smeda fan guards manufacturing unit

Pre-Feasibility Study

FAN GUARDS MANUFACTURING UNIT

Small and Medium Enterprise Development AuthorityGovernment of Pakistan

www.smeda.org.pk

HEAD OFFICE

Waheed Trade Complex, 1st Floor , 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA LahoreTel: (042) 111-111-456, Fax: (042) 5896619, 5899756

[email protected]

REGIONAL OFFICE PUNJAB

REGIONAL OFFICE SINDH

REGIONAL OFFICE NWFP

REGIONAL OFFICE BALOCHISTAN

Waheed Trade Complex,1st Floor, 36-Commercial Zone,

Phase III, Sector XX,Khayaban-e-Iqbal, DHA Lahore.

Tel: (042) 111-111-456Fax: (042) 5896619, 5899756

[email protected]

5TH Floor, BahriaComplex II, M.T. Khan Road,

Karachi.Tel: (021) 111-111-456

Fax: (021) [email protected]

Ground FloorState Life Building

The Mall, Peshawar.Tel: (091) 9213046-47


Bungalow No. 15-AChaman Housing Scheme

Airport Road, Quetta.Tel: (081) 831623, 831702


June, 2006

Pre-Feasibility Study Fan Guards Manufacturing Unit

PREF-29/June 2006/REV 2

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DISCLAIMER

The purpose and scope of this information memorandum is to introduce the subject

matter and provide a general idea and information on the said area. All the material

included in this document is based on data/information gathered from various sources and

is based on certain assumptions. Although, due care and diligence has been taken to

compile this document, the contained information may vary due to any change in any of

the concerned factors, and the actual results may differ substantially from the presented

information. SMEDA does not assume any liability for any financial or other loss

resulting from this memorandum in consequence of undertaking this activity. Therefore,

the content of this memorandum should not be relied upon for making any decision,

investment or otherwise. The prospective user of this memorandum is encouraged to

carry out his/her own due diligence and gather any information he/she considers

necessary for making an informed decision.

The contents of the information memorandum do not bind SMEDA in any legal or other

form.

DOCUMENT CONTROL

Document No. PREF-29

Revision 2

Prepared by SMEDA-Punjab

Approved by PC Punjab

Revision Date June 2006



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1 INTRODUCTION........................................................................................................................... 4

1.1 PROJECT BRIEF .......................................................................................................................... 41.2 PROJECT RATIONALE ................................................................................................................. 4

2 PROCESS FLOW SHEET ............................................................................................................. 5

3 PRODUCTION PROCESS FLOW ................................................................................................ 5

4 VIABLE ECONOMIC SIZE .......................................................................................................... 6

5 CURRENT INDUSTRY STRUCTURE ......................................................................................... 7

6 SALES & MARKETING ISSUES.................................................................................................. 8

7 PROJECT INPUTS ........................................................................................................................ 9

7.1 LAND & BUILDING..................................................................................................................... 97.2 MACHINERY & EQUIPMENT........................................................................................................ 97.3 ELECTRICITY LOAD & EXPENSES.............................................................................................. 117.4 RAW MATERIALS ..................................................................................................................... 117.4.1 WIRE.......................................................................................................................................... 117.4.2 OTHER REQUIRED RAW MATERIALS ............................................................................................ 127.5 OFFICE EQUIPMENT AND FURNITURE ........................................................................................ 127.6 ADMINISTRATION AND LABOR COST......................................................................................... 137.7 PRE-OPERATING COSTS............................................................................................................ 13

8 FINANCIAL ANALYSIS ............................................................................................................. 14

9 REGULATIONS........................................................................................................................... 14

10 KEY SUCCESS FACTORS...................................................................................................... 14

11 THREATS................................................................................................................................. 14

12 FINANCIAL STATEMENTS................................................................................................... 15

12.1 INCOME STATEMENT.................................................................................................................... 1512.2 BALANCE SHEET .......................................................................................................................... 1612.3 CASH FLOW STATEMENT.............................................................................................................. 17

13 ASSUMPTIONS........................................................................................................................ 18

13.1 REVENUE ASSUMPTIONS .............................................................................................................. 1813.2 EXPENSE ASSUMPTION ................................................................................................................. 1813.3 ECONOMY RELATED ASSUMPTIONS .............................................................................................. 1913.4 DEPRECIATION ASSUMPTIONS ...................................................................................................... 19



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1 Introduction

1.1 Project Brief

Fan is a necessity item of summer season. The hot local climate during summer season makes it mandatory to use. Their main usage is to get rid of extensive heat through air displacement at a fast rate. Three major types of fans have the maximum demand, which are Ceiling Fans, Pedestal Fans, and Bracket Fans. All Pedestal and bracket fans have fan guards as an integral part of the product. The reason is to protect the users from any harm that could be caused by fast rotating, sharp edged fan blades.

