Project Planning, Analysis & Management Case Study Cosmic Industrial Solutions

Group 24 Dhruv Aggarwal (F-96) Siddharth Jain (F-209)

Table of Contents
Company Profile...................................................................................................................................................... 3 Emerging Market background factors affecting the company ............................................................................... 3 Present scenario in India ..................................................................................................................................... 3 Vital Trends and Issues: ...................................................................................................................................... 5 SWOT Analysis......................................................................................................................................................... 5 Regulatory Framework............................................................................................................................................ 6 Porter Five Competitive Forces Analysis ................................................................................................................. 6 Competitor Analysis ................................................................................................................................................ 7 The Case .................................................................................................................................................................. 8 Synopsis ................................................................................................................................................................ 10 Subject Area ...................................................................................................................................................... 10 Study Level/Applicability................................................................................................................................... 10 Case Overview................................................................................................................................................... 10 Expected learning Outcomes ............................................................................................................................ 11 Supplementary Material ................................................................................................................................... 11 Practical Implications ........................................................................................................................................ 11 Social Implications ............................................................................................................................................ 11 Case Questions...................................................................................................................................................... 12 Inventory risks ............................................................................................................................................... 12 Break Even Point ........................................................................................................................................... 12 Discounted Payback Period........................................................................................................................... 15 Other financial/non financial factors ............................................................................................................ 16 Detailed Calculations .................................................................................................................................... 16

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Company Profile Cosmic Industrial Solutions is a supplier of Metal Works, Pneumatic, Exair - Compressed Air Products, Industrial Valves. Their products are extremely popular for superior performance, dimensional accuracy & robust structure. They are a dedicated team of experienced engineers in compressed air technology and Intelligent Compressed Air Products such as Air Knives, Air Wipes, Air Amplifiers, Air Nozzles and Jets, Atomizing Nozzles, Safety Air Guns, Static Eliminators, E-Vac Vacuum Generators, Air Operated Conveyors, Industrial Housekeeping, Vortex Tubes and Spot Cooling, Cold Gun Air coolant Systems, Cabinet Cooler Systems and Accessories (Mufflers, Filters, Regulators, Valves, Swivel Fittings and More. The company has a strong presence in the area of Gurgaon, Faridabad, Ghaziabad . With turnover exceeding fifty six lac rupees, company serves to a large number of big and small corporate and have a market share of 5-7% in these areas which considering the size of the market is quite considerable. The company plans to continue in these markets further but with large number of competitors and relatively stable customers, the company is finding it difficult to further penetrate into these areas. Thus, the company has been unable to achieve the kind of sale growth it expected. To overcome the situation, the company is contemplating expansion into the area of Dwarka. The company is considering sale of its one of the best selling units at the Gurgaon Office. Emerging Market background factors affecting the company The air compressor, spares and pumps are mostly used in the following industries:

PET blowing industry Various large scale and small scale industries Heavy machinery industries Present scenario in India : Globally, a majority of the demand for pumps, valves and compressors is from their installations in varied end-user industries of oil and gas, power generation, and heavy industries (like cement and metal). The Indian market for this equipment also thrives on a similar global pattern, with demand primarily originating from the countrys wide-spread oil and gas exploration and production activities, refineries, and other core sectors. Commensurate to the vastness of the Indian end-user industry and the range of applications involved in each segment, the demand for flow control equipment is also high. Large-scale installations are witnessed every year and the demand continues to pick up at a healthy double-digit growth rate. As per Frost & Sullivans research, the cumulative market size for pumps, valves and compressors during FY 2010 was in the range of INR 120.0-140.0 billion. Given the ubiquitous nature of the pumps and valves, the equipment contributes to the majority of value and unit shipments.

