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FLUX CORED WIRE PROJECT 1.01 PREAMBLE

01. The new liberalization policies of The Government of India have

marked a steady growth of the Indian economy. Various

industries, including Infrastructure, Oil and gas, Automobiles,

Heavy industries, Power etc., have largely been benefited as a

result of this. 02. As per the Indian Economic Survey, Industrial production

for the Mining, Manufacturing and Electricity has performed

well resulting in overall GDP growth rate of 9.1% for the fiscal

year 2007-08.

03. Increase in expenditure on infrastructure projects during mid

1990’s has changed the Indian economic scenario. Billions of

US$ were invested in constructing Highways, Bridges, Airports

and Seaports modernisation, Power projects etc. This situation

will continue for the next 10-20 years to come. The increased

spending on infrastructure projects has resulted in higher

demand for various related products and faster growth rate of

manufacturing sector as well.

04. The high growth rate in the manufacturing sector is also the

result of improved production efficiencies by adopting more

efficient technologies and pruning the production costs. The

improved efficiency is due to more automated production

techniques adopted by the manufacturing sector thus making

them globally competitive.

05. The growth in manufacturing sector results in growth in

consumption of steel and steel products.

06. Welding is a critical requirement in the manufacture and

fabrication of any engineered product, machine or

consumer durable and the ability to produce adequate

welding consumables is essential for the industrial self-

reliance and development of a country.

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07. The welding process is widely used in Structural

Fabrication and Construction, Machine Building,

Consumer Durables, Oil Recovery and Refining, Petroleum

and Gas Pipelines, Pressure Vessels and Boilers, Mining,

Nuclear Energy and Defence Production and armaments. A

wide range of welding consumables are required to cater to

the exacting requirements in each engineering industry.

08. This also results in growth in welding consumables

requirement. As a result all the leading welding

consumables manufacturers in the country are on

expansion mode.

09. In view of achieving higher efficiency, and cost

effectiveness, manufacturing sector is swiftly replacing the

conventional manual welding process with semi-automated

or automated welding techniques, such as Flux cored

systems.

10. In India, there is a great potential for Flux cored wire

electrodes and special purpose welding electrodes. This

is very clear from the fact that about 70% of flux cored

wires demand is met by imports into the country.

1.02. SUMMARY 01. Project

The proposed project is mainly aimed at creating facilities for

manufacturing welding electrodes with the state-of-the-art technology

and machinery. XYZ is mainly contemplating three lines of activities.

They are:

Manufacture of:

a. Low alloy mild steel & Hard facing Flux cored wires (USA

Collaboration)

b. Stainless steel Flux cored wires (USA Collaboration)

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c. Special purpose Metal arc stick electrodes (Low alloy mild steel,

Hard facing and stainless steel) (German formulations)

These facilities will cater to the domestic and export markets.

02. Name of the Company M/s XYZ (XYZ)

03. Constitution Private Limited Company.

04. Date of Incorporation The company name approval obtained and incorporated is under

process under the Companies Act, 1956.

05. Location

Registered and Administrative office Manufacturing facilities

06. Project Driver

The Indian Government is making huge investments in Infrastructure

sector, Steel, Cement, Power, Airports, Seaports, Heavy industry, Oil

and Gas, Petroleum exploration and production etc.

As a result of this there is a rising demand for various grades of steel in

the country. This in turn is raising the demand for steel fabrication.

Steel fabrication in turn depends upon the welding consumables for

quality welding.

There is a rising demand for welding consumables in India and other

developing countries. In the Middle East like Saudi Arabia, Qatar,

Dubai various new infrastructure projects are coming up and the

demand for welding consumables is increasing. The demand growth is

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substantial in these countries.

Hence in addition to domestic demand, there is good export potential

for welding consumables at competitive prices to Middle East, African

countries, South America etc.

Govt. of India has realised the great potential of Exports and offering

various incentives for Exporting companies. This has encouraged the

promoters of XYZ to manufacture welding consumables mainly for

domestic markets and partly for exports.

