estate that offers great requirements of handicrafts products. Development of domestic and international tourism sector. E-Commerce and Internet are emerged as promissory distribution channels to market and sell the craft products. Threats: Competition in domestic market. Quality products produced by competing countries like China, South Africa. Better Trade terms offered by competing countries. Increased and better technological support and R and D facility in competing countries.Limitations of Handicraft IndustryInspite of having diversified products, some part of Indian market is still untapped and market is price sensitive. Products are high priced in big and metro cities, which are beyond the reach of people belonging middle and lower middle class. Craft producers have to compete on price, quality and delivery for different segments. There is poor promotion for craft products in national market. There is lack of awareness about new traditions and among craftsmen. It is difficult to balance the cultural and commercial value of handicraft products. Inadequate supply chain management and distribution reduces the sectors commercial viability and economic sustainability. Lack of Technological support and training. Lack of Research and development for key handicraft sectors like, ceramics, paper making etc. There is shortage of skilled craftsmen and labour to match the competition. 9 Lack of ability to produce in large scale and create economies of scale. Inadequate material testing and performance measurement. Inappropriate energy supplies to rural and sub-urban areas. Untapped and inaccessible market due to poor transportation infrastructure. There are inadequate training centres to develop skilled craftsmen.Possible Initiatives should be taken to overcome the limitations of industryThe primary objective is to create an environment that helps the industry to compete on the global basis. To build the environment that will focus on: Wealth Creation, Infrastructure Development, Training, Technological Development, and Poverty Alleviation etc. to enhance the sector performance.Awareness should be increased among craftsmen and customers through Trade Events, Seminars, Craft Forums and advertisements. More training centres should be opened to provide proper training to craft persons. There should be more trade shows to facilitate craft producers to access the market. Transportation infrastructure should be improved to access the untapped market that would be beneficial to reduce the transportation cost. Promotion of cultural tradition and heritage. Promotion of Indian Tourism to attract the foreign customers. Developing technologies to recycle natural resources to produce new products and ensure waste minimization, product durability and reliability. Promoting Partnership and collaboration with private sector. There should be market platform for craft producers belonging to rural areas to market their products. Development of electronic platform by using internet to provide information, database, and marketing and distribution solution. Increased Private participation in industry. There should be optimized distribution network and supply chain management. Through improving labour productivity in a high labour intensive and price competitive market. There should be proper balance between cultural and commercial value of craft products to sustain business opportunities. 10 Through using low cost production methods the sustainability of small business can be improved.Value Addition ModelThe performance of Handicraft Industry can be improved and the greater value addition can be done by implementing following model: Identify the Potential Market Making Effective Business Plan and Refinement in existing business Test Marketing to test the initial potential of new products in market Effective Operational and Technological Up gradation Hiring skilled manpower, provide training and awareness about latest technology and market trends and effective management. Hiring skilled manpower, provide training and awareness about latest technology and market trends. Cost Effective Production; Maintain Quality Standards, and Packaging. Set