Question Paper Project Management–II (242): April 2006 Section D : Case Study (50 Marks) • •
This section consists of questions with serial number 1 - 3.
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Answer all questions. Marks are indicated against each question.
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Do not spend more than 80 - 90 minutes on Section D.
Case Study Read the case carefully and answer the following questions: 1.
You are the team leader of a credit research section of a financial consultancy firm. Your team is required to prepare a detailed project report based on the information provided herewith and also you are required to suggest the client whether he should invest or not. With this objectivea. You are required to estimate the cost of the project and show the means of financing. b.
Show the computations for estimating working capital margin and projected profitability statement. Show all necessary working. c. Prepare the projected profitability statement for the next 5 years.
(10 + 7 + 9 = 26 marks) < Answer > 2. Prepare the projected cash flows of the project from the long-term funds point of view. (8 marks) < Answer > 3. Appraise the project in terms of the following criteria: a. Net Benefit Cost Ratio. b. Modified Internal Rate of Return. c. Discounted Pay-back Period. d.
Debt Equity Ratio at the end of each year for the first five years.
e.
Debt Service Coverage Ratio at the end of each year for the first five years.
Assume that the intermediate cash flows are invested in government securities at the rate of 6% p.a. It is very important for you to comment on the validity of the project. (4 + 3 + 3 + 3 + 3 = 16 marks) < Answer > Willfort India Limited (WFIL) Willfort India Limited (WFIL) is planning to go public in the coming days. These are the following guidelines on which the financial projections of its new project has to be calculated. The Company and its management: Wilfort India Ltd. (WFIL) has been formed with its Registered Office at New Delhi. Its manufacturing unit is being proposed to be set up at Bhiwadi, Rajasthan. The company will be engaged in the manufacture of Metallized Plastic Film, Multilayered Co-extruded Plastic Film and Holography film. Metallized films are used to manufacture flexible packages, which enhance the gas, moisture, aroma and light barrier properties of the pouch. These are also used in textile threads, decorative laminates, insulation labels, stamping and transfer foils, light reflective application, capacitors etc. The Multilayered co-extruded films proposed will find applications in the flexible packaging of consumer products such as dairy products, edible oil, vanaspati, lubricants, tea, coffee, pan masala, meat and marine products, fruit pulp, snack foods,
dry fruits etc. The company will also produce coated films which will be used for flexible packaging in improving the shelf appeal of pouches and for making Metallic Yarn of D.G. grade which has various textile applications and for hot stamping foils and transfer foils. The company will also have facilities for manufacturing of Metallized Plastic Film of 1200 MTPA and will regularly manufacture Metallized Polyester Film, Metallized BOPP Films etc., of various sizes and thickness. The management of the Company will be controlled by the Board of Directors of the newly formed company. Mr.I.P.S.Walia, will be the Managing Director. Mr.Walia will be responsible towards overall control over the day to day matters of the company as well he will be responsible for Corporate Planning and framing strategies for the future. Mr. Ashok Ahluwalia will be the whole time director who will be looking after the Finance. Mr.Inder Pal Singh (Director) will take care of the administration. Smt. Shukla Bansal, also a Director will be looking after Legal and Company Affairs related to the company. The overall management of the Company will be vested with the Board of Directors comprising of experienced people mentioned above from various fields. Under the control and supervision of the Board of Directors along with a team of professionals comprising of persons from varied fields, like Manufacturing, Finance, Marketing, Management and Administration, the Company has also picked on its top Executives. Name of key personnel:
Name
Qualification
Experience
Proposed Designation
B.E (Electronics)
8 years
Maintenance Manager
M.B.A
17 years
General Manager (Marketing)
Shri Rajinish M.Com/ Malhotra A.I.C.W.A
15 Years
