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A PROJECT REPORT ON

Showroom of handicraft products

IN BATHINDA

SUBMITTED TO: Prof. Bhawdeep Singh SUBMITTED BY: Nisha Rani Roll no.-2144 MBA-II

PUNJABI UNIVERSITY SCHOOL OF BUSINESS STUDIES TALWANDI SABO

CONTENTS
Introduction Principal suppliers Market segments Handicraft industry in India Special efforts to this sector Feasibility study a) Market analysis b) Technical analysis c) Economic analysis d) Ecological analysis e) Financial analysis Conclusion

ACNOWLEDGEMENT
Preparing a feasibility report is never a unilateral effort, I wish to acknowledgement the guidance and support of the professionals in bringing up a real picture of the concept of this report is prepared. There is always a sense of gratitude which one express to others for their help and needy services which one renders during the various phase of life. I am indebted to Prof. Bhawdeep Singh for their insightful annotation and assistance throughout the project. Their unfailing enthusiasm and continuous guidance kept me motivated and encouragement throughout the project report. I shall like to express my gratitude towards all those who helped me out during of different stages of my project report and encouraged me with their ideas and views, which were guiding and motivating factor in completion of tedious task of this project. They are in my eyes as a rich source of creativity, dedication and knowledge. Working under them has been a lifetime experience.

Prof. Bhawdeep Singh Nisha Rani

INTRODUCTION
Handicrafts accounts for the Worlds imports consist of both genuine handmade handicrafts and similar machine made substitutes. The handicraft sector is dominated by the imports of works of art, carpets and wood ware followed by basket wares, embroidery and the base metal decorative items. It encourages the private sector to set up world class, environmental friendly, integrated textile complexes from yarn production to garment making under roof. PRINCIPAL SUPPLIERS: India emerged as the third largest supplier of handicrafts after Hong Kong and Taiwan MARKET SEGMENTS: The market for handicrafts is broadly segmented into two sectors namely: (a) Market for utility-cum-decorative items. (b) Market for articrafts, i.e. the crafts of purely decorative & artistic in nature. The importer wholesalers dominate the second segment. They normally import and distribute handicrafts to retailers, department stores, boutique shops, especially stores etc. They work on margin of about 50% on the landed cost. While the retailers margin varies from 100% to 200% on the wholesale price. HANDICRAFT INDUSTRY IN INDIA: The handicraft sector is one of the star performers among the thrust products identified by the govt. of India for export promotion & growth. In India, the office of the Development Commission for Handicrafts in the Ministry of Textile group handicrafts as: Carpets, Art metal wares, Wood wares, Hand Printed textile & scarves, Shawls as art ware, Zari goods, Jewellery, etc. This sector besides providing for the economic and social needs of the craftsman also plays an important role in earning valuable foreign exchange for the country.

EXPORT DESTINATIONS:
Handicrafts are exported to more than 100 countries of the world. Major markets include USA, Germany, Belgium, Japan, UK, France, Switzerland, Canada and Italy. These countries absorb 90% of Indias exports of Handicrafts.

SPECIAL EFFORTS TO THIS SECTOR:


The small scale and cottage sector helps to solve social and economic problems of the artisans by providing employment to over 6 million artisans which include a large number of women & people belonging to weaker section of the society. In addition to the employment, the sector is important from the point of view of low capital investment, high potential for export & foreign exchange earnings for the country. The Indian Handicraft has been facing stiff competition since the opening up of the economy but it has faced the tough times. Although the share of the handicrafts is very small in the World trade of handicrafts, but Indian handicrafts have been successfully able to make a mark. The export potential of the Indian Handicraft industry can be rightly judged with the kind of efforts that the Indian exporters are putting in. They are continuously working on their strengths of price leaderships, good quality and innovative designs. Simultaneously, the efforts are being taken to overcome their weaknesses and to cash on the opportunities.