the Costing and Pricing with Quality taken to be consideration Cost Effective Distribution Development using both Physical and Electronic Distribution Channels (Internet, e-Commerce) Both National and International Market Development for better Export and Foreign Revenue. Wooden Handicraft Industrial OverviewWooden handicrafts are specialized skills passed on from one generation to the next. The term 'wooden handicrafts' refers to a wide range of wooden items carrying utilitarian and artistic value that are made by hand, or with the use of simple tools. Indian wooden handicrafts reflect unmatched workmanship, fine designs, and subtle elegance. This makes India one of the chief exporters of wooden handicrafts in the world market. According to the classification of Indian industries, a small scale industry is defined as an industry that is: Not registered under the Factory Act. Investment in fixed assets does not exceed Rs 60 lakhs. 11Small scale industries are classified into two categories: Modern small scale industries like power looms etc. Traditional industries like handlooms, sericulture, khadi, coir, and handicrafts.Wooden handicrafts fall in the category of small scale traditional industries. Role in Indian Economy The wooden handicrafts industry plays an important role in the Indian economy. This industry requires low capital investment and other resources. The wooden handicraft sector provides a high ratio of value addition, and has emerged as one of the major sources of foreign exchange earnings for India. Indian wooden handicrafts are much sought after the world over, and form an important export commodity of India. Although India's handicraft exports show a consistent increase of fifteen percent every year, its share in the international market is not more than two percent. The Indian wooden handicraft sector is the second largest employment provider (after agriculture). It employs about six million artisans. Women constitute a large section of the handicrafts industry, including people belonging to the weaker sections of society.Conclusion: The Indian Handicraft Industry stands a unique place among all other industries. It represents the rich culture, tradition and heritage of India. Indias rich cultural diversity and heritage provides a unique and huge resource for developing craft products. The Indian Handicraft Industry is showing continuous growth rate of 15% every year and it is one of the most important segment of decentralized sector in India. Most of the part of industry operates in rural and semi urban areas throughout the country and have large and potential in Indian & International market. Indian Handicraft Industry provides wide range of products because of countrys diversified culture, traditions and heritage. There is huge demand of Indian Handicraft products in international market. Industry provides ample opportunities for employment to people belonging to backward and weaker classes of society. However, Indian Handicraft Industry has the status of cottage industry in India, but it has shown promising growth and evolved as one of the major revenue generator over the years. It has shown continuous growth at the rate of 1520% over the years and contributes major role for export and foreign earnings. 12Low capital investment, Cheap and skilled labour, Diversified product portfolio, Flexible Production are few important features of Indian Handicraft Industry. However, Lack of Infrastructure & Technological support, Lack of awareness of international and new trends and Poor Promotional campaigns are a few drawbacks of industry which needs to be overcome. It is estimated that Handicraft Industry in India is all set to grow with rapid rate in future and contribute its share towards economic development handsomely.13MARKET ANALYSISGeographical AreaJhunjhunu (RIICO Industrial Area)Objective of the survey To know about the market potential for the handicraft To analyze the handicraft manufacturing, its competition, customer preferences and their satisfaction level.To find out the major players in the marketSource of InformationPrimary (Market Survey) and Secondary dataMethodology Adopted:Research plan was developed through conclusive research design using descriptive research analysis methods by survey as detailed below:Research Approach:1. Primary data for gathering information regarding manufacturing requirements and facilities available at Shekhawati region was collected by personal interview with different manufacturers selected on the basis of random sampling survey method. 