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With global warming posing a great concern and stringent environmental regulations expected to be enforced in the coming years, the central and state governments in India are emphasizing on optimum utilization of power through various energy-conservation measures. Equipment powered by renewable energy sources is expected to gain prominence in the future. Stringent environmental regulations across different end-user sectors to reduce the carbon footprint through lower emission of greenhouse gases (GHG) are the major driving factors for this technology. Utilization of automation in pump, valve and compressor markets has enabled easy health monitoring. Remote monitoring and diagnostics play a vital role in ensuring smooth start up, continuous running, and safety of the plant and environment. Increasing awareness about automation among Indian end-users is likely to help in improving future productivity and reducing the maintenance cost. The concept of energy efficiency has caught up with the Indian end-user industry, and it is increasingly looking forward to solutions that can enable power savings. Motors, which are the dominant prime movers (of pumps, valves and compressors) account for significant power consumption. Usage of electric drives, along with motors, enables advantage of controlling the power input based on the required output. For example, in the case of compressors, whose output is usually characterized by significant fluctuations, periods of low-pressure demand and unused pressure represent lost energy. Equipment manufacturers have introduced energy-saving compressors with variable speed control to overcome this particular situation. A compressor with variable speed control is able to closely follow the fluctuating demand by varying the speed of the motor. Given the need to control costs and become more competitive, the end-users have begun to actively look for manufacturers who deliver energy efficient systems. Energy efficiency concerns have also impacted the selection of the product. One such trend is associated with the air compression application in the compressor industry. This application has, over a period, witnessed changing preference from reciprocating to screw to the efficient centrifugal compressors. Only a few years ago, nearly all major economies were in doldrums. The worlds positive displacement (PD) and centrifugal pumps markets witnessed either flat or negative growth in 2009. With the end-user segments experiencing the impact of global recession, a sense of panic prevailed. However today, the overall picture still remains obscured. The expected strength of pump revenue growth within the power generation industry depends on regional trends. There are too many fiscal and political factors at the local level which directly govern the perceived growth in the pump market to remain robust in near future. Experts opine that emerging economies, such as the BRIC (Brazil, Russia, India and China) nations, are expected to witness considerable growth over the short term of the forecast period, mainly due to infrastructure developments in these countries. Population growth, urbanization and the resulting increase in power demand will help fuel growth in the Asia Pacific. Pump demand is also expected to increase within the power generation sector in northern Africa and the Middle East, although recovery in southern Africa is expected to be slower. The Middle-East and North African nations have witnessed another spurt in oil exploration, which provides a boost to the pump and valves industry in general. Almost all the developed nations, on the other hand, are dealing with the severely constricting aftereffects of the worldwide recession. Investments in plant infrastructure and retrofit needs were deferred as long the slow down lasted. As the general economic environment improves in North America and Europe, pump revenues in this industry are expected to gradually return to moderate growth rates. Let

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us remember that solar-energy based pumps are also included in pumps and valves industry, a minuscule factor which is no longer insignificant with fossil fuels falling out of favour.

Vital Trends and Issues:

A number of conspicuous trends are expected to affect pump demand in this industry throughout the forecast period, including the following positive trends: There is no denying that the global warming and its cohorts have caused an enormous increase in awareness about environmental compliance. It has brought with it, increasingly stringent regulations having significant impact on the market. This will continue to be a strong market driver for pumps used within the power generation industry, as well as in other industries. In addition, growing interests in alternative energy sources to counter greenhouse gas (GHG) emissions are likely to contribute to the growth. Though the awareness and insistence of energy-efficient pumps was missing till recently, the focus on energy-efficiency offers a considerable potential for growth, mainly due to rising energy costs and the intense focus on driving costs out of process/production. End users are increasingly seeking the optimization of their processes to reduce energy consumption. As PD pumps are suited for applications emphasizing more efficiency, this is expected to offer a great potential for suppliers of these pumps. Another factor here is the age-old maxim that needs drive demand, and demand drives development. We have seen that happen in automotive sector. Replacements/retrofits demand will increase- Increasing investments in the water and power generation sectors over the next decade, coupled with the rising trend of PD pumps replacing centrifugal pumps in applications focused on energy efficiency, are expected to fuel the growth of the displacement PD pumps market. Rising demand from the utility sector will continue to fuel the growth for centrifugal pumps. SWOT Analysis The SWOT analysis of the compressor (manufacturing) sector in India is as follows: Strengths:

Huge demand for Domestic Industrial goods. Availability of low-cost, skilled human resources. Proactive government continued thrust on reforms- Further liberalization under process. Increasing investment in real assets (Capacity Expanding), Inflow of FDI (Foreign Direct Investment) across Industrial sector.

