Pre-Feasibility Study

Marble Mosaic Development Center

Small and Medium Enterprise Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE 6th Floor, LDA Plaza, Egerton Road Lahore Tel: (042) 111-111-456, Fax: (042) 5896619, 5899756 Helpdesk@smeda.org.pk
REGIONAL OFFICE PUNJAB 6th floor, LDA Plaza, Egerton road Lahore. Tel: (042) 111-111-456 Fax: (042) 5896619, 5899756 helpdesk@smeda.org.pk REGIONAL OFFICE SINDH 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 Helpdesk-khi@smeda.org.pk REGIONAL OFFICE NWFP Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 9213046-47 Fax: (091) 286908 helpdesk-pew@smeda.org.pk REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (0812) 831623, 831702 Fax: (0812) 831922 helpdesk-qta@smeda.org.pk

March , 2008

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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 content of the information memorandum does not bind SMEDA in any legal or other form.

DOCUMENT CONTROL
Document No. Prepared by Approved by Issue Date Issued by Library Officer SMEDA-Balochistan Head of Department

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INTRODUCTION TO SMEDA

The Small and Medium Enterprise Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program.1i Since its inception in October 1998, SMEDA had adopted a sector SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sector development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including financial aspects, niche marketing, technology up-gradation and human resource development. SMEDA has so far successfully formulated strategies for sectors including, fruits and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear, textiles, surgical instruments, urban transport and dairy. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDAs areas of operation. Along with the sector focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make wellresearched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way. This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.

For more information on services offered by SMEDA, please visit our website: www.smeda.org.pk

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PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, and production, finance and business management.

PROJECT PROFILE

The project is related to setting up Marble Mosaic Development Center in Quetta, Marble City Gaddani, Loralai, Khuzdar and other promising areas of Balochistan. The document highlights all the marketing, management, and financial aspects required for the establishment and successful running of the project. 3. 1 Project Brief

The center would design & process (cut to predefined sizes / shapes and polish) raw marble pieces and produce Marble Mosaic. The project would not only focus the construction industry and demand for innovative marble designs for housing & offices within Quetta city but can also trigger other parts of the province including Marble City Gadani, Loralai and Khuzdar etc. Once the facility starts, it could also supply marble mosaic of various designs also addressing to the customized consumer needs & choices, hence prove its versatility & innovation. The total project investment is Rs. 4.41 millions with a very healthy Project Internal Rate of Return (IRR) of 49% against the Capital Cost (WACC) of 13%. The total project investment would be paid back in approximately 3.04 years. 3. 2 Dimensional Stone Processing Industry of Balochistan

Processing Industry of Marble and Granite has adapted some of the modern techniques to come at par with other provinces of the country, but still improvements are required to enhance the production process and quality. Currently the processors are using wide array of primitive technological options in processing. The Processing Industry relies on locally manufactured machinery with few calibrated and high efficiency machines. Machinery used in this sector includes mostly locally made H/V block cutter, sizing machine, overhead cranes and gantry cranes with accessories and polishing machines etc. Utilization of these units is nearly half of their installed capacity due to inappropriate raw material. The final product after processing in different processing units of Pakistan is around 1,504,170 tons / annum, which is only 45% of the total production of raw Marble and Granite of Balochistan.2

Industry & Market Research

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The Marble & Granite production in Balochistan in year 2003-04 was around 3,342,600 tons / annum. 3 The right production techniques and subsequent post mining activities would ensure the quality and quantity for exports. The Marble, Onyx and Granite produced in Balochistan is distributed to different areas of Pakistan, which includes about 2.4 million tons/annum processed in Karachi and the remaining 942600 tones/annum are processed in different areas of Balochistan, Punjab, Sind, NWFP and Rawalpindi Islamabad. Processing Units in Balochistan: According to the survey conducted by SMEDA team, there are 112 processing units working in Balochistan. Following is the list of areas where the processing units are located.
Table 10: Number of processing unites in major areas of Balochistan. Name of location # Number of Processing units 1 2 3 4 5 Quetta Lasbela District Khuzdar/Naal District Loralai Dalbandin 13 2 at Hub & 8+50+10 at marble city. 6 19 (3 more under construction) 1 (Closed) 112

Total Source: Industry & Market Survey

MARBLE MOSAIC DEFINITION

Art consisting of a design made of small pieces of colored stone or glass. Decorated with small pieces of colored glass or stone fitted together; "a mosaic floor"; "a tessellated pavement"

Mosaic is a medium of art that may embody the most meaningful iconography in a culture's most important settings, as in the cathedral of Monreale (below), or it may be a technique of decorative art, an aspect of interior decoration. In mosaics, small tiles or fragments of pottery (known as tesserae, diminutive tessellae) or of colored glass or clear glass backed with metal foils, are used to create a pattern or picture. In the past many mosaics were made from marble and different local stones. Because of the varying tones and colours in a single sheet of marble it has a unique and varied interest. For years now marble has been used on floors, but it can also be used on walls. It is normally a thick material and one disadvantage of this is weight, which can make it tricky to fix
3