2. Secondary data regarding world demand and supply positions, Indian Handicraft status and other relevant information were gathered from different websites.Research Instruments: Questionnaire (See Annexure I) was used to collect the data onboth the sensitivity of demand and supply, customer preferences and to know the market potential and future growth. After deciding the research approach and instruments, sampling plan was prepared. 14Sampling Procedure: Simple random sampling method was used for survey onrepresentative basis.Sample Size: 20 handicraft units Contact Method: Personal interview with each of the manufacturer and raw materialsuppliers was conducted.Information collected from Manufacturers Questionnaire wiseQ.1 Variety of handicraft item you manufacture? (a) Chairs (b) Tables (c) Book shelves (d) Decorative items (e) All of the above Chairs Tables Book shelves Decorative items All of the above 0 0 0 2 1815As the above analysis shows that 90% manufacturer are manufacturing all the major items like chairs, tables, bookshelves etc.Q.2 From where you acquire the raw material for wooden handicraft? (a) Bihar (b) U.P. (c) Gujarat (d) All of the above (e) Import from other countries, if yes specify Bihar U.P. Gujarat All of the above Import from other countries 1 2 4 2 11The raw material is acquired from all the places like Bihar , U.P. , Gujarat etc. but the analysis shows that most the wood is purchased from U.P. some part of raw is also available in Rajasthan. Q.3 Your Re- order point (a) Weekly 16(b) Fortnightly (c) Monthly (d) As required Weekly Fortnightly Monthly As required 3 0 4 13As the analysis shows that most of the manufacturers keep inventory as per the requirement.Q4. Order size (a) 400 500 units (b) 500 700 units (c) 700 1000 units (d) 1000 and above 400-500 units 500-700 units 700-1000 units 2 15 2 171000 units and above1As the above analysis shows that most of the manufacturer gets the avg. order 500-700 units per month. There are only 20% manufacturers who get the orders above 700 units per month or 1000 units per month.Q.5. Who bears the transportation cost? (a) Supplier (b) Yourself Suppliers Yourself 4 1618An analysis show that mostly cases manufacturer bears the transportation cost. Q.6 Which type of handicraft item is more in demand? (a) Wooden (b) Glass made (c) Metal made Wooden Glass made Metal made 9 4 7Wooden items are more in demand because 45% of respondent said that wooden item is more in demand.Q.7 Which type of wood is more in demand in manufacturing? (a) Babul/Aakashiya (b) Shisham (c) Pine (d) Teak (e) Mango 19Babul Shisham Pine Teak Mango7 9 1 1 2In answer of this question 45% respondent said that shisham is more in demand after shisham, babul made handicraft is more in demand. Q.8 what level of Inventory you keep? (a) (b) (c) (d) 15 days 30 days 2 months 4 months 15 Days 30 Days 2 Months 4 Months 1 16 3 020The analysis shows that most of manufacturer keep 30 days inventory. Some manufacturer also keep 2-month inventory.Q.9 From where you get the skilled workers? (a) Saharanpur (b) Barmer (c) jaisalmer (d) LocallySaharanpur Barmer Jaisalmer Locally4 1 1 1421The analysis of this question shows that mostly skilled are locally available. Some part of labour comes from Saharanpur also.Q.10 On which basis you appoint the workers? (a) Contractual basis (b) Monthly basis Contractual basis Monthly basis 14 622Most of manufacturer appoints workers on contractual basis. Q.11 What type of facility you provide to the worker to retain them? (a) Housing (b) Canteen (c) Bonus (d) MedicalHousing Canteen Bonus Medical5 1 12 2In the answer of this question respondent said that they provide mainly bonus to their employees to retain them some manufacturer provide housing facility also to their workers. There