The demand for fans has shown increasing trend over the past few years. Additional demand was generated locally as well as through exports. Another interesting fact is the increase in demand for better quality. People are becoming more quality conscious. In this scenario, the suppliers of spare parts to fan manufacturing units are also under compulsion to improve their quality.

This pre-feasibility is being prepared by SMEDA and is intended to provide general information on the opportunity for an investor to set up modern and proper fan guards manufacturing unit in Gujrat, the home of fan manufacturing industry.

1.2 Project Rationale

Fan guard manufacturing is a feasible and profitable project if handled in a proper manner. Incorporating new manufacturing technology gives an advantage that translates into more business and consequently more profits. Demand for fan guards is ample. The only requirement is high and consistent technology and regular supply ability.

An approximate 5 to 6 million fans are manufactured in Pakistan every year. According to industry sources about 30% of total production is Pedestal Fans and about 7% is bracket fans. So the approximate market for fan guards is roughly 1.8 million to 2 million units. Although there are certain existing players in the market, only one or two has the capacity to supply high quality product on consistent basis, leaving a big gap for new players to enter this sector.

This project requires a considerable amount of investment, considering that it is an SME, but the demand-supply gap and expected profits attract attention towards it. Besides, all the machinery is available locally at very reasonable rates.



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2 Process flow Sheet

3 Production Process Flow

The basic raw material required in the manufacturing of fan guards is ‘Rolled Wires’ of different gauge, ranging between 8 and 14 gauge. In addition to rolled wire, certain chemicals are used for polishing and pickling activities to give the product its final finish. The complete process of fan guard manufacturing would be as follows:

To start the process, first of all the wire, which is purchased from the market is polished in the polishing section. Washing Soda (Sodium Carbonate) is used for this process. The polishing cleans the wires of any rust and smoothes its surface. The importance of this process is manifested when a complete fan guard is taken for powder coating or electroplating process. Rust free wire helps give a longer life and smoothed out surface is essential for proper pickling or powder coating process.

Strip cutting Flower Making Welding jigsaw Bending press

Spot welding of rings

Roller machine to make rings

Ring welding

Outer ring welding to the guard Fan guard ready

for finishingPickling

Water rinsing

Electroplating tank with temperature control

Nickel Plating Hard chrome plating tank

FINISHED PRODUCT



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After polishing, the wire would be taken to an automatic cutter to cut the wire into pieces of required length (which is equal to the radius of the fan guard). The cut pieces of wire would automatically be fed to the circular jigsaw-welding machine. This machine would weld the cut pieces of wire onto the inner most ring of the fan guard.

Once the wire pieces are welded onto the main inner ring the guard would be taken manually to the bending press and given the required shape using different bending dies. Keeping the guard in the die and applying the required pressure bends the guard at a certain distance from the edge, thereby, giving it a certain basic shape. Even at this stage one end of the wire is welded to the inner ring while the other end is still loose. It is after taking shape in bending press, the guard would be taken for spot welding of rings of different sizes on the guard. This would put a ring at the loose ends of the wires and at different places where wires are bending. In spot welding two pieces of metal that are to be joined together are placed under the welding machine and then a high amperage electric current is passed through these wires, increasing the temperature to the level where they melt for a fraction of a second and then join together. More than one ring is required on one fan guard because the length of the wire from the center right to the outer ring is between 12 to 18 inches and different rings are required to strengthen the guard. Once in a while wires, cut in different shapes, are welded onto the guard in place of a ring but this is rare and mostly circular rings are used.

While the fan guards is taking its initial shape and then going through the bending press, circular rings are being made separately on a ring-making machine. This is a separate process and runs parallel to the main process. The ring-making machine rolls the wire and makes circular rings according to required sizes, which are fed in its program. These are the rings, which are then welded onto the fan guard to complete the product.

The last function is trimming of any residual pieces of wire, which are longer than the required length and go out of the outer most rings. After this process fan guard would be checked for any defects in the wire or the spot welds before sending it for finishing.

Electroplating would give the fan guards its final finish. General market demand determines what finish be given to the product. At present more than 85% of the demand is for electroplated fan guards. Electroplating gives a cosmetic effect to the final product. Besides beautifying the product, it also helps increase its life.