FEASIBILITY STUDY:
The feasibility study of any project is concerned with five kinds of analysis, which are: (a) Market analysis (b) Technical analysis (c) Economic analysis (d) Ecological analysis (e) Financial analysis MARKET ANALYSIS: It involves assessment of current market scenario, taking into account the output of the product to be manufactured and the existing demand for it with a view to establish whether there is satisfactory demand or not. For the market analysis of setting up a Handicraft Industry in Bathinda region, a survey was conducted at handicraft shops in Bathinda. For example: Javes at Sarabha Nagar, Punjab Handlooms. For conducting the survey, various questions were asked: (a)What are the handicraft products do you sell? (b)What is your sale per annum? (c)Where do you get the handicraft products? (d)Which income group purchases your products the most? (e)Which product is more in sale? The survey conducted gave the following results: The products, which Bathinda handicraft shopkeepers sell, are: Carpets, Cushions, Pillows, Bed sheets, wall hangings, Khadi products, Paintings and wooden items like book racks, CD racks, magazine racks, cabinets, baskets, candle stands, Photo frames, Pen stands, boxes, Candle stands, Mirror frames, quilts and statues etc. The most innovative wall hangings are for home decoration. They are made of cloth patches with embroidery, mirror work and beads by the artisans of Gujarat. Beauty based on simplicity and utility, Cotton cushion covers for home decorating made by block printing artisans of Rajasthan. Each item is beautifully hand crafted and stringent checks and controls at various stages ensure a consistent quality of the finished products. In fact 6

a large number of the items have resulted from the specific and customized requirements of our buyers. The wall hangings, carpets, cushion covers, paintings are more in demand as the people of Bathinda are vary fond of these products. There are so many exhibitions conducted at different palaces for the sale of various handicraft products. But the shopkeepers do not have regular customers who buy the products regularly. So the demand for particular product does not keep on increasing for the longer period of time. People buy handicraft products not for regular use but just for a change or for their hobby to purchase new things. Their principal customers are higher middle class people. The higher income group people buy luxurious and traditional handmade paintings and wall hangings. With the effect of modernization, the handicraft business is declining, but is gaining profits. Their sales are good. They used to get their handicraft products from Rajasthan and Gujarat since there is no well-organized handicraft industry in Punjab. So the setting up of handicraft industry itself in Punjab will fail in Bathinda because it is cheap for them to get the products transported from other states rather than to manufacture here. They have suggested opening a showroom at mall road, Bathinda because it is a busy market. This location will help in transportation of handicraft products and it is a big market. The handicraft products are costly in nature. The prices of various products are listed below: Durries-Their price range from Rs. 200 to Rs 1000 Khes- Their price range from Rs. 150 to Rs. 600 Cushion covers- Their price range from Rs.200 to Rs.1500 Wall Hangings- Their price range lies between Rs. 200 to Rs. 2000 Handmade Paintings- Their price range lies between Rs. 500 to Rs. 4500 Quilts- Theai price lies between Rs. 350 to Rs. 1000 Khadi suits- Their price is Rs. 150 per meter. Baskets- Their price lies between Rs. 70 to Rs. 200

FINDINGS OF CONSUMER SURVEY It was found from the rural and city women of Bathinda that the famous products of Bathinda are carpets, Paintings and other household decorative items. Most of the city women use machine made carpets. But no doubt they go for hand knotted carpets and Khadi products, but they use occasionally or according to their fashion. Most of the rural women use hand knotted Durries. The city women buy the Durries and Khadi products not frequently but after 4-5 years. The demand for handmade durries is more in the rural area as compared to the urban area. But the handloom weavers want their products to be exported to other countries because the people outside India have tendency to buy the Indian traditional and cultural values at more expensive rates as compared to that in India. TECHNICAL ANALYSIS: Important points related to technical feasibility are briefed as under: Size, Suitability, Cost of land: As there is no need to set up full fledged Handicraft industry as a whole at Bathinda because handicraft products are easily transported mainly from Rajasthan. As it is cheaper to get these products from other states. I will not purchase my own land in Ludhiana as cost of land in Ludhiana is very high. So I will take showroom at monthly rent @ Rs. 20,000 Raw material: Raw material required for the production of handmade carpets, cushions, Khadi products etc. are cotton. The prices of cotton are declining these days. Its price is about Rs. 45 per Kg. Some of the products will be produced in the villages of Bathinda city like Khes, Durries, Cushions etc. and other decorative items, paintings, wood wares will be taken directly from Rajasthan.