are only few manufacturer who provide medical and canteen facility to their employees.Q.12 What mode of selling of handicraft you use? 23(a) Through exhibition (b) Direct selling through retailer (c) ExportThrough Exhibition Direct Selling through Retailers Export1 2 17Mainly the mode of selling is through export. Most of manufacturers go for direct export as per the data. As per analysis 85% respondents said that they are direct exporting their product.Q.13 How much margin you get while going for export? (a) 0% - 5% (b) 5% - 10% (c) 10% - 15% (d) 15% - 20%0% - 5%0 245% - 10% 10% - 15% 15% - 20%0 2 18If the manufacturer is going for export then the profit margin is 15-20% as per the analysis. 90% manufacturers are in favour of this. Only 10% said that they get only 10-15% profit margin if they go for export.Q.14 How much margin you get while going for local selling? (a) 0%-5% (b) 5%-10% (c) 10%-15% (d) 15% -20%0% - 5% 5% - 10% 10% - 15%3 17 02515% - 20%0If the manufacturer is going for local selling then they get 5-10% profit margin.Demand AnalysisAfter conducting the market survey in the form of questionnaire and interview of the manufacturers, the next step is to estimate the effective demand in the past and the present. As per the secondary data the demand of wooden handicraft is as follows: Total Demand in units = 9200000 units/year (on an average of all items listed below) Category wise demand of wooden handicraft:S. No. 1 2 3 4 5 6 7Items Chairs Dining tables Coffee tables Book shelves Sopha Bad Other decorative items Total export from IndiaItem wise demand in unit/year 15, 64,000 11, 96,000 18, 40,000 11, 04,000 4, 60,000 5, 52,000 24, 84,000 92, 00,000 units/year 26Supply:Area Sikar Jhunjhunu Jaipur Mundwa Manufacturer 1 5 10 4 Total supply by these 20 manufacturer Supply(units/month) 400 2,410 5,650 2,100 10,560units/monthSo annual demand of these 20 manufacturer is = 10560*12 = 126,720 units/ year Total manufacturer of wooden handicraft in Shekhawati region = 300 Total supply = {300*126720}/ 20 = 1900,800 units /yearDemand-Supply Gap EstimationThe demand of handicraft is 9200000 units/ year and the supply is 1900,800 units/ year. So the demand supply gap is: = 9200000-1900800 = 7299200 units/ year27This gap is currently filled in by the manufacturers who are located outside Rajasthan which is fulfilled by nearby states like U.P., Madras, and Jammu & Kashmir. So to fill this gap the handicraft manufacturing unit can be set up locally.Demand ForecastingThe information collected in market analysis is helpful in forecasting estimated demand for my product. As 0.082% of the total market is the potential market for my product, this is the market for local brands. On the basis of this survey, my product will replace 0.082% of the total demand. The market is growing with a growth rate of 15 %; accordingly my production will be there. These also decide my capacity as on the basis of the market demand my capacity will be 60% for 1st year & than will grow accordingly. The plant will run only in one shift. The production and capacity related data will be: Year Operating capacity 60% 65% 70% 76% 82% 89% 97% No. of shifts (In 8hrs/day) 1 1 1 1 1 1 1 Total Production (Units /year) 7200 7800 8400 9120 9840 10680 116402009 2010 2011 2012 2013 2014 2015Marketing ChannelMost producers do not sell their goods directly to the final users; between them stands a set of intermediaries performing a variety of functions. These intermediaries constitute a marketingManufacturers channel. The marketing channels just not only serve the markets but they also make markets.Currently, the existing marketing channel of the wooden handicraft manufacturers is as follows:Distributors28End Users29Strategic Marketing Plan:Wooden handicraft is being an unbranded commodity, so as such the manufacturers incur no promotional expenditure. Sometimes they just increase the commissions or the margins of these, if the targets are achieved enormously. But in order to differentiate the product and capture the existing market and to develop strong customer base, some strategic marketing plan is necessary to be designed and implemented. Various strategies