4 Viable Economic Size

To arrive at a viable economic size for this project, certain aspects have to be considered. These aspects include demand-supply gap of high quality fan guards, seasonal demand pattern, and total cost of plant and machinery. Taking into account all these factors, viable economic size of the project is production capacity of 175,000 fan guards/year, based on 275 days/year. The actual production capacity utilization comes out to be 78% (136,500 fan guards), taking into account the seasonal demand pattern and production schedule.

Production mix is 90% 3 kg fan guards (used mostly for pedestal fans) and 10% 1.5 kg fan guards (used mostly for bracket fans). 100% of the units would be electroplated for giving them the final finish.



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The project would be set up in Gujrat City, where more than 90% of the fan industry is concentrated. There would be three sections of the project 1) Fan Guard Manufacturing Section 2) Polishing Section, and 3) Pickling Section

5 Current Industry Structure

Fan guard manufacturing sector is not an organized sector. This sector is mostly made up of small units that are established in small premises. The involvement of technology in manufacturing process or for that matter in any process is minimal. Variation in quality is a consistent feature.

There are no exact figures available as to what is the total number of units, how many are operational, what is the total installed capacity, and what the operational capacity is. According to the industry sources (including manufacturers and vendors) there is a substantial demand for quality stuff on a large scale. Also, there is room for new entrants who want to manufacture quality product, using the latest technology.

The industry is concentrated in Gujranwala and Gujrat. There used to be many fan guard manufacturers in Gujranwala, but now only one major manufacturer is left. The reason is that this manufacturer has a modern and completely integrated manufacturing facility, which others did not use. The result is that it is the only major supplier catering to the demand in Gujranwala City. Gujrat is now the major center as far as fan manufacturing is concerned. In Gujrat, there are more than 50 fan-guards manufacturing units. But only 4 or 5 can qualify as proper units. All other units are mini or micro units with production capacity of about 40 pieces per day, using primitive manufacturing techniques and technology.

There are two reasons why small units are closing down. First reason is the lack of use of modern manufacturing machines and techniques due to unavailability of enough capital, thereby, being unable to afford this change. Second reason is the increase in the size of credit cycle for these small units. The payments come back after two or four weeks. Only those manufacturers have survived who have enough capital.

Large size fan guard’s manufacturers are filling in the gap that is being created due to closure of small units. These manufacturers have installed new machines and some are even producing 1000 to 1200 pieces per day depending on the size of fan guard. Overall demand for high quality fan guards is increasing, especially since exports have picked up for the last three years.

Fan guard manufacturers, as a vending sub-sector of fan manufacturing sector, are concentrated in two main cities of Gujrat and Gujranwala. Only one major manufacturing unit is left in Gujranwala. The other one is too small to have any significance. Gujrat has the largest number of fan guard manufacturing units. It is assessed that there are more than 50 fan guards manufacturing units working in Gujrat.

There used to be one unit in Shahdara, Lahore.



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6 Sales & Marketing Issues

Fan guard is an essential and integral part for all pedestal fans, bracket fans, TCP (Table cum pedestal) fans, baby fans, and railway fans. None of these fans would be complete without a guard. From this point of view, it is a necessary product for manufacturers of above-mentioned fan categories. Some air cooler manufacturers also use fan guard in their product.

Fan guard is an industrial product and, therefore, its target market cannot be defined in terms of gender, age bracket, profession, etc. The factors involved in defining the target market for fan guard would be the size of the fan manufacturing unit, the quality of fan it produces, and the price the customer is willing to pay for the product.

Based on these factors, the major target market segment for the proposed project would be medium size fan manufacturers and those small size units, which produce above 15,000 fans/year. The large size fan manufacturing units have their own fan guard manufacturing units, therefore, they are not generally considered as the target market. Yet they do outsource their fan guard requirement at times. The proposed project would have the capacity and the quality to fulfill this demand as well.

The proposed project would manufacture fan guards for different varieties of fans. These varieties are:

• Pedestal Fans

• Bracket Fans

• Circo Fans

• TCP (Table cum pedestal) Fans

• Baby Fans

• Railway Fans

• Air Coolers

There are different sizes of fan guards, measured in terms of their weights. These sizes vary with the variety of fan it would be used for. The most common fan guard used in the industry weighs 3 kg on average, with a diameter of approximately 26-inch. This would be the main product to be produced by the proposed project.

As fan guard is an essential part of pedestal, bracket, TCP, and other such fans, therefore, it is sold to the fan manufacturers directly. Gujrat and Gujranwala are the main markets for fan guard manufacturers, as these two cities are producing more than 90% of total fans manufactured in Pakistan. Gujrat is the main target market for the proposed project.