Industry & Market Research

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securely in place. It is expensive but not as expensive as smalti, and can be obtained in a number of finishes. Marble can be polished to a glassy finish and in this way is generally supplied in small blocks known as cubes. Honed marble is polished, but stopped short of a glassy finish. This allows the colour of the stone to shine through but produces a matt surface, giving it a more natural appearance. Marble can generate tremendous amount of foreign exchange for exchequer through value added products like Mosaic & Handicrafts utilizing the waste pieces of marble. With such abundant & low cost raw material the profitability of the value added mosaics is many folds. Marble Mosaic & Handicrafts are hand made products finely crafted that speaks eloquently of its elegance. Marble mosaic has multiple usage, carpets, table tops, pillars, hallways, pools, archways, kitchens, dining/living areas galleries and home settings etc. going from ancient Roman mosaic to Company logos. There are mainly 2 variety of Marble Mosaics one in which large piece of different shapes and colors are used to make a tile, where as in the other marble is cut in to small pieces and then a geometric / floral designs are made using these pieces. 3. 3 Opportunity Rationale

Marble is included in the list of largest minerals extracted among chromite, coal, rock salt, lime stone, china clay, dolomite, fire clay, gypsum, silica sand etc. Since 1990 mining & quarrying has consistently contributed 0.5 percent to the Gross Domestic Product4. Marble processing especially modern designed mosaics are gaining popularity due to increase in its usage in construction industry. Today almost all the modern architectural designs of houses and plazas include the final touch of beautiful shades / designs of marble mosaics in exterior as well as interior portions. In Quetta, there is a great demand for a fully equipped marble mosaic development center. The center could not only explore the construction industry within the city which is on a boom since past 7 years, but could also be able to full fill the orders from the adjoining areas. So far as one small mosaic development & training center has been established in Quetta and is working to train female students in this field. Expansion of the business into a cluster will be more beneficial being the future prospect for local consumption and subsequent export markets. 3. 4 Market Entry Timing

Construction process is not affected by weather however, in winter the below freezing temperatures often slows down the production of processing units. Also in few areas of the province the extreme cold weather slowing down or sometimes even halts construction. However, the extraction and processing of dimensional stones is a round the year process. It is proposed that the project is started in summer so that it can achieve the required capacity in year one.

ESP 1997-98

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3. 5

Proposed Business Legal Status

The business can be started as sole proprietorship or partnership because of great potential involved. Furthermore, comparatively fewer complications are involved in forming, administering and running the sole proprietorship or partnership businesses. 3. 6 Proposed Product Mix

The center would design & process (cut to predefined sizes / shapes and polish) raw marble pieces arranged & glued together to produce Marble Mosaic. There are mainly 2 varieties of Marble Mosaics, one in which large marble pieces of different shapes and colors are used to make a tile giving different color patterns. The tile size may vary from 12 x 12 to 24 x 24 or 36 x 36 , depending on the customer demand. Where as in the other type of mosaic, marble is cut in to small pieces ranging from 07mm to 12mm form Geometric & medallion designs, floral, carpet & animal patterns, Mosaic Boarders and Decoration trays / pots designed on a computer though trained designer or manually. Marble mosaic has multiple usage including carpets designs, table tops, pillars, hallways, pools, archways, kitchens, dining / living areas, galleries and home settings etc. going from ancient Roman mosaic to Company logos & modern architecture. 3. 7 Production Capacity

The unit would have the capacity to process around 20,904 sq.ft. of marble mosaic and would produce around 10,452 sq.ft. of marble mosaic at the rate of 50% capacity in year one, which includes Mosaic-Geometric & medallion around 4,056 sq.ft., Mosaic-floral, carpet & animals around 4,056 sq.ft, Mosaic Boarders around 936 sqft. and Decoration trays / pots around 1404 sqft. The marble processing industry has high rate of wastages i.e. almost 45%. The wastages may be reduced if standardized raw material & machinery is provided to the industry. 3. 8 Project Investment

The total project investment is Rs. 4.41millions which includes Capital Cost of Rs. 2.7million and working capital of Rs. 1.7million. It is assumed that the project would be partially equity financed (80%) and partially debt financed (20%). 3. 9 Recommended Project Parameters Capacity Human Resource Technology/Machinery Proposed Location Quetta, Loralai, Khuzdar, Marble City Gadani, Chaghi / Dalbandin & other feasible marble processing areas of Balochistan

20,904 sq.ft./year

19

Local Made

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Financial Summary
Total Cost IRR NPV Pay Back Period Cost Of Capital (WACC)