that will be used being a new entrant are: Steady supply with timely delivery to fulfil the demand of the domestic area as well as outside area and good quality would be one of the strategic strength of the marketing plan. Apart from good quality good designs are an important factor. These designs will be based on traditional pattern so that it can impress foreign customer. Besides from these efforts e-commerce is also a promotional tool for marketing of this product. So I will do online selling also in order to promote my product. So orders will also be taken online apart from fax and telephonically.30Technical AnalysisProcess involve in manufacturing of wooden handicraft:A lot of skill and hard work goes into every piece of Indian wooden handicraft. It mirrors Indian culture, and each handicraft is a masterpiece in its own right. Let's take a peek at the actual process which goes into creating a piece of wooden handicraft.Raw wood available in the form of logs is cut into planks of desired thickness and length. The piece of wood is then seasoned to obtain a texture which is favourable for carving. Decorative patterns are first drawn on the wood with a pencil. The design is then carved into the wood with a carving tool. Craftsmen inlay the wooden handicraft with metal, bone, or wood which gives off a contrast effect, enhancing the intricacies of the carved design. Different pieces of carved wood are joined together to make complete, functional objects. A protective coating is applied with a suitable wood finish. Production TimeWood carving is a time consuming process. The time needed by Indian craftsmen to create carved wooden handicrafts may range anywhere from a week (for small items) to a few months (for large items which require elaborate carving techniques.Production ToolsIndian craftsmen have a wide range of tools at their disposal, depending on the stage of production. Some of them are as follows:Saws: Powered by an electric motor, Band saws are used to cut off scrap wood effortlessly. Chain saws are used to cut logs for large carvings. Drills are primarily used to drill holes, and they are available with several attachments to perform sanding, sawing, mixing paint etc.31Lathes are used to turn wood. They are used to make spherical, cylindrical or round objects. They are handy while making vases, bowls, and plates. Primarily used for whittling and chip carving, Carving knives are also used to make the surface of the wood smooth. Wood-carving chisels have a sharp flat edge which is used to cut into the wood. They are available in bent, straight, and spoon shapes. U-gouges have curved cutting edges which form a 'u' shape, hence the name. Craftsmen use them to remove large pieces of unwanted wood, to define large shapes, and to round out the edges.Also known as parting tools, V-gouges are used to cut fine lines. They are used for outlining while carving intricate patterns.These tools are not specific and easily available at local market because it is manufactured locally.Machinery InvolvedS. No. 1 2 3 4 5 6 7 8 9 10 Particulars Chemical treatment plant Seasoning plant Surface planner Grinder(small) Grinder(big) Driller Band show (aara machine) Gaze machine Ziksha machine Sanding machine Total: No. 1 1 9 5 5 2 1 3 1 1 Rate 200000 300000 30000 2500 7000 1500 25000 30000 3000 30000 Amount 200000 300000 270000 12500 35000 3000 25000 90000 3000 30000 96850032These machines will be purchased from Ludhiana as many manufacturers are making these machines. Therefore, these are available at competitive prices.Location and site development The area for setting up a handicraft manufacturing unit is decided after surveying all the potential areas. The location of plant will be in RIICO industrial area in Jhunjhunu district. The rate of land is Rs 500sq meters (one side road plot), of area 2,000sq meters or 21529sq ft.Structure and Civil works:S. No. 1 2 3 4 5 6 7 8 9. 