Business Plan To Open A Handicraft Work

EXECUTIVE SUMMARY

It 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.

1

PROMOTER’S IDEA

The 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.

2

FIRM AND PROMOTERS

Firm: The firm namely Shekhawati Handicrafts, Jhunjhunu will be a sole proprietorship firm and will function from Jhunjhunu under the concerned person’s name (myself).

Promoter: Decision for entrepreneurship is promoted by 5 major reasons. These are:

Personal Characteristics

Personal Environment

Personal Goals

Decision to Behave Entrepreneurially Business Environment

Idea

Moreover, it is an Idea/Innovation that leads towards Entrepreneurship i.e.; idea comes first and entrepreneurship follows afterwards.

3

HANDICRAFT

Introduction Handicrafts 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

Organization/Information

to

United

Nations

Technology

Educational,

Community

Scientific

(UNESCO/ITC)

and

Cultural

International

Symposium 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 people’s 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. 4

5

Industry Analysis

India 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.

6

There 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 Industry •

India’s 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.

•

India’s contribution in world market is 1.2%

•

The total exports of crafts items: - Rs. 134129.2 millions.

•

Industry’s 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. 7

Classification: 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.

8

•

Lack 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 Industry •

Inspite 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 sector’s 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 industry •

The 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 Model The 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 Overview Wooden 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. 11

Small 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. India’s 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 country’s 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. 12

Low 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.

13

MARKET ANALYSIS

Geographical Area Jhunjhunu (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 market

Source of Information Primary (Market Survey) and Secondary data

Methodology 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 on both 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. 14

Sampling Procedure: Simple random sampling method was used for survey on representative basis.

Sample Size: 20 handicraft units Contact Method: Personal interview with each of the manufacturer and raw material suppliers was conducted.

Information collected from Manufacturers Questionnaire wise Q.1 Variety of handicraft item you manufacture? (a) Chairs (b) Tables (c) Book shelves (d) Decorative items (e) All of the above Chairs

0

Tables

0

Book shelves

0

Decorative items

2

All of the above

18

15

As 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

2

U.P.

4

Gujarat

2

All of the above

11

Import from other countries

1

The 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

3

Fortnightly

0

Monthly

4

As required

13

As 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

2

500-700 units

15

700-1000 units

2 17

1000 units and above

1

As 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 16

18

An 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

9

Glass made

4

Metal made

7

Wooden 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 19

Babul

7

Shisham

9

Pine

1

Teak

1

Mango

2

In 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

1

30 Days

16

2 Months

3

4 Months

0

20

The 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) Locally

Saharanpur

4

Barmer

1

Jaisalmer

1

Locally

14

21

The 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 6

22

Most 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) Medical

Housing

5

Canteen

1

Bonus Medical

12 2

In 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) Export

Through Exhibition

1

Direct Selling through Retailers

2

Export

17

Mainly 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 24

5% - 10%

0

10% - 15%

2

15% - 20%

18

If 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 0

25

15% - 20%

0

If the manufacturer is going for local selling then they get 5-10% profit margin.

Demand Analysis After 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.

Items

Item wise demand in unit/year

1

Chairs

15, 64,000

2

Dining tables

11, 96,000

3

Coffee tables

18, 40,000

4

Book shelves

11, 04,000

5

Sopha

4, 60,000

6

Bad

5, 52,000

7

Other decorative items

24, 84,000

Total export from India

92, 00,000 units/year

26

Supply: Area

Manufacturer

Supply(units/month)

Sikar

1

400

Jhunjhunu

5

2,410

Jaipur

10

5,650

Mundwa

4

2,100

Total supply by these 20 manufacturer

10,560units/month

So 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 /year

Demand-Supply Gap Estimation The 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/ year

27

This 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 Forecasting The 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

No. of shifts

Total Production

(In 8hrs/day)

(Units /year)

2009

60%

1

7200

2010

65%

1

7800

2011

70%

1

8400

2012

76%

1

9120

2013

82%

1

9840

2014

89%

1

10680

2015

97%

1

11640

Marketing Channel Most 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 marketing channel. The marketing channelsManufacturers just not only serve the markets but they also make markets. Currently, the existing marketing channel of the wooden handicraft manufacturers is as follows:

Distributors 28

End Users

29

Strategic 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.

30

Technical Analysis

Process 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 Time Wood 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 Tools Indian 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.

31

•

Lathes 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 Involved S. No.

Particulars

No.