Weaknesses:

Presence of vast industrial sickness Outdated labor laws, and presence of too many political labor and trade union. Nascent Regulatory systems to check misuse of market power by firms. Dependency of Subsidies(SSI Small scale industries) Inadequate and poor quality infrastructure cost and time delays.

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Opportunities:

Growing Competition of Indian industry due to focus on efficient and quality. Vast export market to explore. Growing recognition of Made in India brand in global market Major growth through outsourcing opportunities Growing number of overseas investment and acquisition by Indian Firms.

Threats:

Heavy competition in manufacturing field from china. Power crises and the virtuous growth cycling manufacturing sector. Large informal sector, Poor working condition and low wages. Inclusion of social (labor) issues in trade dialogues could happens exports (e.g., child labor) High corruption and inadequate environmental safety norms could affect sustainability. Economic uncertainty and slowdown.

Regulatory Framework The Government of India set up Bureau of Energy Efficiency (BEE) on March 1, 2002 under the provisions of the Energy Conservation Act, 2001. The mission of the Bureau of Energy Efficiency is to assist in developing policies and strategies with a thrust on self-regulation and market principles, within the overall framework of the Energy Conservation Act, 2001 with the primary objective of reducing energy intensity of the Indian economy. This will be achieved with active participation of all stakeholders, resulting in accelerated and sustained adoption of energy efficiency in all sectors. For Air conditioners, the star levels are categorized over a band of COP numbers. COP is the Co-efficient Of Performance, which indicates the amount of cooling capacity in watts the Air conditioner delivers for every watt of electrical energy consumed by it. At present, for Air conditioners, the COP has to be minimum 2.5 to qualify for 1-Star rating. COP of 3.3 and above is 5-Star categories. BEE has plans to move up the energy efficiency level continuously every two years. Porter Five Competitive Forces Analysis Porters five competitive forces analysis (from the point of view of Cosmic Industrial Solutions) is as follows: Threat of new competition: Moderate. Though the clients prefer dealing with companies that have earned a name for themselves, because of very less investment required from the point of view of inventory, new competition cant be ruled out. Experienced technicians and engineers in this field are ubiquitous. Threat of substitute products or services: Moderate. Industrialization and an improvement in peoples lifestyles will lead to the development of myriad manufacturing industries which will for various purposes use air compressors, nozzles and other paraphernalia. However, considerable Research & Development is being done on equipments that run on solar power. This is because of increased environmental consciousness. Stringent emission norms might make things difficult in the future.

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Bargaining power of customers (buyers): Moderately high. This is because the customers, though are willing to get the equipment installed in their factory for smooth running of production, they can chose the service provider that provides them the best service at an affordable price. Bargaining power of suppliers: Moderately high. There are 4-5 big manufacturing companies in this sector. But, since the equipment they manufacture is extremely specific and complex, they more or less dictate the prices to traders and service providers. Intensity of competitive rivalry: High. This is because there are a large number of traders and service providers in this sector. This is an extremely price-sensitive sector and undercutting of prices by various traders is quite common to get newer clients. Competitor Analysis There are a number of traders and service providers of industrial compressors and associated machinery not just in Delhi, but in the entire country. We shall bring out a comparison of Cosmic Industrial Solutions with one of its competitors namely Industrial Spare Syndicate. Like CIS, ISS too is a sole proprietorship owned by one Vikas Gupta. It is located at Mori Gate. Its annual turnover is in the range of Rs. 4-5 crore (which is more than that of CIS, i.e., Rs. 1 crore). It is intriguing that despite the fact that ISS was established in the year 2004 (4 years later than CIS), still it has outshined CIS in terms of annual turnover when both the companies are into trading of industrial compressors. This could be because of better entrepreneurial skills of Mr. Gupta as compared to that of Mr. Pandita. However, the locational advantage that ISS has (in being located at Mori Gate) as compared to CSS (located at Dwarka) cannot be brushed aside.