Manpower & Machines: The basic strength of the Handicraft industry is labour, which includes highly skilled artisans or semi skilled artisans, which is very cheap in India. There is no well-organized handicraft industry in Punjab. In villages, people make small organizations, make products and sell it in the market directly. The machinery required in the production of carpets are handlooms, weaving machines, Charkhas and other hand other traditional hand aided machines.

ECONOMIC ANALYSIS: Handicrafts and craft villages have both economic and cultural significance contributing to our national identity. Moreover, they create jobs and regular income for laourers. Its easy to begin making handicrafts, as compared to other jobs because they mostly use readily available materials and simple tools. These jobs are suitable for all ages and skill levels including the elderly, women, children and even the disabled. Small initial capital with rapid turnover is one of the advantages of the handicraft industry. This particularly applies to the outskirts of the city where the high speed of industrialization and residents also find part time jobs. Craft is becoming more attractive to both domestic and foreign tourists. Handicraft artists have been seen as the core of the craft village. Their creative abilities are the essential means for the villages growth. Handicrafts increase the artists pride in their work. In the handicrafts sector about 32% of the outlay inspect of identified central schemes is earmarked for the benefit of the scheduled caste, scheduled tribe and women artisans with an allocation 15%, 75% and 10% respectively. The major schemes in which this allocation is made are: training, design and technical development, marketing, exhibition, publicity, survey and study, craft development centers, welfare and other schemes. In Handicraft sector, women constitute a major segment of handicraft workers i.e. around 45% of the total workforce. So the special attention is being paid to ensure that large number of women artisans get benefit in all the development schemes. So this sector helps in providing employment to women. ECOLOGICAL ANALYSIS: In case of handicraft products, the wastage is very less. There is no need to dispose the waste raw material because the raw material is 9

never wasted. It is reused and recycled. There is no problem of power, fuel, water and transport facilities in the area. These are available at reasonable cost. So handicraft industry adds little pollution. It is an eco friendly industry and has little detrimental impact on natural resources.

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FINANCIAL ANALYSIS:
PROJECTED INCOME STATEMENT 1st year 900000 4000 904000 Nil 229000 240000 500 10000 500 12000 5000 180000 2nd year 1080000 20000 1100000 4000 286000 243000 500 10500 500 12750 5000 180000 357750 9500 72000 276250 32000 244250 85487 158763 3rd year 1320000 25000 1345000 20000 335000 246000 500 11000 500 13500 5000 180000 533500 9025 64800 459675 24000 435675 152486 283139 4th year 1500000 30000 1530000 25000 380000 249000 500 11500 500 14000 5000 180000 664500 8574 58320 597606 16000 581606 203562 378044 5th year 1800000 35000 1835000 30000 455000 252000 500 12000 500 14500 5000 180000 885500 8145 52488 824867 8000 816867 285903 530964

SALES Closing stock Total Expenses Opening stock Purchases Rent Electricity Bill -Fixed -Variable Telephone charges -Fixed -Variable Insurance charges Administrative

expenses Operating Profits 227000 Dep. On Furniture 10000 Dep. On Motor 80000 Vehicle Profits before 137000 40000 97000 33950 63050

Interest & taxes Interest on loan Profit before Tax Tax @ 35% Profit after tax

Variable expenses are 25% of Sales. Rent of Building increases Rs. 250 after year. Depreciation on Furniture is 5% on W.D.V. basis. 11

Depreciation on Motor Vehicles is 10% on W.D.V. basis.