Rate

Amount

1

Chemical treatment plant

1

200000

200000

2

Seasoning plant

1

300000

300000

3

Surface planner

9

30000

270000

4

Grinder(small)

5

2500

12500

5

Grinder(big)

5

7000

35000

6

Driller

2

1500

3000

7

Band show (aara machine)

1

25000

25000

8

Gaze machine

3

30000

90000

9

Ziksha machine

1

3000

3000

10

Sanding machine

1

30000

30000

Total:

968500

32

These 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.

Particulars

Size

Area

Rate

Amount

1

Factory shed

30”*60”

1800

200

3,60,000

2

2 stock room

18”*20”

360

200

72000

3

Guard room

8”*10”

80

200

16000

4

Power room

8”*10”

80

200

16000

5

Boundary wall

6

Washroom

220000 6”*8”

48

200

9600

12”*10”

120

200

24000*5=120000

5 labour quarters 7

Room

8

Washrooms

6”*8”

48

200

9600*5=48000

9.

Office room

15”*12”

180

200

36000

10.

Fire fitting Total

39200 9,36,800

Utilities The important utility used in handicraft manufacturing is power. Other necessary utilities used in plant are: ♦ Fans – 2 ♦ Tubelights-20

33

♦ Computer with laser printer ♦ Furniture comprise of – office table, cello chairs.

Materials Babool/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 Requirements Handicraft 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

Number

Salary (Rs.) Per day

Per month

Annually

Production Supervisor

1

-

5000

60000

Accountant

1

-

5000

60000

Skilled Workers

5

150

4500

54000*5 = 2,70,000

Semi skilled Workers

8

125

3750

45000*8 = 3,60,000

Unskilled workers

3

100

3,000

36000*3 = 1,08,000

Peon

1

-

2,500

30,000

Guard

1

-

2,500

30,000

Total

20

9,18,000 34

Strategy to appoint & retain employees  On time payment is a best retention strategy. So I will give on time payments to retain my 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 from local areas.

 I will provide employment to their spouses based upon their ability.

35

FINANCIAL ANALYSIS

Cost of Project Particulars

Cost in Rs

Land & Site development

10,63,600

Building

9,36,800

Plant & Machinery

9,68,500

Other Fixed Assets

2,30,000

Preoperative Expenses

2,71,995

Preliminary Expenses

1,94,282

Provision for Contingency

1,94,282

WC Margin Total

26,189 38,85,648

Means of Finance Particulars

Cost in Rs.

Promoter's Capital

12,95,203

Long/ medium Term Loan from Banks

25,90,445

Total

38,85,648

Basic 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.

36

3.) 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.)

The bank finance for working capital will cost 12% interest rate.

9.)

The depreciation rates for company law purposes are as follows: Building

: 3.34%

Plant and Machinery

: 8%

Miscellaneous Fixed assets

: 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

: 30 days

Stock-in-process

: 1 day

Finished goods

: 4 day

Book debt

: 7 days

14.) 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.

37

SALES FORECASTING

Year Sales

SALES FORECAST 2009 2010 3288000 3562000

2011 3836000

38

Bibliography

• www.indianhandicraftexporter.com • www.google.co.in • www.wikipedia.com • www.yahoo.com •

www.ori.nic.in

• www.answers.com • www.handicraftdpr.htm

39

Annexure: 1 Questionnaire (Manufacturer) Name____________________________

Company name___________________

Area of production_________________

Year of Establishment___________________

1) Variety of handicraft item you manufacture? a) Chairs

c) Decorative items

b) Tables

d) Any other

2) From where you acquire the raw material for wooden handicraft? a) Bihar

c) Gujarat

b) U.P.

d) Import from other countries

3) At what frequency do you order the raw material stock? a) Weekly

c) Monthly

b) Fortnightly

d) As required

4) Order size a) 400-500 units

c) 700-1000 units

b) 500-700 units

d) 1000 units and above

5) 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 made

7)

Which type of wood is maximum in demand for manufacturing? 40

a) Babul/Aakashiya

d) Teak

b) Shisham

e) Mango

c) Pine 8) What level of Inventory you keep? a) 15 days

c) 2 months

b) 30 day

d) 4 months

9) From where you get the skilled workers for the ornamental work? a) Saharanpur

c) Jaisalmer

b) Barmer

d) Locally

10) 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?