Rs. 4.41 M

49%

16 M

3.04 Years

13%

3. 10

Suitable Location

It is suitable to establish the Marble Mosaic Development Center in Quetta, Loralai, Khuzdar, Marble City Gaddani, Hub, and Dist Chaghi / Dalbandin. However such a plant could be established in other parts of the country provided the following main conditions are fulfilled such as: raw material and man power availability, accessibility to markets and reasonable trend of using dimensional stones in construction industry. the facility should easily be accessible to the target customers. 3. 11 Key Success Factors/Practical Tips for Success

Large deposits of superior quality marble in the country with ample production. Availability of large variety of types and colors. Significant number of mines. Availability of hard working & low-cost marble processing labor. Increasing inland trends towards use of Marble made-ups. Rehabilitation in Afghanistan. Large and established world markets. Improved technological changes available. Easy availability of local made spare parts for maintenance. Ample opportunity for exports. 3. 12 Strategic Recommendations

Emphasizing on excellent services to its customers such as standardized products and timely order fulfillment. New machinery should be purchased in order to increase the efficiency and lower the maintenance cost. Refurbished standardized machinery is also recommended. Adapt to the rapid, social, economic and technological changes. Hiring of well-trained / experienced staff will add in the efficiency of the facility.

CURRENT INDUSTRY STRUCTURE

4. 1 History / Background of Product

The history of mosaic goes back some 4,000 years or more, with the use of terracotta cones pushed point-first into a background to give decoration. By the eighth century BC, there were pebble pavements, using different colored stones to create patterns, although these tended to be unstructured decoration. It was the Greeks, in the four centuries BC, who
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raised the pebble technique to an art form, with precise geometric patterns and detailed scenes of people and animals. The Romans in due course became the Byzantines, who are renowned for their superb wall and vault mosaics. Byzantium fell in the 15th century AD, and mosaic went into a decline until the great revival in the 19th century, a revival which has continued to this day. Modern developments in materials and techniques are evidence that mosaic is very much alive as we approach the Millennium. Computers are of course ideal for designing contemporary mosaics, and are increasingly used for that purpose. Early mosaics can be traced back as far as four to three thousand years BC. These basic mosaics, mainly found in Mesopotamia, consisted of thin cones of clay ,baked and then painted. The slim cones were then pushed into mud walls to offer some protection and decoration. There is a large section of wall preserved in the Staatliche Museum in Berlin, Germany. By the end of the 3rd century BC mosaics with pebbles were being replaced by those with tesserae made from stone and glass. Because of tesserae's smaller size, more could be packed into a given area. And as you know with printed pictures, the more dots, the more detail. This led to designs of ever greater detail and complexity. It was the Romans, who learnt the art of mosaics from the Greeks, who were responsible for the spread of mosaics throughout their huge empire. Some of the earliest 2nd and 1st century mosaics have been found preserved at Pompeii. Even the pavements were decorated with stone and marble patterns. Considering the violent nature of Pompeii's end it is remarkable that such treasures have survived. In the west of Europe, the Moors brought Islamic mosaic and tile art into the Iberian Peninsula in the 8th century, while elsewhere in the Muslim world, stone, glass and ceramic were all used in mosaics. In contrast to the figurative representations in Byzantine art, Islamic motifs are mainly geometric and mathematical. Examples can be seen in Spain at the Great Mosque at Cordoba and the Alhambra Palace. Same is brought in Sub Continent by Muslim Rulers and it developed through ages. Pakistan has huge reserves of different varieties of marble and granite. Currently over 70 types of natural colors marble are known to be mined. The waste of these stones is used to produce mosaic. Presently it is an expensive item and not readily available. There are very few artisans who know the job and produce the items demanded by the national and international market. SMEDA in collaboration with PASDEC is working for the development of Marble & Granite sector of Balochistan. In this connection three (03) Rock mining training Institute & model Quarries and twenty (20) Marble & Granite mines will be up-graded in Balochistan. This Marble Mine Up-gradation program is aimed at developing the sector in line with the international market demands and to standardize the quality & quantity of production. This will ultimately reduce wastage rate and increase profit. The benefits of these development
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projects will trickle down even to the local inhabitants and will boost the socioeconomic activities in the province. In the last few years the mosaic trends have changed rapidly, since new machinery and techniques are used to produce different variety of products. 4. 2 Current Scenario

Production of marble & granite has grown substantially at 18% since the last eight years. It has been accompanied with high quarry wastage ranging from 60-75% in addition to poor quality, mainly due to uncontrolled blasting. Processing industry is using wide array of technological options for basic as well as finishing stage, all of vintage age. Due to technological imbalance, wastages are around 45% to 55%. Presently the processing industry relies upon local manufactured machinery and equipment with a very few calibrated and high efficiency machines from reputable local & international suppliers. Mosaic being a new trait introduced in Pakistan has great potential and since it can also utilize the processing wastes including uneven small tiles, strips, steps and broken kitchen tops & table tops etc. therefore, cheap raw material is also abundantly available. Currently the marble processors are producing 2x2 or 2x3 marble tile mosaics which are made from broken tiles and unused marble pieces being reshaped into various designs of their choice. These can be made very professional through proper designing and color combination so as to fetch better prices and more sales volume.