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The Case The company has a strong presence in the area of Gurgaon, Faridabad, Ghaziabad . With turnover exceeding fifty six lac rupees, company serves to a large number of big and small corporate and have a market share of 5-7% in these areas which considering the size of the market is quite considerable. The company plans to continue in these markets further but with large number of competitors and relatively stable customers, the company is finding it difficult to further penetrate into these areas. Thus, the company has been unable to achieve the kind of sale growth it expected. To overcome the situation, the company is contemplating expansion into the area of Dwarka. The company is considering sale of its one of the best selling units at the Gurgaon Office. Based upon the above financials and other statements (sales register, purchase register etc) and information (classification of costs, estimation of future costs, risks that the company may face) provided by the company, the group tried to evaluate the feasibility of the expansion plan.

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Exhibit 1 Following is the provisional Profit and Loss Account of the company for its Gurgaon Office for the year ended March11 (in Rs) Particulars Opening Stock Purchases Gross Profit Amount Nil 4889317 1327632 6216949 86467 21524 634 6925 19094 41703 84775 63553 5100 24433 150000 15355 16535 18000 26546 270000 52453 424535 1327632 Particulars Sales Closing Stock Amount 5635955 580994 6216949 Gross Profit 1327632

Conveyance Electricity Newspaper Bank Charges Commision Business Promotion Telephone Travelling Expenses Legal Expenses Staff Welfare Rent Postage and Courier Misc Exp Account Charges Printing and Stationary Salary Depreciation Net Profit

1327632

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Synopsis

Subject Area The subject area of our study is the industrial service industry (which is an amalgamation of manufacturing as well as service sector). We have chosen a company called Cosmic Industrial Solutions. They are into installation and servicing of compressors of industrial equipments (refrigerators, air-conditioners etc) and the like. The case is an insight on the expansion strategies to be adopted by a startup company in order to establish a strong foothold in a competitive market. The case study also looks at the strategy and need to undertake a cost-benefit analysis on how to expand within NCR with ever increasing corporate houses provided ample opportunities but also inviting enhanced competition. Study Level/Applicability Our aim is not just to study management accounting of this case in the literal sense, but to get an overall understanding as to how a start-up company founded by just two people has managed to survive (and establish a name for itself) in this intensely competitive service sector. We have procured the balance sheets and Profit & Loss Accounts of the company. We will be scrutinizing those to get a better picture of their success story. However, our focus would be on evaluation of an expansion plan of the company. Case Overview Cosmic Industrial Solutions is a supplier of Metal Works, Pneumatic, Exair - Compressed Air Products, Industrial Valves. Their products are extremely popular for superior performance, dimensional accuracy & robust structure. They are a dedicated team of experienced engineers in compressed air technology and Intelligent Compressed Air Products such as Air Knives, Air Wipes, Air Amplifiers, Air Nozzles and Jets, Atomizing Nozzles, Safety Air Guns, Static Eliminators, E-Vac Vacuum Generators, Air Operated Conveyors, Industrial Housekeeping, Vortex Tubes and Spot Cooling, Cold Gun Air coolant Systems, Cabinet Cooler Systems and Accessories (Mufflers, Filters, Regulators, Valves, Swivel Fittings and More. The company has a strong presence in the area of Gurgaon, Faridabad, Ghaziabad . With turnover exceeding fifty six lac rupees, company serves to a large number of big and small corporate and have a market share of 5-7% in these areas which considering the size of the market is quite considerable.