10. Particulars Factory shed 2 stock room Guard room Power room Boundary wall Washroom 5 labour quarters Room Washrooms Office room Fire fitting Total 12*10 6*8 15*12 120 48 180 200 200 200 24000*5=120000 9600*5=48000 36000 39200 9,36,800 6*8 48 200 Size 30*60 18*20 8*10 8*10 Area 1800 360 80 80 Rate 200 200 200 200 Amount 3,60,000 72000 16000 16000 220000 9600UtilitiesThe important utility used in handicraft manufacturing is power. Other necessary utilities used in plant are: Fans 2 Tubelights-2033 Computer with laser printer Furniture comprise of office table, cello chairs.MaterialsBabool/Aakashiya: This is available in Rajasthan and some part of Gujarat. The rates of babool are Rs.20 / sq ft Shisham: Most of wooden handicraft is made of shisham wood. The highest demand is of shisham made wooden handicraft. This is available in Gujarat, U.P. & Bihar. This is made available by local wholesale timber merchant. The rates are Rs. 30/sq ft. Pine: Rs. 25 /sq ft. These are less demanded. Teak: Rs. 80 /sq ft Mango: Rs. 25 /sq ft Only Shisham will be used to manufacture wooden handicraft because it is more in demand and suitable for these type of handicrafts.Labour RequirementsHandicraft is a labour intensive product and it is all depend upon labour only and all kind of labour requirements are there like in this we need skilled , semi skilled and unskilled workers. So total requirements are as follows: Employees Production Supervisor Accountant Skilled Workers Semi skilled Workers Unskilled workers Peon Guard Total Number 1 1 5 8 3 1 1 20 Salary (Rs.) Per day 150 125 100 Per month 5000 5000 4500 3750 3,000 2,500 2,500 Annually 60000 60000 54000*5 = 2,70,000 45000*8 = 3,60,000 36000*3 = 1,08,000 30,000 30,000 9,18,000 34Strategy to appoint & retain employees On time payment is a best retention strategy. So I will give on time payments to retainmy skilled worker. Medical facility to all worker and employees. Occasional bonus to skilled workers. Housing facility: I will provide labour quarter to skilled worker who are not fromlocal areas. I will provide employment to their spouses based upon their ability.35FINANCIAL ANALYSISCost of Project Particulars Land & Site development Building Plant & Machinery Other Fixed Assets Preoperative Expenses Preliminary Expenses Provision for Contingency WC Margin Total Means of Finance Particulars Promoter's Capital Long/ medium Term Loan from Banks Total Cost in Rs. 12,95,203 25,90,445 38,85,648 Cost in Rs 10,63,600 9,36,800 9,68,500 2,30,000 2,71,995 1,94,282 1,94,282 26,189 38,85,648Basic Assumptions underlying Financial Projections The profitability and other projections may be prepared on the basis of following assumptions:1.) The construction period will last for one year. 2.) The company would work for 360 days per year on a 1 shift basis. The installed capacity on this basis works out to 12000.363.) The company will start commercial production on July 1, of year 1. The expected capacity utilization will be 60% in first year, 65% in the second year, and 70% for the third year and so on. 4.) Wages and salaries are expected to be Rs 918000. 5.) Factory overheads expenses will be Rs 32880 for the first year. 6.) Administration expenses will be Rs 360000 per annum. 7.) The term loan will be repaid in 14 equal half-yearly instalments, with the first instalment due at the end starting of first operating year. The interest rate on the outstanding term loan will be 12%. 8.) 9.) The bank finance for working capital will cost 12% interest rate. The depreciation rates for company law purposes are as follows: Building Plant and Machinery Miscellaneous Fixed assets : 3.34% : 8% : 5%11. The depreciation rates for the income tax purposes are as follows, under the written down value method: Building : 10%Plant & Machinery & Miscellaneous Fixed assets: 33.33% 12. The income tax rate applicable is 30%. Further 10% of Gross Total income will be allowed as deduction for newly set up industrial undertaking under sec. 80I for 10 years from the initial year. 13.) The current assets requirements are expected to be as follows:Raw materials Stock-in-process Finished goods Book debt : 30 days : 1 day : 4 day : 7 days14.) The suppliers of raw material will provide trade credit for 15 days. 15.) The salvage value is assumed to be 5% of Fixed Assets. 