Another interesting fact is that about 5% to 10% of the total production is sold directly to shops that sell pedestal and bracket fans. These shops sell the fan guard as replacement spare part. They cater to the demand, which originates as a result of accidental damage to the fan guard or through rusting & old age. The main market for this segment is South Punjab, Interior Sind and Karachi.



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An extensive distribution network would not be required to sell this product. The complete actual production would usually be against pre-placed orders. Therefore, there is no need for establishing any distribution channel. Once the order is ready, it is packed and sent to the buyers either on donkey cart or pickup.

The orders from fan selling shops in South Punjab, Interior Sind, and Karachi would be booked by train and sent directly to them. These orders are either direct purchase request and/or generated by sales agent of the company.

Sampling is an integral part of the sale process in the vending industry. Samples are made according to customers’ requirements and given to them for testing. If the results are satisfactory, order is placed and a business relationship is built.

7 Project Inputs

Following inputs are required:

7.1 Land & Building

Total area required for the project is about 7,000 ft2. This translates into approximately 26 marlas (272 ft2/marla). The land would be purchased. Approximate rate/ ft2 in the area, which is at a reasonable distance from most of the fan manufacturing units in Gujrat City, is estimated at Rs 460/ ft2. Based on this, total cost of land would approximately come out to be Rs 3,220,000.

A proper building would be constructed to house this fan guards manufacturing unit. The building would consist of a main processing hall, a management room, and a storeroom. The main processing hall would have an area of 4200 ft2 and would house fan guard manufacturing section, polishing section, and pickling (electroplating) section. The main processing hall has extra space, which can be utilized for any future expansion The management room would have an area of 10’x15’ and the storeroom would have an area of 10’x10’. The total covered area would come out to be 4450 ft2. The whole building would be a RBC structure. The average construction cost would be Rs 650/ ft2.Besides covered area of 4450 ft2, approximately 2550 ft2 area would be open space. This area would be leveled and approximate cost of leveling would be Rs 5/ ft2. Total cost of leveling would be Rs 12,750.Total cost of the construction would come out to be Rs2,973,250.

The complete premises would be encircled with a boundary wall. A 340 feet boundary wall would be constructed for this purpose. Construction rate for boundary wall is Rs 200/linear foot. Total cost of boundary wall would be Rs 68,000.

7.2 Machinery & Equipment

Local machinery would be used for this project. The total cost of machinery is estimated at Rs 3,142,000/-. Besides cost of machinery and equipment, an additional Rs 150,000

Reinforced Brick Concrete



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would be paid as installation and transportation cost. Complete list of machinery and estimated prices are as follows:

Table 1:Plant and Machinery 1

Machinery Description Number Unit Price

Total amount

Fan Guards Manufacturing SectionFlower Making Machine 3 130,000 390,000Hydraulic Press, capacity 40 ton 2 150,000 300,000

Roller machine to make rings 2 100,000 200,000Spot welding with fixtures (for assembly of guards)

8 40,000 320,000

Welding transformer 2 70,000 140,000Strip cutting machine 2 18,000 36,000Power Press (15 ton) 2 40,000 80,000Ring welding machine 2 40,000 80,000Grinder 1 5,000 5,000Cutting press 2 10,000 20,000Miscellaneous 1,00,000

Sub total 1,671,000 Polishing Section

Polishing machines bench type double spindle 2 22,000 44,000

Flexible lead type polishing machine 1 40,000 40,000

Sub total 1,755,000Pickling Section

Acid tank with rubber lining 2 100,000 200,0001)Electro plating tank with stirring system, temperature control and heating system (1000 Amp)

2)Nickel Plating tank temperature control and stirring system (3000 Amp rectifier)

3)Chrome plating tank inside lead lining Stirring system with rectifier (1000 Amp)

Price of these machines Varies Total accumulated cost of these Machines is Rs. 800,000.

800000

Sub Total 2,775,000Miscellaneous

1 Source: Jamil Guard Makers, Shahdola Road, Noor Pur, Gujrat



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Electric Control Panels, Main Switches, Cables & Distribution Board 200,000Transformer* and Connection Cost 300,000

Installation and transportation Cost 100,000

Subtotal 600,000Total 3,355,000

To give this project a cutting edge in the fan guards manufacturing sector, a conveyer system can also be used. The use of conveyer system would improve the production capacity of the unit and reduce the labor cost at the same time. The cost of putting up a conveyer system would be about Rs 250,000.