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The company plans to continue in these markets further but with large number of competitors and relatively stable customers, the company is finding it difficult to further penetrate into these areas. Thus, the company has been unable to achieve the kind of sale growth it expected. To overcome the situation, the company is contemplating expansion into the area of Dwarka. The company is considering sale of its one of the best selling units at the Gurgaon Office. Expected learning Outcomes We expect to become well-versed with management accounting after completing this case study. However, it is more important to develop a holistic view of business management as a whole. Though management accounting is an integral part of business management, viewing of the latter solely as the former, will be precariously reductionist. We are aiming at learning several nuances of effective management of business. This would be achieved by critically analyzing their business model. Supplementary Material Cost Accounting: A managerial Emphasis Charles T. Horngren Competitive Strategy: Techniques for Analyzing Industries and Competitors Micheal Porter Practical Implications One of the most important practical implications of the case can be- how a start-up should first establish itself on the basis of a set of core values, and then diversify into a range of products and services. There can be several other practical applications which, probably cannot be visualized at this moment of time. Social Implications Maintenance of customer relations for a new company so as to establish its credibility. Increased acceptance of not only cost effective but power effective cooling devices. Creating interest among the customer base to replace the existing equipments with latest technology so as to mitigate the damage caused to the environment.

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Case Questions
Ques-1 Based upon various financials, evaluate the expansion plans of the company. Solution Inventory risks As can be computed from the above statement, purchase cost contributes approximately 85% (4889317/5792414) of the total cost for the company. As per the talks with the company personnel, if the company plans for expansion, it can generate significant synergies in the purchase costs and can also reduce the risks of inventory building and reduction in value of slow moving inventory which are few of the most common risks in any new business venture. This is because the company has a ready market in the areas of Gurgaon and any unsold stock can be easily shifted to these areas. Though this will entail an extra cost of transportation to the tune of the following: Distance between the prospective warehouse at Dwarka and nearest existing warehouse (Gurgaon) is 20 kms (approx) Truck Load = 5 units per trolley Estimated cost = Rs 18.5 per km = Rs 370 per trolley for the required distance = Rs 74 per unit Considering the above computed cost of transportation with the purchase price of Rs 3124 per unit, the transportation cost seems modest (2.37%). The company could also contemplate selling the unsold units at a discount, but that would bring disrepute to the company plus the discount amount in all probabilities (approximately 5-10%) would have to be greater than the per unit cost of transportation to initiate any sales. Thus, movement of unsold stock seems to be the viable option for the company. Break Even Point The above sales represent sales of 1379 units (as per the information obtained from the sales register of the company). Thus per unit selling price can be computed as being = 5635955/1379 = Rs 4087 per unit Per unit cost of goods sold can be computed as being = (4889317-580994)/1379 = Rs 3124.24 per unit Apart from purchase cost, the only other variable cost to the company is the conveyance cost (as the company engages in fitting the equipments at the clients site). Though conveyance cost varies from client to client, for the sake of simplicity it has been assumed to be constant per client (as the cost would more or less average out when all the customers would be seen in aggregate) Conveyance cost per unit = 86467/1379 = Rs 62.7 per unit

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Salary is a semi variable cost as it includes both salaries as well as wages. Since the exact bifurcation between the variable and fixed components is not known, hence the cost has been assumed to be equally divided between the variable (wages) and salary (fixed) components. Though wages are paid on monthly basis, it has been considered as variable since the number of workers hired depends directly upon the scale of operations. Variable component per unit: (270000*50%)/1379 = Rs 97.90 per unit Fixed component = Rs 135000 Thus, total variable cost per unit = Purchase Cost (Rs 3124.24) + Conveyance Cost (Rs 62.7) + Wages (Rs97.90) = Rs 3284.84 As part of synergies, company believes it could save following costs: o Bank charges (company intends to continue operating same bank account as it has been using for Gurgaon branch) = Rs 6925 o Telephone (to the tune of approximately 50%, because of the reduced scale of operations and services being majorly limited to existing clients having branch offices in the area of operation) = 84775*50% = Rs 42388 o Legal Expenses (as the company would not be requiring any additional department for the new unit) = Rs 5100 o Business Promotion (the company would be mostly serving to its existing clients having branch offices in the area of expansion) = Rs 41703 o Salary (Since company already has its head office in Dwarka, it believes it can utilize a part of the office staff for the overview of the warehouse and hence could save approximately 50% of the cost being incurred currently at Gurgaon location) = Rs 135000*50% = Rs 67500 That is, a total of Rs 163616 Rent (Actual Basis): The company is already in talks with one of the warehouse owners, who is ready to rent the warehouse at an annual charge of Rs 110000 per annum for a storage capacity of upto 1800 units. The company would also have to pay a security charge of Rs 50000 at the outset. Additional initial expenditure for installation of requisite infrastructure and equipments at the warehouse and inauguration expenses: Rs 135000 This will have a nil salvage/scrap value. Depreciation: Major part of depreciation in the above profit and loss statement relates to warehouse owned by the company. At Dwarka, the company intends to take warehouse on rent initially and hence wont be required to make any claim for depreciation. Actual depreciation related to new equipment and infrastructure being installed at the rented warehouse would be = 135000*15% = 20250 (Its the company policy to charge 15% depreciation on Machinery and 10% depreciation on building)