4.2.1 Problems faced by the sector Lack of quality production In the prevailing circumstances the industry is unable to produce quality product for the export markets. One of the major reasons has been the absence of appropriate technology & lack of skilled man power. Most of the processing units in the country are equipped with local versions of the cutting machinery with little or no calibration. These cutters cannot be used to produce small mosaic pieces (10mm x 10mm) due to high speed & blade size/width. Therefore, proper multi blade (13-blade) cutter is needed to give maximum production. Lack of skilled Human Resource Another factor involved is the lack of skilled manpower, which has not been provided with required training on Mosaic development. Proper training for computer designing and for cutting, gluing and polishing is needed to produce quality products that can be accepted in the local as well as international markets.
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4. 3

Regional Distribution

Mining of marble and granite is carried out in Balochistan, NWFP, Sind, FATA and Northern areas whereas processing is carried out throughout the country. 4.3.1 Balochistan Contribution to the Sector Balochistan has nearly 254 mines in operation. Total estimated reserves of marble, onyx, and granite in the province are around approximately 4.2 billion tons however; proper survey of the deposits in the province has not been done hence actual reserves are much more rather inexhaustible. The break down of reserves of marble, onyx, and granite, number of mines leased, leased area, and annual production in Balochistan are shown in the table 4.3.1. Table 4.3.1 Marble/granite reserves, leased mines, and annual production in Balochistan5
Description Reserves (MT) Mines Leased Leased Area (Acres) Annual (MT) Production

Onyx Marble Granite Total

20 million 2.5 billion 1.5 billion 4.2

26 218 10 254

12,110 48,080 19,753 79,943

0.47 2.84 0.036 3.346

The colors found in Balochistan are widely accepted in the local markets and have the capability of international acceptance due to their similarity with the Italian stones, which have widespread demand in the global markets. Balochistan onyx is one of the favorites in the world markets and is used for facings, floorings and decorative items. These various shades & colors if properly designed & utilized for development of Mosaic can give value added finished goods of significant economic importance. These can also be exported to international market and will boost GDP.

MARKET INFORMATION
5. 1 Uses of Mosaic

Various types of dimensional stones can be used for development of Mosaics. Modern designs & patterns have triggered the utility of Marble Mosaic in the industry.

Industry Estimate

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Marble Mosaics can be used in the main entrances of houses, offices and hotels etc. It can also be used in Bathrooms floorings, pave ways, corridors, hotel lobbies, shopping malls flooring & corridors, and in many outdoor and indoor utilities of the customers choice. Decorative items made from Marble Mosaics are well known for its uniqueness and the natural shades/colors of marble makes it even more elusive.

5. 2

Women Empowerment through Training of Marble Mosaic

A pilot project has been initiated in Quetta for the development of female skilled work force specialized in Marble Mosaic making. The project is initiated in coordination with Government Polytechnic Institute for Girls, Quetta, Balochistan (GPI-Girls), Pakistan Stone Development Company (PASDEC), Taraqee Foundation (TF) and Aik Hunar Aik Nagar (AHAN) Quetta, Balohcistan. Women from Balochistan are identified & trained in mosaic designing & development to encourage their participation in contribution towards self-employment and sustainable livelihood. Initially these artisans will cater the domestic demand based products. Besides strengthening the marble mosaic sector through domestic markets, it will contribute to the expansion of exports as these handmade value added marble products have greater demand in US & Western markets. 5. 3 Possible Product Categories after Processing

The center would design & process (cut to predefined sizes / shapes and polish) raw marble pieces arranged & glued together to produce Marble Mosaic of various sizes, designs and patterns. There are mainly 2 varieties of Marble Mosaics, one in which large marble pieces of different shapes and colors are used to make a tile giving different color patterns. The tile size may vary from 12 x 12 to 24 x 24 or 36 x 36 , depending on the customer demand. Where as in the other type of mosaic, marble is cut in to small pieces ranging from 07mm to 20mm to form Geometric & medallion designs, floral, carpet & animal patterns, Mosaic Boarders and Decoration trays / pots designed on a computer through trained designer or manually.