16.) The corporate tax rate is 30% p.a.37SALES FORECASTINGYear SalesSALES FORECAST 2009 2010 3288000 35620002011 383600038Bibliography www.handicraftdpr.htm39Annexure: 1 Questionnaire (Manufacturer)Name____________________________ Area of production_________________ Company name___________________ Year of Establishment___________________1) Variety of handicraft item you manufacture? a) Chairs b) Tables c) Decorative items d) Any other2) From where you acquire the raw material for wooden handicraft? a) Bihar b) U.P. c) Gujarat d) Import from other countries3) At what frequency do you order the raw material stock? a) Weekly b) Fortnightly 4) Order size a) 400-500 units b) 500-700 units c) 700-1000 units d) 1000 units and above c) Monthly d) As required5) Who bears the transportation cost? a) Supplier b) Yourself 6) Which type of handicraft item is more in demand ? a) Wooden b) Glass made c) Metal made7)Which type of wood is maximum in demand for manufacturing? 40a) Babul/Aakashiya b) Shisham c) Pine 8) What level of Inventory you keep? a) 15 days b) 30 dayd) Teak e) Mangoc) 2 months d) 4 months9) From where you get the skilled workers for the ornamental work? a) Saharanpur b) Barmer c) Jaisalmer d) Locally10) On which basis you appoint the workers? a) Contractual b) Monthly basis 11) What type of facility you provide to the worker to retain them? a) Housing b) Canteen 12) c) Bonus d) MedicalWhat mode of selling of handicraft you use? a) Through exhibition b) Direct selling through retailer c) Export13)How much margin you get while going for export? a) 0%-5% b) 5%-10% c) 10%-15% d) 15% -20%14)How much margin you get while going for local selling? a) 0%-5% b) 5%-10% c) 10%-15% d) 15% -20%41Annexure: 2 Interest Term Loan14 Equal Instalments @ 12% per annum Loan O/S Loan O/S at Loan O/S at Yea at the the end of 1st the end of 2nd r beginning half year half year 1 2590445 2405413 2220381 2 2220381 2035349 1850317 3 1850317 1665285 1480253 4 1480253 1295221 1110189 5 1110189 925157 740125 6 740125 555093 370061 7 370061 185029 0 Note: term loan of 25, 90,445 will be paid Interest for the 1st half year 155426 133222 111019 88815 66611 44408 22204 Interest for the 2nd half year 144324 122120 99917 77713 55509 33306 11102 Total interest for the term loan 299750 255342 210936 166528 122120 77714 33306Annexure: 3Working Capital Requirements Items Raw materials Stock in process Finished goods Book debts Total Current Assets Less: Margin for WC from long term sources (25% of RM CAs) Less: Trade credit for raw materials Bank finance for WC Norms in days 30.00 1.00 4.00 7.00 42.00 1st year 62500 1837 14698 25722 104757 2nd year 67708 1990 15923 27866 113487 3rd year 72916 2143 17148 30009 12221626189 62500 16068 192828371 67708 17408 208830554 72916 18746 2249INTREST @ 12 %42Annexure: 4 DepreciationA. Asset Valuation for depreciation purpose Share of Share of Preoperative Contigency Basic cost cost margin 1063600 90435 64596 936800 79655 56896 968500 82349 58821 230000 3198900 19556 271995 13969 194282Asset expenses Land Building Plant & machinery Miscellaneous fixed assets TotalTotal 1218631 1073351 2291982 263525 3665177B. Depreciation schedule for company law purposes (SLM) Building 3.34% 40702 Plant & machinery 8% 85868 Miscellaneous fixed assets 5% 114599 Annual depreciation 16.34% 241169C. Depreciation schedule for income tax purposes (WDV) Assets 1st yr 2nd yr 3rd yr Building 107335 96601 86941 Plant & machinery & Miscellaneous fixed assets (33.3%) Total851750 959085567862 664463378593 46553443Annexure: 5Profitability Estimates (Estimates of Working Results) Installed Capacity Production Capacity Utilization A. Sales Realization B. Cost of production *Raw Materials *Power *Wages & Salaries *Factory Overheads C. Admn & Selling Expenses *Admn Expenses *Selling Expenses D. Gross Profit Before interest E. Total Financial Expenses *Interest on Term Loans *Interest on Bank Borrowings F. Depreciation G. Operating Profit H. Preliminary Expenses W/O I. Profit/ Loss Before Tax J. Provision for Tax K. Profit After Tax L. Retained Profit M .Add: *Depreciation *Preliminary Expenses W/O *N. Net Cash Accruals 1st yr 12000 7200 60 3288000 1322880 750000 60000 480000 32880 410000 360000 50000 1555120 301678 299750 1928 241169 1012273 194282 817991 30022.50 