Sr. Manager Accounts
Shri Rakesh Jain
4 Years
Asst. Manager Accounts
Shri Mankotia
Dinesh
Shri Rakesh Malik
C.A
Products and its uses WFIL will be engaged in the manufacturing of customized packaging films with specific base material (Plastic Film / Polyester Film), manufacturing process (Metallized / Coated Films), specified thickness of metallizing coating, specified barrier properties of metal adhesion / Heat Sealability and customized width of film etc. The manufacturing process is designed to impart specified Tensile Strength / Elongation at Break / Water Vapour Transmission rate and Oxygen Transmission rate. The Company will also have facilities for lacquer and other coating on plastic films and embossing for holography. APPLICATIONS: Metallized Plastic Films is a low priced packaging material as compared to other materials. These films are used in the packaging of food products like tea, coffee, dairy products, pan masala products, products in pouches, ice cream, confectionery etc. Due to rapid growth of processed food industry and market preference for acceptance of these products in consumer packs in the recent years in India, this form of packaging is slowly replacing tin containers, glass bottles and rigid plastic containers primarily because of its lower cost, weight of packaging and easy disposability. Holography Films give protection to the products from being duplicated. The product manufactured by the Company is a flexible packaging material which is part of Packaging Industry in the country. The rough estimates indicate the size of flexible packaging industry to be around Rs. 2000-2200 crores. With the increase in use of such packaging in the industry, the industry wise share of flexible packaging is estimated as under:
Industry Processed Foods
Share (%) 60
Personal Products
15
Tea & Coffee
10
Industrial Product
10
Others
5
The flexible packaging industry which is already growing at the rate of 25% - 30% is set to grow to a rate of 40% - 45% in a couple of years. Some of the possible reasons for such a growth are: (a) Flexible packaging offers functional and economic benefits. (b) In India only 1.5% of the total processed food is packaged as against 65% in the US and 70% in Brazil and therefore there is a considerable growth potential in this sector. (c) The bulk distribution is on the downslide due to change in the consumer buying preferences. (d) Export of processed foods. (e) With increase in standard of living and preference for hygiene and cleanliness, the demand for packaging is on the increase. ESTIMATED SUPPLY: There are limited number of manufacturers in India. The Proposed Project The installed capacity of unit would be 69.02 THTPA (Thousand tonnes per annum). Commercial production is expected to start from December 1, 2006. Land and its Location A patch of land measuring one lakh square meters has already been acquired at Bhiwadi for the proposed project and is sufficient to take care of the requirements of Metallized Plastic Film manufacturing plant. Bhiwadi is situated in Alwar District – Rajasthan. It is an approved industrial area of Rajasthan State Industrial Development & Investment Corporation Ltd. (RIICO). Bhiwadi is approximately 60 kms from Delhi and the plot is 3 kms from NH-8, which links Delhi and Jaipur. The nearest railway station is Rewadi, which is approximately 20 kms from the site. As the site is located in a approved industrial area, adequate infrastructure facilities will also be available. The basic cost of this land is estimated to be Rs.1350 per square meter. The costs associated with registration and stamp duty will amount to 16% of the basic cost of land. The cost of leveling the site is estimated to be Rs.31,60,000. The cost of laying internal roads and approach roads are approximately Rs.38,63,000 and Rs.12,11,000 respectively. The cost of boundary walls will amount to be Rs.9,56,000. Tube Well digging cost would be Rs.2,56,000. Cost of construction of Main Gate will be Rs.0.80 Lacs. Building and Other Civil Works The main working sheds and DG (Deisel Generator) shed will be made of AC sheet roofing supported over structural steel trusses resting over RCC columns with brick masonry pillar walls with Isolated / Spread foundation and cement concrete flooring. The other buildings will be of RCC / Stone Slab roof structure supported over structural steel bims resting over load bearing brick masonry walls with spread foundation, mosaic / cement concrete flooring. There will 4 factory sheds in all. In 1st shed, raw material will be stored and in 2 nd shed - Metallizing Plant and Slitter / Rewinders, in 3rd shed, Coating Machine will be installed and the 4 th shed will house 3 nos. of Multilayer Film Plants. Also, there will be Generator Room, Stores, Offices and Guest Room. The details of proposed buildings and associated costs are as follows:
Particulars Main Machine Shed: - Metallizing - Slitting Coating Machine Shed Multi-layer Machine Shed Raw-Material Godown Finished Goods Godown Generator Room Utilities Room Office Block Quarters for essential Staff Guest House Other civil Engineering Works Sanitary Disposal Arrangement
Cost (Rs.) 1,82,63,000 1,55,63,000 95,58,000 65,99,000 35,67,000 51,92,000 17,55,000 11,57,000 46,19,000 46,88,000 35,26,000 22, 36,000 31,63,000 Plant and Machinery
The main plant and machinery at the Bhiwadi Unit will comprise of the Metallizing & Rewinding Section, Multilayered Film Section and the Coating / Lamination Section. The plants and machinery to be used will be based on foreign as well as indigenous technology. Every effort is made to know the latest development in technology in India as well as abroad. METALLIZING AND REWINDING: The Metallizing & Rewinding Section will consist of one Vacuum Metallizing Plant Model EHF 1650 – 2122 of General Vacuum Equipment Ltd. U.K., one Titan Model SR-6 Slitten Rewinder including accessories imported from Atlas Components Equipments U.K. and other Slitting and Rewinding machines from indigenous sources. The two imported machines are estimated to cost £529896.38 and £401688.63 respectively. The cost of the indigenous machine would be Rs.93.54 lac. The Vacuum Metallizing Plant is capable of metallizing films in various thickness as under: 6 – 80 micron PET BOPP CPP LDPE Nylon UPVC Paper
9 – 80 micron 15 – 80 micron 20 – 80 micron 9 – 80 micron 15 – 150 micron 30 – 80 gsm MULTILAYERED FILM:
The Multilayered Film section will consist of one Multilayered Co-Extruded Film Plant to be imported from M/s Paul Kiefel Gmbh and Co., Germany, one REL make 3-layer Co-extruded film Plant and one REL make 2-layer Co-extruded Film Plant purchased from M/s Raju Engineers Ltd, Rajkot. The cost of the three machines are € 554288.90, Rs. 21.45 Lac and Rs.32.67 Lac. The machines are capable of making Multilayered Film using combination of LDPE, HDPE, EVA, PP Co-Polymer, HMHDPE of thickness ranging from 25 micron to 150 micron. GRAVEARE COATING / LAMINATION / PRINTING: Coating / Lamination Machine : Rs.22,54,000. Printing Machine : Rs.12,58,000. Coating Machine : Rs.11,11,000. The Coating and Lamination Machine will be modified to a Two - Station Coating machine with a long tunnel.
Printing Machine will be modified to an Embossing Machine for Holography. Customs will be payable at 8%. Excise Duty payable for the new machinery would be 15%. Octroi, Freight, transportation, Loading, Unloading, Clearing and Forwarding charges is estimated @ 4% of the basic cost of the machinery. Erection charges are estimated @ 10% of the basic cost. All the machines are expected to be installed within the next one month so that at the end of the month, payments can be done. Miscellaneous fixed assets: - Office Equipments - Rs.165 Lacs - Water Cooling Tower - Rs.22.22 Lacs - Water Softening Plant - Rs.10.54 Lacs - Storage Tanks - Rs.2.32 Lacs - Electric Gadgets - Rs.10.55 Lacs - Air Compressor - Rs.2.11 Lacs - Laboratory Equipment - Rs.3.18 Lacs - Electrical Installation - Rs.5.63 Lacs - DG Sets – Rs.85 Lacs. Legal charges for drafting agreements for memorandum and articles of association will cost Rs.85,000. The cost of market survey will be Rs.1,00,000. Your company will charge Rs.2.50 Lacs for preparing the feasibility report. Other expenses expected to be incurred by the company till the date of commencement of commercial production are as follows:
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Travelling expenses to the tune of Rs.8,90,000 Printing and Stationery expenses to the tune of Rs.2,25,000 Miscellaneous Expenses to the tune of Rs.10,00,000 Advertisement expenses to the tune of Rs.5,50,000 Insurance premium during construction to the tune of Rs.85,00,000 Establishment Expenses Rs.23.50 Lacs. Technical Know How fees of Rs.0.25 Crores includes a lumsum payment to be made to the engineers from UK and Germany who will be present for plant supervision till production rolls. Power and Captive Generation The total connected load works out to be 3000 KVA at 100% utilization. The unit has installed 6 nos. of 400 KVA Diesel Generating sets and two 180 KVA DG Set with total installed capacity of 1380 KVA. Water Water requirement for the process is insignificant. The water requirement at Bhiwadi will be met by its own tubewell, borewell and water connection from overhead tank of RIICO. The company will have adequate water storage and circulation arrangement. Other Utilities (i) (ii) (iii)