5. 4

Target Customers

The target customers for Marble Mosaic include individuals and construction companies. For larger designs for floors and corridors onsite preparation facility of mosaics preparation can also be provided. 5. 5 Market Potential

Due to modern architectural designs, use of Marble Mosaic in the construction industry of the province / country is increasing; additionally there is huge demand in the international market including United States, Europe, Middle East and Afghanistan. The increase in
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demand of Marble Mosaics can be best tapped for economic benefits due to easy availability & cheap raw material from marble processing units in Quetta, Loralai and marble city Gadani, from where the project owner can buy such products at comparatively low prices. Pakistans marble products export is around estimated $30 million/annum, which can be enhanced many folds if standardized production measures are ensured.

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PROCESS FLOW

The process of Marble mosaic making is simple but time consuming. After the marble tiles / processed waste (Marble Tukri) is cut into small (10mm) square cubes locally called (Mosaic Tukri), the actual process of Marble Mosaic Making starts by passing through the following stages: Computerized or hand made designs are prepared and printed/drawn on paper in such a way that the patterns & color combination is visible for later stage of marble cube gluing and filling.

Design Making

First plastic sheet is placed on the design & followed by fiber net. Both are cut according to the design size/shape. Both are fixed via a sticking tape to prevent displacement. The plastic helps to prevent the design paper from destroying and can be reused.

Plastic Sheet & fiber net Laying

Glue is applied to the mosaic cubes and placed on the net as per design patterns & colors. The marble cubes can be cut or reshaped using the hand cutters and hand grinders where needed. Design is initially placed on a plastic or wood adha for support. Marble strip boarders are also placed round the design to keep alignment & for support. Once all cubes are glued the gaps are filled by atami (adhesive) for bonding & finishing.

Gluing of Marble cube on design pattern & Filling

Once the Mosaic is fully dry, it is then polished and finishing is done in all respect, it is stored for delivery to customers.

Polishing & Finalization

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BASIC REQUIREMENT FOR MARBLE MOSAIC DEVELOPMENT CENTER

Following are the basic requirements for Marble Processing Plant. Table 6-1 Machinery and Equipment Requirement Total Amount (PKR)
653,000 678,000 145,000 270,000 64,000 11,250 15,000 350,000 150,000 2,336,250

Description
Cube cutting machine Fingure making machine Tumbling Machine Manual Polisher machine Hand Grinder machine Hand Cutters Misc. tools Transformer (200KVA) Installation Cost Total Local Local Local Local Local Local Local Local

Origin

Qty
1 1 1 2 4 15 1 1

Price/Unit
653,000 678,000 145,000 135,000 16,000 750 15,000 350,000

Table 6-2

Office Equipment Qty 1 1 1 1 Cost/Unit 45,000 25,000 Total Amount (PKR) 45,000 25,000

Description Computer (P-IV) with CAD installed Computer printer Telephone with Connection Fax Machine with Extra Phone Line Total Table 6-3 Furniture and Fixtures

1,200
12,000

1,200
12,000 83,200

Description Furniture Office Electric Wiring and Lighting Total

Total Amount (PKR) 65,000 15,000 80,000

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7. 1

Machine Maintenance

All the spare parts and mechanical expertise is available in Karachi, Lahore, Faisalabad, Gujranwala, Rawalpindi and Peshawar.

HUMAN RESOURCE REQUIREMENT

The total human resource required for this project with their proposed/estimated monthly salaries is shown in the table 7-1. Table 7-1 Positions Supervisor Computer Designer Cube cutting machine operator Figures cutting machine operator Tumbling Machine operator Polisher machine operator Helper Skilled labor for mosaic making Total Human Resource Requirement Details Number 1 1 1 1 1 2 2 10 19 Salary / Month 15,000 25,000 7,000 7,000 6,000 6,000 4,500 12,000 Total Monthly Salary (Rs.) 15,000 25,000 7,000 7,000 6,000 12,000 9,000 120,000 201,000

BUILDING REQUIREMENT

A rented building is proposed to be acquired for the project as per descript ions given in the table below: Table 8-1 Description Rented building Total Building and Boundary Wall Construction Cost Rent / sq.ft 10 Area in sq.ft 4,000 Rent /month 40,000 Rent / year 480,000 480,000

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9. 1

Recommended Mode

It is recommended that the Mosaic center be established in an area which is easily approachable to buyers. For differential marketing onsite preparation facility of large mosaics designs on floors and corridors of under construction buildings / houses should be provided. 9. 2 Utilities and Infrastructure Requirement

Availability of all utilities is a must for the Mosaic development canter to operate.