PROJECTED BALANCE SHEET

1st year CURRENT ASSETS Cash in hand and at bank Debtors Inventories Total Current Assets Fixed Assets Furniture Motor vehicles Total Fixed Assets TOTAL ASSETS 315000 25000 450000 790000

2nd year 500000 28000 343500 871500

3rd year 740000 15000 390325 114532 5

4th year 850000 18000 594219 146221 9 162901 524880 687781 215000 0 100000 0 883046 200000 66954 215000 0

5th year 1150000 26000 796852 1972852

190000 720000 910000 170000

180500 648000 828500 170000 0 100000 0 221813 400000 78187 170000 0

171475 583200 754675 190000 0 100000 0 505002 300000 94998 190000 0

154756 472392 627148 2600000

0 LIABILITIES & CAPITAL Owners Capital 100000 Reserves & Capital 8% Secured Loan Creditors Total 0 63050 500000 136950 170000 0

1000000 1414010 100000 85990 2600000

Repayment of Loan is Rs. 100000 at the start of 2nd year onwards.

PRESENT VALUE OF CASH INFLOWS

Years

Cash inflows

P.V.@ 10% 12

Present Value

Cumulative PV

1st 2nd 3rd 4th 5th

153050 240263 357014 444938 591597

.909 .826 .751 .683 .621

139123 198457 268118 303893 367382

139123 337580 605698 909591 1276973

Present value of Cash inflows = Rs. 1276973

PRESENT VALUE OF CASH OUTFLOWS Years Initial 1st 2nd 3rd 4th 5th Cash outflows 500000 100000 100000 100000 100000 100000 P.V. @ 10% 1 .909 .826 .751 .683 .621 Present Value 500000 90900 82600 75100 68300 62100

Present value of Cash outflows = Rs. 879000

NET PRESENT VALUE: It is the difference between cash inflows and cash outflows. Therefore NPV of Project comes to Rs. 1276973-Rs. 879000= Rs.397973 Therefore the project gives positive NPV and hence is acceptable.

DISCOUNTED PAY BACK PERIOD: Pay back period represents the period in which the total investment pays back itself. The present value of all cash outflows and inflows are computed at which the cumulative present value of cash inflows equals the present value of cash outflows is the discounted pay back period. The cumulative present value of cash inflows at the end of 3 rd year is Rs.605698 and it is Rs.9095910at the end of 4th year. Hence discounted pay back period falls between 3 and 4 years. To be exact, 13

Discounted pay back period

=3 years & 273302 / 303893 =3 years and 10 months

INTERNAL RATE OF RETURN OF THE PROJECT The cash inflows of the project are discounted at a suitable rate by hit and trial method, which equates the net present value so calculated to the amount of the investment. It is the rate at which the present value of cash inflows is equal to the present value of cash outflows.

Years Cash inflows PV @20%D.F. P.V. 1st 153050 .833 12749 2 3


nd

PV @25%D.F. P.V. .787 120450 .653 .512 .409 .328 156892 182791 181980 194044 836157

240263 357014 444938 591597

.694 .578 .482 .401

1 16674 3 20635 4 21446 0 23723 0 95227 8

rd

4th 5th

The present value of net cash inflows at 20% rate of discount is Rs. 952278 and at 25% rate of discount, it is Rs836157 and present value of cash outflows is Rs. 879000. It means IRR falls between these two discount rates. = 20% + 73278/(952278-836157) * 5 = 20% + 73278/116121 * 5 = 23.155% 14

LIQUIDITY RATIOS CURRENT RATIO: It may be defined as the relationship between current assets and current liabilities. A relative high current ratio is an indication that the firm is liquid and has ability to pay its current liabilities in time.