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Total Fixed Cost per annum Particulars Electricity Newspaper Commission Telephone Travelling Expenses Staff Welfare Rent Postage and Courier Misc Exp Account Charges Printing and Stationary Salary Depreciation Notional Interest on Security Deposit Notional Interest on Additional Initial Expenditure Total fixed cost per annum Amount 21524 634 19094 42388 63553 24433 110000 15355 16535 18000 26546 67500 20250 7500 (50000*15%) 20250 (135000*15%) 473562

Contribution per unit: 4087 (3124.24) (62.70) (97.90) 802.16

Sale Price per unit Less: COGS per unit Less: Conveyance Cost Less: Wages Contribution per unit

Break Even Point = (Fixed Cost per annum)/Contribution per unit = 490765/802.61 = 612 units The company expects an order of at least 500 units from its existing customers alone having branches in the area of expansion. The figure is expected to grow significantly in the years to come. The company would also try to tap the local customers once it gains foothold in the area.

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Discounted Payback Period PVF Time Amount (at 15%) 0 1 2 3 4 5 6 7 135000 -24482 15626 59745 108276 161659 220381 284976 1 0.86956522 0.75614367 0.65751623 0.57175325 0.49717674 0.4323276 0.37593704 Cumulative Cash Inflow

Particulars Initial Investment Cash flows

PV 135000 -21288.7 11815.5 39283.31 61907.15 80373.09 95276.79 107133

-21288.6957 -9473.19471 29810.1126 91717.26702 172090.3609 267367.1488 374500.1827

Discounted Payback Period:

4.461477 Years

(Calculation of cash flows enclosed at the end)

Conclusion: Based upon the above three financials, one can conclude that company should go ahead with the expansion plan. The inventory risks pertaining to damage and decrease in value of unsold stock seems minimal for the company as the company can easily move its slow and non moving stock to its alternate location at Gurgaon, where the part is in high demand and can be sold easily. The cost of transportation of part to the alternate location also seems modest. The company expects to achieve its break even figures (612 units) in the first year of operation itself if the expected new sales to local customers are also considered. On a conservative side, even if the assured sales to existing customers having branches in the area of expansion is considered, the company expects to almost achieve its break even point in the 3rd year of operation (expected sales to existing customers in the third year would be approximately 605 units). (Detailed calculations are provided in the attached excel file) Relatively low discounted payback period of 4.46 years also seems to justify the expansion project. Even at the current return on equity of 34.71%, the company expects to achieve a discounted payback period of 6.6 years (detailed calculation in the attached excel file). Though this figure seems relatively high, but considering the fact that sales to potential new local customers have not been taken into account this figure can be expected to be substantially less.

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Other financial/non financial factors Ques 2 What are the other non financial/non financial factors that the company should consider for deciding the feasibility of the project? Providing services to existing customers having branches in the area of expansion would help strengthen the relationships with these customers. Increasing commercialisation in the areas of Dwarka, heralds a rather active phase of industrialisation in this area. This will throw ample opportunities to the company for tapping a number of new customers. Expanding the operations in this area at an early stage will help the company gain first mover advantage. Expanding to new locations would also help the company in improving its brand image and reputation.