07. Products

XYZ is planning to sell:

Products MT/Month MT/Year 1 Stainless steel SMAW 50 600 2 Low Alloy SMAW 100 1200 3 R&M SMAW 50 600 4 71 T1 FCW 80 960 5 70 T5 FCW 45 540 6 Hard Facing FCW 25 300 7 Stainless steel FCW 65 780

SMAW- Stick Metal arc welding, FCW- Flux cored wire

08. Background XYZ is a new company incorporated in, India jointly promoted by Mr.

ABC and his associates in collaboration with M/s CDE, USA.

The proposed company XYZ will have three divisions viz., Flux cored

wire electrodes for Low alloys and hard facing applications, Flux cored

wire electrodes for Stainless steel applications, Special alloy stick

electrodes for Mild steel, Stainless steel and Harding facing

applications. The project is to be implemented under EPCG (Export

Promotion Capital Goods) scheme. This conscious decision has been

taken based on concessional import duty available based on export

commitment.

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Because of the size of the capital investment required, the promoters

felt the need for conducting a Techno-economic feasibility study to

ascertain the viability of the project to justify the investment.

09. Promoters and Management 10. Markets

01. Economic development of any country depends upon its

Infrastructure. Next to China, India is having fast infrastructural

growth. Indian Government is implementing various infrastructure

projects with private partnership.

02. In the infrastructure projects, highest priorities are given for setting

up of new steel, cement and power plants, building of new roads,

expansion of railways, developing ports, and increasing refining

capacities and so on.

03. Welding plays an important role in any manufacturing and

infrastructure sectors. Indian Welding Industry is supplying all types

of welding consumables, for SMAW process, semi-automatic or

automatic process.

04. Welding is a process used in almost all Engineering industries. In

India, there is a boom in welding related businesses like

Manufacture of capital Goods, welding equipment and welding

consumables etc. This trend will continue for the coming 10-20

years in India due to massive investments in infrastructure projects

and general boom in manufacturing sector.

05. The Indian Welding industry (as per registered capacities)is

estimated to be around US$ 575 Million and the welding

consumable segment - basically Welding Electrodes, account for

70 to 75 % of the market (say US$ 400 Million).

06. In the organized sector, very few welding consumables

manufacturers are there in India. Unorganized / small-scale sector

account for almost 50% of the Indian welding consumables market.

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In value terms Organized sector production accounts for US$ 200

Million.

07. Manual welding techniques account for 80% of the Indian market

(Say US$ 320 Million). The automation sector is also gaining

popularity in the country due to operational efficiency and cost

reduction programs undertaken by most of the manufacturing

companies. There is an increased use of automation, and

awareness of product quality.

08. The number of Gas pipeline projects and Railway projects,

announced by the Government of India, coupled with switching

over to FCW process by leading Equipment manufacturers in the

Power and Oil sector is expected to boost the demand for

specialized welding consumables.

09. India Imports special welding consumables in substantial quantities.

10. There are more than 150 welding consumable manufacturers in the

country out of which about 10 are either Big or medium scale

mainly manufacture normal mild steel types mostly for general and

low grade fabrication purpose and supply against local territorial

requirements.

11. Total consumption of welding consumables in the country is as

under:

S.No Particulars MT

1 Welding electrodes 2,70,0002 CO2 Solid and Flux core Wires (MIG-MAG Wires) 50,0003 Submerged arc welding consumables

(wire and flux together) 12,000

4 TIG Wires 8,000

12. The future of welding industry is very bright. The annual rate of

growth is 7.1% and the industrial growth will be at the rate of 7-8%

annually. The highlights of segmental growth can be summarized

as follows –

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S.No Industry sector % 1 Automobile Industry 13.0%2 Steel 7.5%3 Oil & Gas 7.0%4 Infrastructure 8.6%5 Construction 12.0%

(source: Crisinfac)

13. Steel consumption is the reliable indicator of welding consumables.

Today India’s consumption is 35 kg / person against 180 kg /

person in China and 400 kg / person in other developed countries.

It is expected that India’s consumption will be doubled within a

decade. The demand for welding consumables also will double in

the same period.