There is no major machinery maintenance involved. A provision of Rs. 1,000 per month has been made for machinery oiling expense.

7.3 Electricity Load & Expenses

Total electrical load of the project, including rectifiers: 93HP (93x0.746/0.80) = 87 kW(Per Day). Overhead electricity expenses are estimated to be Rs 92,655/year. These include electricity charge for management room (2 watts/ft2), processing hall (1 watts/ft2), storeroom (1 watts/ft2), open area (0.5 watts/ft2), and fixed charges for installed kW.

Table 2 ElectrictyKw required Per Day Variable 87 Kw per month Variable 12,041 Electricity Tariff Schedule Energy Charges per Kw 6.90 83,084

GST 15% 13,579 Income Tax 2,000 Variable electricity expense per unit of production 8.67

Total Variable Expense for the year 98,663Kw per month Overhead 1077 Energy Charges per Kw 6.90 7431

Total Electricity Expense 106,094

7.4 Raw Materials

7.4.1 Wire

Rolled wires of different grades are required as raw material for the manufacturing of fan guards of different sizes and shapes. Most commonly, 8-14-gauge wires would be used for manufacturing the basic body of a fan guard. Similarly, the rings that are welded onto the main body of fan guard for giving it strength and aesthetic looks are also made using



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wires ranging from 8-14 gauge. Production mix is 90% 3 kg fan guards and 10% 1.5 kg fan guards. The wire is readily available in the market at an average cost of 42 Rs./kg. Weighted average cost of wire per unit comes out to be Rs 126.

7.4.2 Other Required Raw Materials

The other raw materials required include the acids, salts, soda, and solutions for electroplating, and polishing. The details are as follows:

• Sulphate (Nickel)

• Chloride

• Borax (Boric Acid)

• Chrome salt

• Caustic Soda

• Brightener

• Washing Soda (Sodium Carbonate)

• Copper salt

Out of these different chemicals, Washing Soda is used for polishing and rests of the chemicals are all used in electroplating process. Weighted average cost of chemicals per unit (Both 3 Kg and 1.5 Kg) comes out to be Rs. 3.

The production wastage is estimated at 5 % per fan guard.

7.5 Office Equipment and Furniture

The office equipment will consist of a computer, printer, facsimile machine and two telephone sets for extensions (these sets will be in addition to the set provided by PTCL along with telephone connection). The office furniture consists of chairs, sofa sets, tables, carpet for management room and a file rack. The total cost of office equipment and furniture is estimated as follows:

Table 3: Office EquipmentsEquipment Number Cost /unit Total Cost Computers 1 25,000 25,000 Computer printer (s) 1 12,000 12,000 Telephones 2 750 1,500 Fax machines 1 12,000 12,000 Total Office Equipment 50,500

Table 4: Office FurnitureFurniture Number Cost /unit Total Cost Table For Manager 1 4,000 4,000Chair for Manager 1 2,500 9,000



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Table 6 1,500 2,500 Chair 12 1,000 12,000 File Cabinet 1 10,000 10,000 Sofa set 1 12,000 12,000 Carpeting (sq.ft.) 150 30 4,500 Total Furniture & Fixtures 54,000

7.6 Administration and Labor Cost

The owner, a plant manager, and an accountant will handle the day to day administration of the business. A supervisor will look after purchase and sales matters with two assistants, a salesman and a purchaser. Other staff includes one gatekeeper.

20 skilled workers along with estimated 10 unskilled workers are required (as number of unskilled labor is adjusted according to the season) would also be the part of human resource but not as permanent staff because piece rate system is being practiced in the industry. Approximately Rs. 4 per unit is charged under piece rate system. This cost is included into the “Cost of Goods sold” head rather then labor cost. Same has been adopted in the feasibility. One foreman would supervise these workers. The administration cost for year 1 is as follows:

Table 5:PayrollDesignation Salary/Month Employees TotalOwner/Manager 20,000 1 240,000 Plant Manager / Foreman 12,000 1 144,000 Purchaser 8,500 1 102,000 Accountant 7,500 1 90,000Office Boy 4,000 1 48,000 Gate Keeper 3,500 1 42,000Sweeper 2,500 1 30,000 Total 7 696,000

Wages are assumed to grow at a rate of 10% per annum.

7.7 Pre-Operating Costs

Pre-operating costs include the hiring of management team before the actual commencement of operations. The other component of pre-operating costs is the accrued interest for the debt used in the completion of civil works and purchase of machinery. The total pre-operating costs amount to Rs. 250,887.