No steam is required in the Metallizing / Co-extrusion process Compressed Air Supply will be installed in Bhiwadi to meet the requirement. H.S.D. Oil: H.S.D. Oil is required for running the Generator Sets and is available directly through Bharat Petroleum and also locally at all petrol pumps. (iv) Other lubricant oils etc., are available easily in principal markets. Effluent Treatment The process of metallizing and co-extrusion does not involve discharge of Air / Water effluent. The plastic scrap generated by the co-extrusion process can be used in-house / sold for recycling purposes. The slitting waste generated in metallising and slitting process at Bhiwadi can be sold for decoration purpose to the scrap dealers. The consent for running the Bhiwadi unit has already been obtained from Rajasthan Pollution Control Board.
Raw Material and other Expenses The principal raw materials consumed by the unit for the production of Metallized Plastic film are Polyester Film and Biaxially Oriented Polypropylene Film (BOPP). The main suppliers of Polyester film to the Company would be: M/s Garware Polyesters Ltd., New Delhi M/s Ester Industries Ltd., New Delhi M/s Polyplex Corporation Ltd., New Delhi In order to meet the short supply of Polyester Film in the market, the Company also plans to develop the metallising technique on BOPP film, which is being procured from Max India Ltd. and Biax India Ltd. BOPP film is available in the market more easily compared to Polyester films. For the production of Co-Extruded Film the raw materials used by the company are Resins of LDPE, HDPE, LLDPE, PP co-polymer and HMHDPE. These resins are procured from Indian Petrochemicals Ltd., Oswal Agro Ltd., Reliance Polypropylene Ltd., Reliance Polytylene Ltd. METALLISING CONSUMABLES: The metallising consumables used by the company for its production are: Evaporator Boats or Crucibles and Aluminium Wire. Evaporator Boats will be imported from M/s Boride Ceramics and Composite Ltd., U.K.(now known as Sintec Ltd.) and M/s ELEKTROSCHEMELZWERK, Germany. The lead time in import of Evaporator Boats / Crucibles would be about one month. Aluminium wires will be imported from Melton Wires, U.K. & Shaped Wires, USA. COATING RAW MATERIALS: Solvents; Polymers of acrylic & vinyle resins; Coating Cylinders; Dyes. EMBOSSING: Shims & adhesive tapes. Process of Production: The Process of manufacturing consists of three phases, namely: Metallizing, Co-Extrusion process and Coating and Embossing Process for Holography. Metalllizing Process : Rawmaterials like the aluminium wire and umc boats are feeded into the metallizer. The Rewinded core then undergoes inspection, rewinding and slitting as per the requirement and then quality check. The final product is packed and is ready for dispatch. Co-Extrusion Process: The Granules are fed into the Extruder machine. Then the product is passed through the Barrel and Srews Section, Die Heads Section and Air Blowing Section. After cooling and rewinding, the process is over. Coating and Embossing Section (Holography): The prepatory film under goes a process of Coating 2-3 times along with solvents and chemicals like resins. Thereafter a process of embossing is done with shims. Thereafter a process of metallizing is conducted followed by inspection and slitting. Finally the product is packed and dispatched. Manpower At present, the existing manpower strength of the company would be 163 including 16 Nos. Managerial Staff, 20 Nos. Technical Staff and 110 nos. of workers. The details of the proposed employment strength is given below:
CATEGORY OFFICE Managerial 4 Clerks/Supervisors 16 Skilled Workers Semi-skilled workers Unskilled Workers Other Category TOTAL 20
WORKS 12 24 26 34 50 146
TOTAL 16 40 26 34 50 166
Additional Information 1. The capacity utilization is expected to be as follows: Products Year Year 1 2 Metallized Plastic Film 80% 90% Coated Film 85% 90%
Year 3 onwards 100% 100%
The product wise installed
capacity is as follows: i. Metallized Plastic Film – 67220 MT per annum ii. Coated Film – 1800 MT per annum.
