Total cost and working capital requirement

The total cost for setting up the proposed unit including margin money for working capital requirement has been estimated at Rs. 431.80 lakhs. The broad break up of the above cost under various heads is given as under:

S. NO. 1. 2. 3. 4. 5. 6. 7.

Particulars Land and site development Building Plant and machinery Miscellaneous fixed assets Preliminary and pre-operative expenses Contingencies Margin money for working capital

Existing 1.40 61.41 44.25 46.59 Nil Nil 72.00

New (lakhs) nil Nil 142.99 24.90 9.93 3.36 24.97

Total 1.40 61.41 187.24 71.49 9.93 3.36 96.97

Land and site development (Rs. 1.41 lakhs)

The above cost of Rs. 1.41 lakhs includes premium of 10 kanals of land on long lease from J&K SIDCO.

Building and other civil works (Rs. 61.41 lakhs)

The cost of the existing civil works of the project is Rs. 61.41 lakhs. The major civil works of the project consist of main building comprising of raw material stores , mechanical process hall, conditioning hall, sorting hall, semi- processed goods hall, deferred dispatches hall, and administrative block etc.

Plant and machinery (Rs. 187.24 lakhs)

The cost of the existing plant and machinery is based on the books maintained by the unit as Rs. 44.25 lakhs. The new items of plat and machinery are available both indigenously and imported. The cost of Rs. 142.99 lakhs includes import duty, clearing and forwarding charges, excise duty, CST , erection charges packing , freight and insurance etc.

Miscellaneous fixed assets (Rs. 71.49 lakhs)

The existing miscellaneous fixed assets as per books is Rs. 46.59 lakhs and the new cost for the proposed items is Rs. 24.90 lakhs mostly comprise of Servo Stablizer and material handling equipment and cables electric etc., the misc. fixed assets provided in the project are considered adequate ancillary stock for the smooth operation of the unit.

Preliminary and pre-operative expenses (Rs. 9.93 lakhs)

The above expenses include establishment expenses, traveling printing and stationary, postage, rent, rates and taxes, insurance during erection period.

Contingencies
Contingencies have been provided considered @ 2% of the non-firm cost e.g., plant and machinery and misc. fixed assets only.

Margin money for working capital

The assumptions made while calculating the working capital requirements opf the unit are given below:

S.No. 1. 2. 3. 4.

Particulars Raw materials Work in process Finished stock Sundry creditors

Inventory period 60 days 20 days 40 days 50 days

Margin 15% of preshipment 15% of preshipment 15% of preshipment

On the above basis , the working capital requirements of the unit for the first three years of operation are estimated at Rs. 1196.02 lakhs, Rs. 1287.73 lakhs and Rs. 1370.62 lakhs respectively. Out of this amount, the unit would avail bank finance amounting to Rs. 1200 lakhs, in the first year as this shall increase to this limit from their existing limit. The margin money for working capital required works out Rs. 96.97 lakhs in the first year after erection of the new additional machinery with the increase in the capacity and for this the unit has made arrangement from their inner reserves and unsecured means of finances. However, the margin money amounting to said amount and as required during the first year of operation of the unit is included in the project cost. The additional requirements of margin money during the second and subsequent years of operation of the unit are expected to be met by the unit

out of its internal cash generations. It may be pointed out in this context that the working capital requirements have been estimated at a conservative level assuming the lower capacity utilization in the initial year of operation. Never the less, in case the unit is able to achieve a higher capacity utilization in the initial years of its operation, the working capital requirements of the proposed unit will be correspondingly higher than estimated. The banks concerned may consider sanctioning a higher working capital limit of Rs. 1200 lakhs at optimum (75%) capacity utilization and the unit will avail facilities depending upon the capacity utilization actually attained by it from time to time.

FINANCIAL VIABILITY
Cost of production and profitability
The following are the main assumptions made while working out these estimates: The unit will operate for 300 days a year on one shift of 8 hours Capacity utilization will be to the tune of 75% in the first year of operation and will increase there after by 5 % every year . The sale realization will be as per estimates annexed there to and there will be no major variation in the product mix and there estimated percentage and formulation A wastage of 3.5% in the materials by volume weight has been assume for all the types of the nuts due to moisture loss in the unit and shall be lost in the form of vapour without any air pollution and nothing shall be thrown out and no polluting substance shall be produced in the unit. The per unit cost of power will be as per present rate and cost of water and other services will remain constant. Annual wages /salaries has been estimated on the basis of man power requirements and the number of skilled and non-skilled labor employed will be as per estimates. There will be no major variation in raw material consumption and the ratio of wastage.

Breakeven point
The unit will be breakeven at 33.46% of the installed capacity utilization on an average calculated for first five years.

Fundflow statement
The fundflow statement shows that the unit will be able to generate adequate long term funds to be utilized for short term uses and the requirements of bank finance for working capital will be reduced in future.

Pay back period

Pay back period shows that at constant price, the unit will be able to generate adequate profit and the investment of rupees 431.80 lakhs will be earned back in the period of 2 years and 4 months.

Internal rate of return

The internal rate of return calculation shows that the estimated IRR based on 8 years life span of the unit works out of 55.82% which is quite reasonable.

Conclusions and recommendations

The unit is an existing profit making company in private sector and enjoying good market reputation and is managed by experienced and seasoned businessmen and having entrepreneurship and wide experience and exposure in the same activity and are financially sound as well as having other resources in the market for the said products , hence to arrange for bank finance and market acceptance for their product shall not be a problem as in having already established market for their products. Their last three balance sheets shows the healthy trend as well as good turnover and have achieved their installed capacity. Keeping in view the above it is assumed that the unit will be run efficiently by the present management and will be able to achieve the estimated profitability. The management of the company lies with very efficient directors who have vast experience in the related field of marketing of these products for the related industry/exports and thus the company will run this unit without much difficulty. The company has a very low breakeven point and also the fixed costs are very low thus even the estimated capacity is not utilized to its optimum level, the unit will be able to generate profits.

Due to good profit margin , the pay back profit is also very low. Based on the estimated profitability and repayment obligations of term loans the unit has a Debt Service Coverage of 17.32 times which shows a good coverage fo repayment obligations based on an average 6 years period. In view of the above, the enhanced capacity after substantial expansion of the unit for said activity of walnuts / almonds and processing there of as well as kernels by this unit for Domestic as well as international market shall further enhance the profitability of the unit and as such the unit is very much viable both technically and financially. Besides the unit shall also have Export incentives as well as subsidy from the Ministry of the Food Processing Govt of India. Hence it seems a good business proposition.