Worldwide market

14. In all the developed countries like USA, Europe, Japan, Korea,

Taiwan, China and India the majority of welding is done by

FCW process. In USA the main players are M/s Lincoln Electric

Co., ESAB and Hobart. In Korea it is Tein-Thai, Goodweld,

Sorox and Kungtai. In China there are more than 10 big

companies making around 20,000 tons of FCW per month but

most of them are exported to USA. In South Korea the main

players are Tein Thai, Kissweld and SMP. In Europe the main

players are Bohler and Thyssen, AirLiquide, Thermodyne,

Eurofil SRL, OMC SRL etc and all these players service their

respective markets only.

15. The average world consumption is about 50,000 tons a month

and increasing steadily year on year, and the main exporters to

other markets are China, Taiwan and Korea. The product quality

and price is the major factor. All over the world, the shipping

industry adapts the FCW process. The same method is

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adopted in Earth Moving Machinery manufacturing and in

manufacture of Equipments for all heavy engineering industries.

Indian Scenario

16. There are four main players in India. They are Mailam

Metalogen, ESAB, D & H Secheron and Ador Welding Ltd. These

companies have got about 100 tons per month capacity each and

most of them import large quantities and they do repacking in

their own brand. As this product range contributes to only

about 10-12% of their turnover, the existing manufacturers so

far have not been focusing in developing this particular product

exclusively.

17. The demand pattern in India is as follows:

a) Railways - They have standardized a lot of products. Wagon

building and other rolling stock manufacturing. All the Metro

coaches are welded with FCW and also BEML; Bangalore

is the major consumer of this wire for Railways as well as

Defense industries.

b) Power Sector - BHEL and L & T are the major users of this

product along with power equipment manufacturers.

c) Repair & Maintenance - Many parts which are worn out are

salvaged by FCW for hard facing. Cement mills, sugar mills,

construction industries are the main users of repair and

maintenance.

18. The approximate demand in India considering the major users in

India is about 1100 tons of products per month which consists

of joining and hard facing wires. The present manufacturing

capacity is only about 500 tons per month. The balance

requirements are met by imports. This project shall add another

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175-200 MT/month thus reducing the import portion.. The

average growth experienced in the last 3 years is about 32%.

So India is the destination for cheap imports from China in local

brand names. But off late the Chinese products have also become

very expensive due to capacity constraints.

11. Marketing and Selling Arrangements

01. The promoters of XYZ are having wide contacts in India and Middle

East as traders of specialised welding electrodes. Hence, they are

planning to market the products in these countries aggressively.

The domestic market in India is also increasing continuously due to

Economic growth and Infrastructure boom.

02. XYZ is planning to export 30% of the production to other countries

like Kingdom of Saudi Arabia and UAE including 10% to the

collaborators under the buy back option. The balance 70% will be

sold in Indian market.

03. Although there are many welding electrode manufacturers in India,

there are very few players with latest technology at their disposal.

For some companies, the Technology agreements have expired

and no new agreements are signed.

04. The company plans to markets its products through a dealer

network supported by aggressive publicity measures such as

advertisements in trade journals, distribution of brochures and

catalogues, participation in International trade fairs in India and

Abroad. XYZ will also popularise its products through CD

presentations. Internet being a very powerful and popular media for

business leads, XYZ will also use this media to the fullest extent.

05. The production capacity is planned to be marketed in the

following markets with the mentioned respective shares:

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Country

Mild Steel

El t d

SS Grade El t d

M&R Grade El t d

FCW MS

FCW S.S

India 70-65% 70-75% 50% 60% 55%

KSA 30-35% 30-25% 40% 30% 35% UAE 10% 10% 10%

KSA Market:

06. This market will be serviced through chain of distributors /

Dealers in the region. The dealers will be supported by a

professional and well experienced sales team of the

Company. The sales team will take care of technical

qualification of the product and initial penetration of the product

in the major consumers such as ARAMCO, SABIC etc and will

maintain constant pressure to achieve sales targets. .