787968.50 787968.50 241169 194282 1223419.50 2nd yr 12000 7812 65 3562000 1433120 812500 65000 520000 35620 444167 390000 54167 1684713 257430.000 255342 2088 241169 1186114.33 3 194282 991832.333 170561.400 821270.933 821270.933 241169 194282 1256721.93 3 3rd yr 12000 8476 70 3836000 1543360 875000 70000 560000 38360 478333 420000 58333 1814307 213185.000 210936 2249 241169 1359952.667 194282 1165670.667 282391.500 883279.167 883279.167 241169 194282 1318730.16744Annexure: 6Tax Calculation 1st yr 817991 241169 1059160 959085 100075 100075 30022.50 2nd yr 991832 241169 1233001 664463 568538 568538 170561.40 3rd yr 1165670 241169 1406839 465534 941305 941305 282391.50Profit/ Loss Before Tax Add: Depreciation for company law purposes Total Less: Depreciation for Tax purposes Gross Total Income Total Income Income Tax @ 30% of Total IncomeAnnexure: 7Projected Balance Sheet Construction Period End Liabilities Share Capital Reserve & Surplus *Term Loans * WC Adv Current Liabilities & Provisions * Trade Credit Total Assets Fixed Assets * Gross Block * Less: Accumulated Deprecition * Net FA Current Asset Loans & Adv * Raw Materials * Stock in Process * Finished Goods *Book Debts Cash & Bank Balances *Preliminary Expenses Total 1295203 2590445 1st yr 1295203 787968.50 2220381 16068 1365497.50 62500 5685131 2nd yr 1295203 1609238 1850317 17408 1555739 67708 6327918 3rd yr 1295203 2492517 1480253 18746 1745273 72916 7032005388566136651773665177 241169 3424008 62500 1837 14698 25722 2059225 97141 56851313665177 482338 3182839 67708 1990 15923 27866 3031592 97141 63279183665177 723507 2941670 72916 2143 17148 30009 3968119 7032005366517726189 194282 388564845Annexure: 8 Projected Cash FlowConstruction Period Sources of Funds Share Issue PBT with Interest Added Back Depreciation Preliminary Expenses W/O Increase in Secured Medium & Long term Borrowings Increase in Bank Borrowings for WC Increase in State Govt Special Incentive Loan Total (A) Disposition of Funds Capital Expenditure Increase in WC Preliminary Expenses Decrease in Secured Medium & Long term Borrowings Interest on Term Loan Interest in Bank Borrowings for WC Taxation Total (B) Opening Balance of Cash & Bank Net Surplus/ Deficit (A)(B) Closing Balance of Cash & Bank 1295203 1119669 241169 97141 2590445 16068 1340 1338 1249262 241169 97141 1378855 241169 1st yr 2nd yr 3rd yr38856481474047158891216213623665177 42257 194282 3522 4227185032 299750 1928 30022.50 558989.50 26189 26189 26189 2033036 2059225185032 255342 2088 170561.40 616545.40 2059225 972367 3031592185032 210936 2249 282391.50 684835.50 3031592 936527 3968119385945946Annexure: 9Operating Cash flows A B C D Total funds Revenues Operating Costs Depreciation Interest on working capital E advance F Interest on term loan H Profit before tax I Tax J Profit after tax L Net salvage value of fixed assets M Net salvage value of current assets N Initial investment P Q R Operating cash flows Terminal cash flow Net cash flow 3885648 0 yr 3885648 1st yr 3288000 1732880 959085 1928 299750 294357 30022.50 264334.50 2nd yr 3562000 1877287 664463 2088 255342 762820 170561.40 592258.60 3rd yr 3836000 2021693 465534.000 2249 210936 1135588 282391.50 853196.503885648 1434594 1436922.6 0 1436922.6 0 14679601434594146796047Annexure: 10BREAK EVEN POINT FOR THE PROJECT A Sales Realisation B Variable Costs Raw Materials Interest On Working Capital Power & Water Selling & Distribution Expenses Total C Fixed Cost Wages And Salaries Repairs And Maintainance Depriciation Administrative Expenses Interest On Term Loan Total D Contribution(A-B) p/v ratio Break Even Point In Terms Of Volumes Of Sales Break Even Point In Terms Of Installed Capacity Amount 3288000 750000 1928 60000 50000 861928 480000 10000 241169 360000 299750 1390919 2426072 73.7856 4 1885081 57.3321 4 Amount Amount 3562000 3836000 812500 2088 65000 54167 933755 875000 2249 70000 58333 10055821390919 1390919 2628245 283041848YEARS200920102011Fixed cost total costSales RealisationBreak Even Point In Terms Of Volumes Of Sales139091 9 225284 7 328800 0 188508 1139091 923246 74139091923965 01356200 018850 81383600018850 8149


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