Rate/MT (Rs.)
RAW MATERIALS For Metallized Plastic Film : Plastic Film (including provision of rejection for 20.48 kg) (kg per MT of Finished Product) Aluminum Wire (kg per MT of Finished Product) Crucibles (Nos. per MT of Finished Product)
1020.48
90500
7.73 1.37 Cost per MT of Finished Product (Rs.)
237000 1015
For Coated Film : Raw Material (in house processed) Chemicals
102404.74 70000.00
CONSUMABLES: Oil Lubricants, Stores, Packing Materials.
(Consumption per MT of Finished Product) For Metallized Plastic Film :
For Coated Film : UTILITIES: Power/Fuel, Diesel Oil
(Consumption per MT of Finished Product) For Metallized Plastic Film :
For Coated Film : OTHER MANUFACTURING EXPENSES:
(Consumption per MT of Finished Product) For Metallized Plastic Film :
Cost/MT of Finished Product(Rs.) 1900.00 5100.00 Cost/MT of Finished Product (Rs.) 4283.50 9712.50 Cost/MT of Finished Product (Rs.) 1336.00
Suggested Answers Project Management–II (242): April 2006 Section D : Case Study 1.
a.
Cost of project:
Rs. in Lacs
A i. ii. iii. iv. v. vi. vii. viii.
Land: Basic cost of land (100000 sq mtrs @ 1350) Stamp duty @ 16% Cost of leveling the site Cost of laying internal roads Cost of approach roads Cost of boundary walls and main gate Cost of tube-well digging Cost of construction of Main Gate
1350.00 216.00 31.60 38.63 12.11 9.56 2.56 0.80 1661.26
TOTAL B
Building and Civil Works:
Main Machine Shed: i. - Metallizing ii. - Slitting iii. Coating Machine Shed iv. Multi-layer Machine Shed v. Raw-Material Godown vi. Finished Goods Godown vii. Generator Room viii. Utilities Room ix. Office Block x. Quarters for essential Staff xi. Guest House xii. Other Civil & Engineering works xiii. Sanitary Disposal Arrangement
182.63 155.63 95.58 65.99 35.67 51.92 17.55 11.57 46.19 46.88 35.26 22.36 31.63 798.86
TOTAL C i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii. xiii.
Rs. in Lacs
Plant and Machinery:
Metallizing and Rewinding Section Vacuum Metallizing Machine (I) SR-6 Slitten Rewinding Machine(I) Slitting and Rewinding Machines Multilayered Film Section Multilayered Co-Extruded Film Plant(I) 3-layer Co-extruded Film Plant 2-layer Co-extruded Film Plant Graveare Coating / Lamination / Printing : Coating / Lamination machine Printing Machine Coating Machine Customs Duty (@ 8%) Excise paid @ 0.15 Octroi, Freight, Transportation, Loading, Unloading, Clearing and Forwarding Charges @ 4% Erection charges @ 10% TOTAL
414.22 314.00 93.54 298.54 21.45 32.67 22.54 12.58 11.11 82.14 29.08 48.83 122.07 1502.77