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8 Financial Analysis

Table 6: Financial AnalysisTotal Investment 11,594,803 Total Capital Investment 10,188,455 Total Working Capital 1,406,348 Project IRR 26%Payback Period 4.03 yrsNPV 5,867,774

9 Regulations

There are no specific government regulations for this business. The firm would have to be properly registered as a business entity with registrar of firms. Afterwards, the firm has to be registered with tax authorities. Besides these two registrations, the firm would also be registered with labor authorities under the Labor Act. Once registered, it would have to follow the requirements of Social Security Department and EOBI.

10 Key Success Factors

The proposed project would have a number of competitive advantages:

• It would fulfill the demand-supply gap for high quality fan guards.

• It would be able to fulfil orders in time due to mechanized production facility.

• Due to its high quality standard, the project would be able to get premium price for its products.

11 Threats

Threats over longer period of time include market saturation due to excessive number of new entrants, demand shrinkage due to fall in demand for pedestal and/or bracket fans, decline in exports of fans, and any change in the design of fans that might eliminate the use of fan guard.

But overall the situation is very conducive for establishing the proposed project.

For detail information please refer to attached financial statements at the end of the report.



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12 Financial Statements

12.1 Income Statement

Statement Summaries SMEDAIncome Statement

Rs. in actualsYear 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Revenue 21,805,000 24,166,170 26,762,355 29,615,801 32,750,789 36,193,821 39,973,813 44,122,315 48,673,742 53,665,630Cost of goods sold 17,476,269 19,614,765 21,999,003 24,656,153 27,616,310 30,912,804 34,582,542 38,666,382 43,209,552 48,262,103

Gross Profit 4,328,731 4,551,405 4,763,352 4,959,648 5,134,480 5,281,017 5,391,271 5,455,932 5,464,190 5,403,527

General administration & selling expensesAdministration expense 568,560 623,916 684,661 751,321 824,470 904,742 992,829 1,089,492 1,195,567 1,311,969 Rental expense - - - - - - - - - - Utilities expense 92,655 101,921 112,113 123,324 135,657 149,222 164,144 180,559 198,615 218,476 Travelling & Comm. expense (phone, fax, etc.) 82,800 90,862 99,708 109,416 120,068 131,759 144,587 158,664 174,112 191,063 Office vehicles running expense - - - - - - - - - - Office expenses (stationary, etc.) 27,600 30,287 33,236 36,472 40,023 43,920 48,196 52,888 58,037 63,688 Promotional expense 21,805 24,166 26,762 29,616 32,751 36,194 39,974 44,122 48,674 53,666 Insurance expense - - - - - - - - - - Professional fees (legal, audit, etc.) 65,415 72,499 80,287 88,847 98,252 108,581 119,921 132,367 146,021 160,997 Depreciation expense 519,613 519,613 519,613 519,613 519,613 519,613 519,613 519,613 519,613 519,613 Amortization expense 57,141 57,141 57,141 57,141 57,141 - - - - - Property tax expense - - - - - - - - - - Miscellaneous expense - - - - - - - - - -

Subtotal 1,435,589 1,520,403 1,613,521 1,715,749 1,827,975 1,894,030 2,029,263 2,177,705 2,340,638 2,519,471 Operating Income 2,893,142 3,031,001 3,149,831 3,243,899 3,306,505 3,386,987 3,362,007 3,278,228 3,123,552 2,884,056

Other income 83,801 88,801 115,500 127,050 139,755 153,731 169,104 186,014 204,615 225,077 Gain / (loss) on sale of assets - - - - - - - - - - Earnings Before Interest & Taxes 2,976,943 3,119,803 3,265,331 3,370,949 3,446,260 3,540,717 3,531,111 3,464,242 3,328,168 3,109,132

Interest expense 811,636 575,668 306,664 - - - - - - - Earnings Before Tax 2,165,307 2,544,135 2,958,667 3,370,949 3,446,260 3,540,717 3,531,111 3,464,242 3,328,168 3,109,132

Tax 412,061 487,827 570,733 653,190 668,252 687,143 685,222 671,848 644,634 600,826 NET PROFIT/(LOSS) AFTER TAX 1,753,246 2,056,308 2,387,934 2,717,759 2,778,008 2,853,574 2,845,889 2,792,393 2,683,534 2,508,306

Balance brought forward 1,753,246 3,655,308 5,580,328 5,353,036 5,168,803 5,090,349 5,066,877 5,105,605 5,214,751 Total profit available for appropriation 1,753,246 3,809,554 6,043,242 8,298,088 8,131,044 8,022,377 7,936,238 7,859,270 7,789,139 7,723,057 Dividend - 154,245 462,914 2,945,051 2,962,241 2,932,028 2,869,361 2,753,665 2,574,389 4,353,021 Balance carried forward 1,753,246 3,655,308 5,580,328 5,353,036 5,168,803 5,090,349 5,066,877 5,105,605 5,214,751 3,370,035