UAE Market: 07. The products of the Aditya Overseas is already being marketed

by a company in Dubai, namely ACS Universal LLC, Dubai, who

are competent to take on the additional tonnage to be marketed in

the region including the surrounding regions of UAE, hence this

region is planned to be serviced through this company as they

have already established this line in the market

12. Installed Capacity

01. The products proposed to be manufactured from the new

facility can be categorized as under:

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S.No Sales quantities MT/Month MT/Year 1 Stainless steel SMAW 50 600

2400 2 Low Alloy SMAW 100 1200

Two shift

3 R&M SMAW 50 600 4 71 T1 FCW, Selectarc Inc, USA 80 960

1800 5 70 T5 FCW, Selectarc Inc, USA 45 540

Two shift

6 Hard Facing FCW, Selectarc Inc, USA 25 300

7 Stainless steel FCW 65 780

780 Two shift

a. Production and Sales

S.No Item Per

Year Production Qty.

( In MT) Capacity Utilisation 34% 53% 60% 75%

1 Stainless Steel SMAW 600 203 315 360 450 2 Low Alloy SMAW 1,200 405 630 720 900 3 R & M SMAW 600 203 315 360 450 4 71 T1 FCW 960 324 504 576 720 5 70 T5 FCW 540 182 284 324 405 6 Hard facing FCW 300 101 158 180 225 7 Stainless Steel FCW 780 263 410 468 585 Total 4,980 1,681 2,615 2,988 3,735

S.No Item Value

(US$ in Million) Capacity Utilisation 34% 53% 60% 75%1 Stainless Steel SMAW 2.09 3.26 3.72 4.662 Low Alloy SMAW 1.02 1.59 1.82 2.283 R & M SMAW 2.33 3.62 4.14 5.174 71 T1 FCW 0.89 1.39 1.59 0.895 70 T5 FCW 0.50 0.78 0.89 0.506 Hard facing FCW 1.22 1.90 2.17 1.227 Stainless Steel FCW 4.24 6.59 7.53 4.24 Total 12.30 19.14 21.87 27.34

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b. Present Proposal The objective of the present proposal is to rise:

(US$ in Million) S.No Particulars Amount

1 Term loan 15.692 Working capital financing 2.50

The term loan is to be mobilised from USA based banks/ Funding

agencies. The working capital need to be mobilised from Indian

Banking system.

15. Technology and Collaboration

01. XYZ has entered into a technical and financial collaboration

agreement with WXY. WXY is well known in USA and European

markets for its product quality and technical superiority. Their

products are used widely throughout the world. The Company

is market leader in the field of flux cored wire manufacture and

has proven technology and know-how for the same.

02. Under this agreement, XYZ obtains its technical know-how and

supervision support from WXY.

03. The purpose of WXY entering into collaboration

agreement in Asia is to establish a reliable manufacturing

center in the region to cater to the ever-growing markets in

India, Far East, Middle East, CIS countries and Africa. WXY has

its state-of-the-art plant in the state of Ohio, USA.

04. WXY is offering the Technical Know-how on ongoing basis as

well as participating in 20% of the equity capital of the company.

05. Under this agreement, WXY will provide the technical know-how for

Low alloy and Stainless steel tubular/ Flux cored wire electrodes on

an ongoing basis for a period of 10 years. The period can be

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extended by another 5 years on mutually agreed terms.

06. Under this agreement, WXY will provide the detailed plant layout,

supply plant and equipments, operating manuals and maintenance

manuals for the plant and equipment supplied by it for manufacture

and quality control, assist in erection, supervision, commissioning,

performance tests, running and establishing of trial and commercial

production, depute its experts to XYZ works from time to time, offer

training facilities to XYZ staff at its plant, assist in establishing an

Research Center at the XYZ plant site, provide detailed

specifications and requirements of all raw materials, consumables,

utilities, permit XYZ to use its patented technologies.

07. XYZ will pay a Technical Know-how fee of US$ 850,000 (One time)

and Royalty of 2.0% of the net sales value every year. XYZ will also

pay US$ 5.60 Million towards mild steel and stainless steel FCW

Plant and machinery.

16. Plant Location

01. The proposed plant site is about 60 Km from City, India

02. All the necessary infrastructure facilities like power, water, roads

and well-developed township are available near to the site at

reasonable cost.