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10 PROJECT ECONOMICS
10.1 Project Cost Description Land Building/Infrastructure Machinery and Equipment Furniture & fixtures Office equipment Pre-operating costs Total Capital Costs Equipment spare part inventory Raw Material inventory Upfront Building Rent Upfront Insurance Payment Cash Total Working Capital Total Investment Amount in (Rs.) 2,336,250 80,000 83,200 194,000 2,693,450 4,583 518,971 480,000 116,813 600,000 1,720,367 4,413,817

10.2 Project Returns Description IRR MIRR Payback Period (yrs) Net Present Value (NPV) Equity 53% 31% 2.96 13.32 million Project 49% 28% 3.04 15.99 million

10.3 Project Financing Description Debt Financing Equity Financing Total Percentage 20% 80% Amount in Rs 888,839 3,524,978 4,413,817

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11 FINANCIAL ANALYSIS
11. 1 Project Cost
SMEDA
Capital Investment Land Building/Infrastructure Machinery & equipment Furniture & fixtures Office vehicles Office equipment Pre-operating costs Training costs Total Capital Costs Working Capital Equipment spare part inventory Raw material inventory Upfront land lease rental Upfront building rent Upfront machinery & equipment lease rental * Upfront office equipment lease rental * Upfront office vehicles lease rental * Upfront insurance payment Cash Total Working Capital Total Investment Initial Financing Debt Equity Lease Export re-finance facility * Provisioning for the first year installments Rs. in actuals 2,336,250 80,000 83,200 194,000 2,693,450 Rs. in actuals 4,583 518,971 480,000 116,813 600,000 1,720,367 4,413,817 Rs. in actuals 888,839 3,524,978 -

Statement Summaries
Initial Investment

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11. 2

Projected Income Statement

SMEDA
Year 1 Year 2 10,831,598 6,964,629 3,866,969 Year 3 13,422,029 8,343,268 5,078,760 Year 4 16,284,317 9,864,720 6,419,597 Year 5 19,441,760 11,541,776 7,899,983 Year 6 21,860,169 12,924,292 8,935,878 Year 7 23,273,858 13,884,561 9,389,297 Year 8 24,670,289 14,854,540 9,815,749 Year 9 26,150,507 15,896,410 10,254,097 Rs. in actuals Year 10 27,719,537 17,015,851 10,703,686

Statement Summaries
Income Statement

Revenue Cost of goods sold Gross Profit General administration & selling expenses Administration expense Rental expense Utilities expense Travelling & Comm. expense (phone, fax, etc.) Office vehicles running expense Office expenses (stationary, etc.) Promotional expense Insurance expense Professional fees (legal, audit, etc.) Depreciation expense Amortization expense Property tax expense Miscellaneous expense Subtotal Operating Income Other income Gain / (loss) on sale of assets Earnings Before Interest & Taxes Interest expense Earnings Before Tax Tax NET PROFIT/(LOSS) AFTER TAX Balance brought forward Total profit available for appropriation Dividend Balance carried forward

7,915,731 5,329,225 2,586,506

528,000 480,000 48,000 52,800 4,800 47,494 116,813 55,410 249,945 38,800 7,916 1,629,978 956,528 41,724 998,252 97,772 900,480 198,106 702,374

580,800 528,000 50,880 58,080 5,280 64,990 105,131 75,821 249,945 38,800 10,832 1,768,559 2,098,411 71,418 2,169,829 82,073 2,087,756 459,306 1,628,450 702,374 2,330,824 2,330,824

638,880 580,800 53,933 63,888 5,808 80,532 93,450 93,954 249,945 38,800 13,422 1,913,412 3,165,348 143,638 3,308,987 64,647 3,244,340 713,755 2,530,585 2,330,824 4,861,409 4,861,409

702,768 638,880 57,169 70,277 6,389 97,706 81,769 113,990 249,945 38,800 16,284 2,073,977 4,345,620 247,849 4,593,469 45,304 4,548,166 1,000,596 3,547,569 4,861,409 8,408,978 8,408,978

773,045 702,768 60,599 77,304 7,028 116,651 70,088 136,092 249,945 38,800 19,442 2,251,761 5,648,222 393,463 6,041,685 23,833 6,017,853 1,323,928 4,693,925 8,408,978 13,102,903 13,102,903

850,349 773,045 64,235 85,035 7,730 131,161 58,406 153,021 249,945 21,860 2,394,788 6,541,090 582,955 7,124,045 7,124,045 1,567,290 5,556,755 13,102,903 18,659,658 18,659,658

935,384 850,349 68,089 93,538 8,503 139,643 46,725 162,917 249,945 23,274 2,578,368 6,810,929 802,554 7,613,483 7,613,483 1,674,966 5,938,517 18,659,658 24,598,175 24,598,175

1,028,923 935,384 72,174 102,892 9,354 148,022 35,044 172,692 249,945 24,670 2,779,100 7,036,649 1,038,163 8,074,812 8,074,812 1,776,459 6,298,353 24,598,175 30,896,528 30,896,528