12)

a) Housing

c) Bonus

b) Canteen

d) Medical

What mode of selling of handicraft you use? a) Through exhibition b) Direct selling through retailer c) Export

13)

14)

How much margin you get while going for export? a) 0%-5%

c) 10%-15%

b) 5%-10%

d) 15% -20%

How much margin you get while going for local selling? a) 0%-5%

c) 10%-15%

b) 5%-10%

d) 15% -20%

41

Annexure: 2 Interest Term Loan 14 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 33306

Annexure: 3 Working 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

INTREST @ 12 %

1st year 62500 1837 14698 25722 104757

2nd year 67708 1990 15923 27866 113487

3rd year 72916 2143 17148 30009 122216

26189

28371

30554

62500 16068 1928

67708 17408 2088

72916 18746 2249

42

Annexure: 4 Depreciation A. Asset Valuation for depreciation purpose

Asset expenses Land Building Plant & machinery Miscellaneous fixed assets Total

Share of Share of Preoperative Contigency Basic cost cost margin 1063600 90435 64596 936800 79655 56896 968500 82349 58821 230000 3198900

19556 271995

13969 194282

Total 1218631 1073351 2291982 263525 3665177

B. Depreciation schedule for company law purposes (SLM) Building 3.34% 40702 Plant & machinery 8% 85868 Miscellaneous fixed assets 5% 114599 Annual depreciation 16.34% 241169

C. 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%) Total

851750 959085

567862 664463

378593 465534

43

Annexure: 5 Profitability 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

1st yr 12000 7200 60 3288000 1322880 750000 60000 480000 32880 410000 360000 50000 1555120 301678 299750 1928 241169

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

1012273 194282 817991 30022.50 787968.50 787968.50 241169 194282

*N. Net Cash Accruals

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 1318730.167

44

Annexure: 6 Tax Calculation 1st yr 817991

2nd yr 991832

3rd yr 1165670

241169 1233001 664463 568538 568538 170561.40

241169 1406839 465534 941305 941305 282391.50

1st yr

2nd yr

3rd yr

1295203 787968.50 2220381 16068

1295203 1609238 1850317 17408

1295203 2492517 1480253 18746

3885661

1365497.50 62500 5685131

1555739 67708 6327918

1745273 72916 7032005

3665177

3665177

3665177

3665177

3665177

241169 3424008

482338 3182839

723507 2941670

26189 194282 3885648

62500 1837 14698 25722 2059225 97141 5685131

67708 1990 15923 27866 3031592 97141 6327918

72916 2143 17148 30009 3968119

Profit/ 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 Income

241169 1059160 959085 100075 100075 30022.50

Annexure: 7 Projected 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

7032005

45

Annexure: 8 Projected Cash Flow Construction 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

1st yr

2nd yr

3rd yr

1119669 241169 97141

1249262 241169 97141

1378855 241169

16068

1340

1338

1474047

1588912

1621362

42257

3522

4227

185032 299750

185032 255342

185032 210936

1928 30022.50 558989.50

2088 170561.40 616545.40

2249 282391.50 684835.50

26189

2059225

3031592

26189

2033036

972367

936527

26189

2059225

3031592

3968119

1295203

2590445

3885648

3665177 194282

3859459

46

Annexure: 9 Operating 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

0 yr 3885648

2nd yr

3rd yr

3288000 1732880 959085

3562000 1877287 664463

3836000 2021693 465534.000

1928 299750 294357 30022.50 264334.50

2088 255342 762820 170561.40 592258.60

2249 210936 1135588 282391.50 853196.50

1434594

1436922.6 0

1467960

1434594

1436922.6 0

1467960

3885648

Operating cash flows Terminal cash flow Net cash flow

1st yr

3885648

47

Annexure: 10 BREAK EVEN POINT FOR THE PROJECT A Sales Realisation

Amount 3288000

Amount Amount 3562000 3836000

B Variable Costs Raw Materials Interest On Working Capital Power & Water Selling & Distribution Expenses Total

750000 1928 60000 50000 861928

812500 2088 65000 54167 933755

C Fixed Cost Wages And Salaries Repairs And Maintainance Depriciation Administrative Expenses Interest On Term Loan Total

480000 10000 241169 360000 299750 1390919

1390919 1390919

D Contribution(A-B)

2426072

2628245 2830418

p/v ratio

73.7856 4

Break Even Point In Terms Of Volumes Of Sales

1885081

Break Even Point In Terms Of Installed Capacity

57.3321 4

875000 2249 70000 58333 1005582

48

YEARS

Fixed cost total cost Sales Realisation

Break Even Point In Terms Of Volumes Of Sales

2009

2010

2011

139091 9 225284 7 328800 0 188508 1

139091 9

1390919

23246 74

23965 01

356200 0

3836000

18850 81

18850 81

49