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12.2 Balance sheet

Statement Summaries SMEDABalance Sheet

Rs. in actualsYear 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

AssetsCurrent assets

Cash & Bank 1,000,000 676,026 1,100,000 1,210,000 1,331,000 1,464,100 1,610,510 1,771,561 1,948,717 2,143,589 2,357,948 Accounts receivable - 896,096 944,613 1,046,477 1,158,455 1,281,505 1,416,670 1,565,088 1,728,003 1,906,768 2,102,864 Finished goods inventory - - - - - - - - - - - Equipment spare part inventory - - - - - - - - - - - Raw material inventory 406,348 478,738 563,608 663,059 779,541 915,912 1,075,495 1,262,167 1,480,437 1,735,557 - Pre-paid annual land lease - - - - - - - - - - - Pre-paid building rent - - - - - - - - - - - Pre-paid lease interest - - - - - - - - - - - Pre-paid insurance - - - - - - - - - - -

Total Current Assets 1,406,348 2,050,860 2,608,221 2,919,535 3,268,997 3,661,517 4,102,675 4,598,816 5,157,156 5,785,914 4,460,811

Fixed assetsLand 3,220,000 3,220,000 3,220,000 3,220,000 3,220,000 3,220,000 3,220,000 3,220,000 3,220,000 3,220,000 3,220,000 Building/Infrastructure 2,973,250 2,824,588 2,675,925 2,527,263 2,378,600 2,229,938 2,081,275 1,932,613 1,783,950 1,635,288 1,486,625 Machinery & equipment 3,605,000 3,244,500 2,884,000 2,523,500 2,163,000 1,802,500 1,442,000 1,081,500 721,000 360,500 - Furniture & fixtures 54,000 48,600 43,200 37,800 32,400 27,000 21,600 16,200 10,800 5,400 - Office vehicles - - - - - - - - - - - Office equipment 50,500 45,450 40,400 35,350 30,300 25,250 20,200 15,150 10,100 5,050 -

Total Fixed Assets 9,902,750 9,383,138 8,863,525 8,343,913 7,824,300 7,304,688 6,785,075 6,265,463 5,745,850 5,226,238 4,706,625

Intangible assetsPre-operation costs 285,705 228,564 171,423 114,282 57,141 - - - - - - Legal, licensing, & training costs - - - - - - - - - - -

Total Intangible Assets 285,705 228,564 171,423 114,282 57,141 - - - - - - TOTAL ASSETS 11,594,803 11,662,561 11,643,168 11,377,729 11,150,438 10,966,204 10,887,750 10,864,278 10,903,006 11,012,152 9,167,436

Liabilities & Shareholders' EquityCurrent liabilities

Accounts payable - - - - - - - - - - - Export re-finance facility - - - - - - - - - - - Short term debt - - - - - - - - - - - Other liabilities - - - - - - - - - - -

Total Current Liabilities - - - - - - - - - - -

Other liabilitiesLease payable - - - - - - - - - - - Deferred tax - - - - - - - - - - - Long term debt 5,797,401 4,111,914 2,190,459 - - - - - - - -

Total Long Term Liabilities 5,797,401 4,111,914 2,190,459 - - - - - - - -

Shareholders' equityPaid-up capital 5,797,401 5,797,401 5,797,401 5,797,401 5,797,401 5,797,401 5,797,401 5,797,401 5,797,401 5,797,401 5,797,401 Retained earnings - 1,753,246 3,655,308 5,580,328 5,353,036 5,168,803 5,090,349 5,066,877 5,105,605 5,214,751 3,370,035

Total Equity 5,797,401 7,550,647 9,452,709 11,377,729 11,150,438 10,966,204 10,887,750 10,864,278 10,903,006 11,012,152 9,167,436 TOTAL CAPITAL AND LIABILITIES11,594,803 11,662,561 11,643,168 11,377,729 11,150,438 10,966,204 10,887,750 10,864,278 10,903,006 11,012,152 9,167,436