03. The site is well suited from logistics angle. It is well connected by

Road, rail and air transport. Nearest sea port is about 700 KM at

Vizag, Chennai or Mumbai. Nearest Airport at Shamshabad is

about 60 KM from the project site.

04. Hence the finished goods can be transported to destination by any

one of the four modes, road, rail, sea or air. Raw material and

components can reach the plant very easily.

17. Land, Site development and Buildings

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01. The land requirement for the plant is around 5 acres. This is

adequate for green belting and future expansion.

02. The total built up area required for the factory and non-factory

buildings is 3909 Sq.Mt. These buildings include factory sheds for

the main plant and machinery, other non-factory buildings like

laboratory, workshops, administrative block, stores, and utility

buildings.

03. The main road is very close to the plant site. Hence a small stretch

of 100 RM of Bitumen road need to be laid to connect the plant to

the main road. Internal roads within the plant need to be laid. This

facilitates effective movement of the equipments, raw materials,

consumables and components and finished products to rail station /

Seaport/ airport. The company will lay about 500 RM of internal

roads connecting various buildings in the plant.

18. Plant and machinery

01. The plant and machinery for the project can be classified into three

categories. They are for SMAW electrodes, Low alloy and Stainless

steel FCW electrodes and Hard facing electrodes.

02. Main plant and equipments for these lines are imported from USA

and Germany. Balance is sourced from Indian manufacturers. The

imported machinery are Low alloy steel FCW plant line, Stainless

steel FCW plant line from M/s Selectarc, Inc., USA, Electrode

Extrusion Plant ( 8 Ton capacity) including Wire Cutting m/c, Mixing

m/c from Berner / Oerlikon and Photo spectrometer for laboratory.

03. Other machinery sourced from indigenous sources are De-Coiling,

Straightening & Wire Cutting Machine for Mild Steel and Stainless

steel Welding Electrodes, Computerized Dry Flux Preparation

Batching Plant for SMAW and FCW including software, Dry and wet

flux Mixers, Low temperature baking Oven for Electrodes, Material

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handling equipments, Automatic packing equipments, wire de-

greasing m/c, Electrode Numbering Machine, De-Flux Machine,

Furnace for Low Temperature Welding Electrodes Baking m/c, Lab

equipments, welding machines, Wire Drawing m/cs etc. The other

Utilities and miscellaneous equipments are also sourced

domestically.

19. Material Inputs

01. The main raw material used includes mild steel and stainless

steel strip for FCW, mild steel and stainless steel wire rod for

SMAW. Flux constituents include metal powders of iron, nickel,

various Ferro alloys and minerals.

02. All raw materials, required for production of welding

electrodes and Flux cored wires are available in India. TISCO

is a major supplier of Steel strips required for FCW and also

for wires required to manufacture electrodes. WXYL, Vizag

and other steel majors have ready supplies of these steel

requirements.

03. The other raw material includes mostly natural minerals, Ferro

alloys and metal powders. All these are mined or produced in

India. Certain metal powders and Ferro alloys are available

through merchant importers also which may be somewhat

higher in quality and also competitively priced.

04. However considering the scales involved the company can

improve its competitive edge by importing in bulk certain inputs

particularly Ferro-alloys and metal powders as well as certain

core wires directly from manufacturers through their main

distributors in this region, thereby cutting out one link in the

channel.

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05. This also has another quality advantage as large batches of

raw material can be procured and tested and their properties

established. This ensures consistency in the quality of

manufactured product.

20. Utilities and services Power The total connected load of the plant is 1000 KW and Maximum

Demand is 850 KVA. One DG set of 1000 KVA will be installed for

100% standby power generation.

Water The total water requirement is 15 M3 per day at 100% capacity

utilisation.

Plant mainly consumes water for cooling and for human consumption.

Water is also required for cleaning and gardening. There is no steam

requirement or process water requirement in the manufacture.