Detailed Calculations Balance Sheet as on 31st March, 2013

Liabilities Capital Account Opening Balance Add: Profit Less: Drawings Sundry Creditors Unsecured Loan 986076 424535 1410611 187467

Amount

Assets Fixed Assets Sundry debtors

Amount 505013 1873648 56525 580994

1223144 Cash and Bank 1535536 Closing Stock 257500 3016180

3016180

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P & L for the Year ended 31st March, 2013 (Figures shown as % of Sales) Particulars Opening Stock Purchases Gross Profit Amount Particulars Nil Sales 86.75 Closing Stock 23.56 110.31 1.53 Gross Profit 0.38 0.01 0.12 0.34 0.74 1.50 1.13 0.09 0.43 2.66 0.27 0.29 0.32 0.47 4.79 0.93 7.53 23.56 Amount 100 10.31 0.00 110.31 23.56

Conveyance Electricity Newspaper Bank Charges Commision Business Promotion Telephone Travelling Expenses Legal Expenses Staff Welfare Rent Postage and Courier Misc Exp Account Charges Printing and Stationary Salary Depreciation Net Profit

23.56

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Fixed Cost Analysis Particulars Electricity Newspaper Commission Telephone Travelling Expenses Staff Welfare Rent Postage and Courier Misc Exp Account Charges Printing and Stationary Salary Depreciation Notional Interest on Security Deposit Notional Interest on Additional Initial Expenditure Total fixed cost per annum Amount 21524 634 19094 42388 63553 24433 110000 15355 16535 18000 26546 67500 20250 7500 (50000*15%) 20250 (135000*15%) 473562

Contribution Calculation Sale Price per unit Less: COGS per unit Less: Conveyance Cost Less: Wages Contribution per unit 4087 (3124.24) (62.70) (97.90) 802.16

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Calculation of Discounted Payback Period Sales Estimate (To make the calculations conservative, only Sales to Existing customers are taken into account) Particulars Sales Units Sales Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 500 550 605 665.5 732.05 805.255 885.7805 2043500 2247850 2472635 2719899 2991888 3291077 3620185

Less: Less: Add: Add:

Add:

Particulars Sales Variable Cost Fixed Cost Depreciation Notional Interest on Security Deposit Notional Interest on Additional Initial Expenditure Net Cash Flows

Year 1 2043500 1642420 473562 20250 7500

Calculation of Cash Flows Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 2247850 2472635 2719899 2991888 3291077 3620185 1806662 1987328 2186061 2404667 2645134 2909647 473562 473562 473562 473562 473562 473562 20250 20250 20250 20250 20250 20250 7500 7500 7500 7500 7500 7500

20250 -24482

20250 15626

20250

20250

20250

20250

20250

59744.8 108275.5 161659.2 220381.4 284975.7

Particulars Initial Investment Cash flows

Time

Amount

PV Factor (at 15%p.a.)

PV

Cumulative Cash Inflow

135000

135000 -21288.7 11815.5 39283.31 61907.15 80373.09 95276.79 107133 -21288.69565 -9473.194707 29810.1126 91717.26702 172090.3609 267367.1488 374500.1827

1 -24482 0.869565217 2 15626 0.756143667 3 59745 0.657516232 4 108276 0.571753246 5 161659 0.497176735 6 220381 0.432327596 7 284976 0.37593704 Discounted Payback Period (at 15% discount rate): 4.46 Years

(The above calculation is based upon requisite 15% interest rate provided to us by the Company as a general rate prevailing in the market)

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Current Return on Equity:

34.71%

Particulars Initial Investment Cash flows

Time 0

Amount 135000

PV Factor (at 34.71%p.a.) 1

PV 135000 -18173.9 8610.892 24440.05 32880.08 36441.87 36878.66 35400.5

Cumulative Cash Inflow

1 -24482 0.742335387 2 15626 0.551061827 3 59745 0.409072695 4 108276 0.303669137 5 161659 0.225424346 6 220381 0.16734047 7 284976 0.124222752 Discounted Payback Period (at 34.71% discount rate): 6.6 Years

-18173.85495 -9562.962839 14877.0853 47757.1648 84199.03923 121077.6992 156478.2023

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