17

12.3 Cash Flow Statement

Statement Summaries SMEDACash Flow Statement

Rs. in actualsYear 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Operating activitiesNet profit - 1,753,246 2,056,308 2,387,934 2,717,759 2,778,008 2,853,574 2,845,889 2,792,393 2,683,534 2,508,306 Add: depreciation expense - 519,613 519,613 519,613 519,613 519,613 519,613 519,613 519,613 519,613 519,613 amortization expense - 57,141 57,141 57,141 57,141 57,141 - - - - - Deferred income tax - - - - - - - - - - - Accounts receivable - (896,096) (48,517) (101,863) (111,979) (123,050) (135,165) (148,418) (162,914) (178,766) (196,096) Finished good inventory - - - - - - - - - - - Equipment inventory - - - - - - - - - - - Raw material inventory (406,348) (72,390) (84,870) (99,451) (116,483) (136,370) (159,584) (186,671) (218,270) (255,121) 1,735,557 Pre-paid building rent - - - - - - - - - - - Pre-paid lease interest - - - - - - - - - - - Advance insurance premium - - - - - - - - - - - Accounts payable - - - - - - - - - - - Other liabilities - - - - - - - - - - -

Cash provided by operations (406,348) 1,361,513 2,499,675 2,763,373 3,066,051 3,095,341 3,078,438 3,030,412 2,930,821 2,769,260 4,567,380

Financing activitiesChange in long term debt 5,797,401 (1,685,487) (1,921,455) (2,190,459) - - - - - - - Change in short term debt - - - - - - - - - - - Change in export re-finance facility - - - - - - - - - - - Add: land lease expense - - - - - - - - - - - Land lease payment - - - - - - - - - - - Lease principal repayment - - - - - - - - - - - Issuance of shares 5,797,401 - - - - - - - - - - Purchase of (treasury) shares - - - - - - - - - - -

Cash provided by / (used for) financing activities11,594,803 (1,685,487) (1,921,455) (2,190,459) - - - - - - -

Investing activitiesCapital expenditure (10,188,455) - - - - - - - - - - Acquisitions - - - - - - - - - - -

Cash (used for) / provided by investing activities(10,188,455) - - - - - - - - - -

NET CASH 1,000,000 (323,974) 578,219 572,914 3,066,051 3,095,341 3,078,438 3,030,412 2,930,821 2,769,260 4,567,380

Cash balance brought forward 1,000,000 676,026 1,100,000 1,210,000 1,331,000 1,464,100 1,610,510 1,771,561 1,948,717 2,143,589 Cash available for appropriation 1,000,000 676,026 1,254,245 1,672,914 4,276,051 4,426,341 4,542,538 4,640,922 4,702,382 4,717,978 6,710,969 Dividend - - 154,245 462,914 2,945,051 2,962,241 2,932,028 2,869,361 2,753,665 2,574,389 4,353,021 Cash carried forward 1,000,000 676,026 1,100,000 1,210,000 1,331,000 1,464,100 1,610,510 1,771,561 1,948,717 2,143,589 2,357,948



18

13 Assumptions

13.1 Revenue Assumptions

Table 7: Sales PriceSale price per unit in year 1

Product Production Price Weighted Average Units with 3kg (Electroplated) 90% 182 164 Units with 1.5kg (Electroplated) 10% 142.00 14

Weighted average cost 178

Table 8: Other Revenue assumptionSale price growth rate 7.75%

Production capacity utilization 70%

Production capacity utilization growth rate 2%

Maximum capacity utilization 95%

13.2 Expense assumption

Table 9:Expense AssumptionsDescription Cost

/RatePer Unit Labor Charges Rate Charged by the labor in Piece rate system

4

Wire Cost growth rate 9.18%Chemical cost growth rate 5.0% Machinery maintenance 12,000 Operating costs 3 (direct electricity) 8.67 Operating costs growth rate (% of administration expense) 5.0%Administration benefits expense (% of administration expense) 3.0%Traveling expense (% of administration expense) 5.0%Communication expense (% of administration expense) 10.0%Office vehicles running expense (% of vehicles cost) 3.0%Office expenses (stationary, entertainment, janitorial services, etc.) % of administration expense

5.0%

Promotional expense % of revenue 0.1%Office vehicles insurance rate 5.0%Professional fees (legal, audit, consultants, etc.) % of revenue 0.3%



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13.3 Economy Related Assumptions

Table 10: Economic AssumptionsDescription Cost / Rate

Inflation rate 10% Electricity growth rate 10% Water price growth rate 10% Gas price growth rate 10% Wage growth rate 10% Office equipment price growth rate 5% Office vehicles price growth rate 10%

13.4 Depreciation Assumptions

Table 11: DepriciationDescription Cost / Rate

Land 0% Building 5%Machinery 10%

smeda fan guards manufacturing unit

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