1,131,815 1,028,923 76,505 113,181 10,289 156,903 23,363 183,054 249,945 26,151 3,000,128 7,253,969 1,287,519 8,541,489 8,541,489 1,879,127 6,662,361 30,896,528 37,558,890 37,558,890

1,244,996 1,131,815 81,095 124,500 11,318 166,317 11,681 194,037 249,945 27,720 3,243,424 7,460,262 1,616,594 9,076,857 9,076,857 1,996,908 7,079,948 37,558,890 44,638,838 44,638,838

702,374 702,374

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Marble Mosaic Development Center

11. 3

Projected Balance Sheet

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

Statement Summaries
Balance Sheet

Assets Current assets Cash & Bank Accounts receivable Finished goods inventory Equipment spare part inventory Raw material inventory Pre-paid annual land lease Pre-paid building rent Pre-paid lease interest Pre-paid insurance Total Current Assets Fixed assets Land Building/Infrastructure Machinery & equipment Furniture & fixtures Office vehicles Office equipment Total Fixed Assets Intangible assets Pre-operation costs Legal, licensing, & training costs Total Intangible Assets TOTAL ASSETS Liabilities & Shareholders' Equity Current liabilities Accounts payable Export re-finance facility Short term debt Other liabilities Total Current Liabilities Other liabilities Lease payable Deferred tax Long term debt Total Long Term Liabilities Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITIES

1,040,000 4,583 518,971 40,000 116,813 1,720,367

1,046,184 650,608 484,475 6,585 752,749 44,000 105,131 3,089,733

2,524,733 770,438 588,560 8,568 988,739 48,400 93,450 5,022,889

4,657,181 996,724 703,649 10,915 1,271,566 53,240 81,769 7,775,045

7,735,266 1,220,809 830,713 13,683 1,609,203 58,564 70,088 11,538,326

11,937,885 1,468,195 970,804 16,154 1,917,939 64,420 58,406 16,433,803

17,209,855 1,697,340 1,081,769 18,059 2,164,490 70,862 46,725 22,289,099

22,917,853 1,854,823 1,157,047 20,100 2,432,020 77,949 35,044 28,494,835

28,990,295 1,970,307 1,237,878 22,371 2,732,618 85,744 23,363 35,062,576

35,385,662 2,088,526 1,324,701 24,899 3,070,370 94,318 11,681 42,000,156

45,444,047 2,213,837 1,417,988 49,075,872

2,336,250 80,000 83,200 2,499,450

2,102,625 72,000 74,880 2,249,505

1,869,000 64,000 66,560 1,999,560

1,635,375 56,000 58,240 1,749,615

1,401,750 48,000 49,920 1,499,670

1,168,125 40,000 41,600 1,249,725

934,500 32,000 33,280 999,780

700,875 24,000 24,960 749,835

467,250 16,000 16,640 499,890

233,625 8,000 8,320 249,945

194,000 194,000 4,413,817

155,200 155,200 5,494,438

116,400 116,400 7,138,849

77,600 77,600 9,602,260

38,800 38,800 13,076,796

17,683,528

23,288,879

29,244,670

35,562,466

42,250,101

49,075,872

322,862 322,862

438,363 438,363

547,035 547,035

669,191 669,191

798,659 798,659

898,653 898,653

967,324 967,324

1,038,164 1,038,164

1,114,836 1,114,836

912,056 912,056

888,839 888,839

198,106 746,117 944,223

256,988 587,697 844,685

256,988 411,850 668,838

256,988 216,661 473,648

256,988 256,988

205,590 205,590

154,193 154,193

102,795 102,795

51,398 51,398

3,524,978 3,524,978 4,413,817

3,524,978 702,374 4,227,352 5,494,438

3,524,978 2,330,824 5,855,802 7,138,849

3,524,978 4,861,409 8,386,387 9,602,260

3,524,978 8,408,978 11,933,956 13,076,796

3,524,978 13,102,903 16,627,882 17,683,528

3,524,978 18,659,658 22,184,636 23,288,879

3,524,978 24,598,175 28,123,153 29,244,670

3,524,978 30,896,528 34,421,507 35,562,466

3,524,978 37,558,890 41,083,868 42,250,101

3,524,978 44,638,838 48,163,816 49,075,872

Note: Total assets value will differ from project cost due to first installment of leases paid at the start of year 0
-

21 BAL-PREF-05/March, 2008

Pre-feasibility Study

Marble Mosaic Development Center

11. 4

Projected Cash Flow Statement

-

Statement Summaries
Cash Flow Statement
Year 0 Operating activities Net profit Add: depreciation expense amortization expense Deferred income tax Accounts receivable Finished good inventory Equipment inventory Raw material inventory Pre-paid building rent Pre-paid lease interest Advance insurance premium Accounts payable Other liabilities Cash provided by operations Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