Ground water can be tapped to meet the total water requirement of the

plant. Where ever possible, water is recycled. On a conservative basis,

water is assumed to be purchased from outside sources. Compressed air The Electrode plant uses compressed air for instrumentation. The

requirement is small and adequate provision has been made in the

project cost towards compressor and pipe lines for the compressed air

supply.

21. Manpower requirement

The total manpower requirement is 187 at 75% capacity utilisation for the

Electrode plant and Administration. The break up is:

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S.No Particulars 2010-11 2011-12 2012-13 2013-14 1 Administration 68 85 104 117 2 Plant Operations 42 47 61 65

Total 110 132 165 182

22. Logistics 01. Since, the product is low volume, high value item, logistics is not

critical for the project.

02. The raw materials, consumables and components can be moved to the

site by trucks. The total supplies of finished goods in the domestic

markets are moved by trucks due to ease of operation and cost

competitiveness. The export products are moved to the Container

freight station (ICD) at Sanath Nagar, Hyderabad by trucks from the

factory. From there the containers are moved to Vizag, Chennai or

Mumbai port based on the economies. For the project viability, it is

desirable to keep the transportation cost low.

23. Project Implementation

01. The welding electrode plant implementation period is 12 months after

the financial closure. It is planned to start the commercial operations

from April 2010.

02. The company’s own project team will implement the project. Wherever

necessary, external consultants will be involved. The collaborator team

also will assist the project team. The factory requires factory sheds and

other miscellaneous buildings. The construction of factory buildings will

take about 6 months. The lead time for the supply of imported

equipments is 8 months and 1 month for transport. The lead time for

German machinery is 6 months and 1 month for transport. The

domestic equipments supply has short gestation period.

03. Reputed vendors and contractors will be considered for the project

implementation due to tight time schedules.

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24. Government approvals

The company will be an Indian domestic company under EPCG scheme.

The important Government approvals required for the project

implementation are:

1. Industrial Entrepreneurs' Memorandum (IEM) to be submitted to the

Secretariat for Industrial Assistance

2. Technical and financial Collaboration approval / intimation.

3. EPCG scheme, DGFT approval for the project imports.

4. NOC and consent under Water and Air Pollution Control Acts.

5. Approval of construction activity and building plan (Local

authorities).

6. Sanction of Power.

7. VAT Registration.

8. Quality Marking Certificate (BIS, RDSO, LLOYDS, ABS, DNV,TUV)

9. Weights and Measures.

10. Code Number for Export and Import.

11. Registration under factories act.

12. ESI/ PF

01.03 FINANCIAL HIGHLIGHTS 01. The break-up of project cost estimates are as follows:

(US$. in Millions) S.No Details Cost

1 Land and site development 1.482 Buildings: 1.103 Plant & Machinery 9.234 Technical know-how and Consultancy fee 1.545 Expenses on Training 0.106 Misc-fixed assets 0.977 Preliminary and Capital Issue expenses 0.098 Pre-operative expenses 1.109 Provision for Contingencies 0.8310 Margin money for working capital 0.98 Total 17.43

02. The Means of finance for the Project implementation is indicated

below:

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(US$. in Millions) S.No Particulars Total

A Total Capital outlay 17.43B Scheme of Finance -Equity Capital 1.74 -Term loan 15.69

03 The financial Highlights of the project is provided in the following

table:

S.No Particulars 2010-11 2011-12 2012-13 2013-14 2014-15 1 Sales realization 14.33 22.29 25.48 31.85 31.85 2 Total Cost of Operations 9.54 14.49 16.63 20.63 20.63 3 Gross profit 4.80 7.80 8.85 11.22 11.22 4 Income Tax 0.01 0.90 1.30 2.04 2.17 5 Profit after Tax 0.64 2.01 2.53 3.78 3.87 6 Earnings per share 3.70 11.55 14.53 21.70 22.22 7 Reserves and surplus 0.64 2.40 4.58 8.01 11.54 8 Cash at hand 2.07 3.44 4.22 4.96 7.30

9 Internal rate of return(Post Tax) 25.50%

10 Average DSCR 1.95 11 Total Payback period 51.98 Months 12 Breakeven Point 16.19% 19.07% 20.92% 23.46%