SMEDA
Rs. in actuals Year 10

(4,583) (518,971) (40,000) (116,813) (680,367)

702,374 249,945 38,800 198,106 (650,608) (484,475) (2,002) (233,778) (4,000) 11,681 322,862 148,905

1,628,450 249,945 38,800 58,882 (119,830) (104,085) (1,983) (235,990) (4,400) 11,681 115,500 1,636,970

2,530,585 249,945 38,800 (226,286) (115,089) (2,347) (282,827) (4,840) 11,681 108,672 2,308,294

3,547,569 249,945 38,800 (224,084) (127,064) (2,768) (337,637) (5,324) 11,681 122,156 3,273,274

4,693,925 249,945 38,800 (247,386) (140,090) (2,471) (308,735) (5,856) 11,681 129,468 4,419,280

5,556,755 249,945 (51,398) (229,145) (110,965) (1,905) (246,551) (6,442) 11,681 99,994 5,271,970

5,938,517 249,945 (51,398) (157,483) (75,278) (2,041) (267,531) (7,086) 11,681 68,671 5,707,998

6,298,353 249,945 (51,398) (115,484) (80,832) (2,271) (300,598) (7,795) 11,681 70,840 6,072,442

6,662,361 249,945 (51,398) (118,218) (86,822) (2,528) (337,752) (8,574) 11,681 76,672 6,395,367

7,079,948 249,945 (51,398) (125,312) (93,287) 24,899 3,070,370 94,318 11,681 (202,780) 10,058,385

Financing activities Change in long term debt 888,839 Change in short term debt Change in export re-finance facility Add: land lease expense Land lease payment Change in lease financing Issuance of shares 3,524,978 Purchase of (treasury) shares Cash provided by / (used for) financing activities4,413,817 Investing activities Capital expenditure (2,693,450) Acquisitions Cash (used for) / provided by investing activities(2,693,450) NET CASH Cash balance brought forward Cash available for appropriation Dividend Cash carried forward 1,040,000

(142,721) (142,721)

(158,420) (158,420)

(175,847) (175,847)

(195,190) (195,190)

(216,661) (216,661)

6,184 1,040,000 1,046,184 1,046,184

1,478,550 1,046,184 2,524,733 2,524,733

2,132,447 2,524,733 4,657,181 4,657,181

3,078,085 4,657,181 7,735,266 7,735,266

4,202,619 7,735,266 11,937,885 11,937,885

5,271,970 11,937,885 17,209,855 17,209,855

5,707,998 17,209,855 22,917,853 22,917,853

6,072,442 22,917,853 28,990,295 28,990,295

6,395,367 28,990,295 35,385,662 35,385,662

10,058,385 35,385,662 45,444,047 45,444,047

1,040,000 1,040,000

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Marble Mosaic Development Center

12 KEY ASSUMPTIONS
Table 13-1 Cost of Goods Sold per Unit of Production Rs. 195 Rs. 130 6% COGS 1 COGS 2 COGS growth rate

COGS 1 includes cost of raw material which is acquired in two forms i.e. marble tiles and marble processing waste (Tukri). The COGS 2 includes other consumables such as transparent plastic sheets, plastic net for base, chart paper, Glue and Atami (adhesives) and some colors etc. Table 13-2 Revenue Assumptions Rs. 826 / sqft 6%

Sale price per unit in year 1 (Mosaic) Sale price growth rate

Table 13-3

Production Related Assumptions 20,904 Sqft. 50% 10% 95%

Production capacity per year Production capacity utilization in first year Production capacity utilization growth rate Maximum production capacity utilization

Table 13-4

Economic Related Assumptions 6% 10% 6% 6%

Inflation rate Wage growth rate Electricity Growth Rate Water Price Growth Rate

Table 13-5

Financing Assumptions 11% 20% 80% 22% 16% 13%

Interest rate on long term debt Debt Equity Tax rate (15% sales tax + 7% income tax) Required rate of return on equity WACC

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Marble Mosaic Development Center

Table 13-6

Expense Assumptions 11% of revenue 0.6 % of revenue 0.7 % of revenue 10% of administration expense 1% of administration expense Rs. 194,000

Communication Expense Promotional Expense Professional Fee (Legal, Audit etc) Administration Benefit Expense Office Expense (Stationary, Entertainment, Janitorial Services) Pre-Operational Expense

Table 13-7

Depreciation Rates 10% 10% 10%

Furniture & fixtures Machinery Office equipment

Table 13-8

Cash Flow Assumptions 30 30 Rs. 600,000

Accounts Receivables Cycle (In Days) Accounts Payable Cycle (In Days) Cash on Hand

Table 13-9

Machinery Operating Costs 120,000 840,000 9,600

Maintenance Cost / year Direct Electricity Cost / year Direct Water Cost / year

24 BAL-PREF-05/March, 2008