Years Current Assets

1st 79000

2nd 87150 0 78187 11.14

3rd 114532 5 94998 12.05

4th 146221 9 66954 21.84

5th 1972852 85990 22.94

0 Current liabilities 13695 Current Ratio 0 5.76

LIQUID RATIO: It shows the ability to pay short-term obligations as and when they become due. Cash in hand and at bank are more liquid assets. Inventories cannot be termed into liquid asset, as they cannot be converted into cash immediately without sufficient loss of value. Years Liquid assets 1st 34000 2nd 52800 0 78187 6.75 3rd 75500 0 94998 7.95 4th 86800 0 66954 12.96 5th 1176000 85990 13.67

0 Current liabilities 13695 Liquid Ratio 0 2.48

ABSOLUTE LIQUID RATIO: It includes cash in hand and at bank. Years Cash 1st 31500 0 2nd 50000 0 15 3rd 74000 0 4th 85000 0 5th 1150000

Current liabilities 13695 Absolute L.R. 0 2.3

78187 6.39

94887 7.78

66954 12.69

85990 13.37

LONG TERM FINANCIAL POSITION RATIOS DEBT-EQUITY RATIO: It is also known as External-internal funds ratio to measure the relative claims of outsiders and the owner against the assets of the owner. Years 1st Outsiders funds 636950 Insiders funds 106305 Ratio 0 .599 2nd 478187 122181 3 .39 3rd 394998 150500 2 .262 4th 266954 188304 6 .142 5th 185990 2414010 .077

SOLVENCY RATIO: This ratio indicates the relationship between the total liabilities to outsiders to the total assets of the owner. Years Total 1st to 636950 170000 0 37.47% 2nd 478187 170000 0 28.13% 3rd 394998 190000 0 20.79% 4th 266954 215000 0 12.42% 5th 185990 2600000 7.153%

liabilities

outsiders Total Assets Ratio

FIXED ASSETS TO PROPREITORS FUNDS: This ratio shows the relationship between fixed assets and proprietors funds. Years Fixed 1st after 910000 106305 0 85.6% 16 2nd 828500 122181 3 67.8% 3rd 754675 150500 2 50.1% 4th 687784 188304 6 36.5% 5th 627148 2414010 25.98%

assets

depreciation Proprietors funds Ratio

RATIO OF CURRENT ASSETS TO PROPRIETORS FUNDS: This ratio shows the extent to which proprietors funds are invested in current assets. Years Current Assets Proprietors funds Ratio 1st 790000 106305 0 74.3% 2nd 871500 122181 3 67.8% 3rd 114532 5 150500 2 76.1% 4th 146221 9 188304 6 77.6% 5th 1972852 2414010 81.7%

INTEREST COVERAGE RATIO: This is calculated by dividing the net profit before interest and taxes by the fixed interest charges. It is used to test the debt servicing capacity of the business. Years 1st Net profit before interest & 13700 taxes Fixed interest charges Ratio 0 40000 3.425 2nd 27625 0 32000 8.63 3rd 45967 5 24000 19.15 4th 59760 6 16000 37.35 5th 824867 8000 103.1

PROFITABILITY RATIOS OPERATING PROFIT RATIO: It establishes the relationship between operating profits and sales. Years 1st 2nd Operating profits 227000 357750 Net sales 900000 108000 Ratio 25.22 % 0 33.13% 3rd 533500 132000 0 40.42% 4th 664500 150000 0 44.3% 5th 885500 1800000 49.19%

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NET` PROFIT RATIO: It establishes the relationship between net profit after taxes and sales. It indicates the efficiency, higher the ratio, the better is the profitability position.

Years 1st Net profit after tax 63050 Net Sales 90000 Ratio 0 7%

2nd 158763 108000 0 14.7%

3rd 283189 132000 0 21.4%

4th 378044 150000 0 25.2%

5th 530964 1800000 29.5%

RETURN ON INVESTMENT: It shows the relationship between net profit after interest and taxes and the net worth of the owner. Years 1st Net profit after interest 63050 & tax Net worth Ratio 106305 0 5.93% 2nd 158763 122181 3 13% 3rd 283189 150500 2 18.8% 4th 378044 188304 6 20.07% 5th 530964 2414010 22%

FINANCIAL LEVERAGE: It is calculated as: Years EBIT EBIT-Interest 1st 13700 0 97000 2nd 27625 0 24425 0 1.13 18 3rd 45967 5 43567 5 1.05 4th 59760 6 58160 6 1.03 5th 824867 816867 1.01

Financial leverage 1.4

OPERATING LEVERAGE: It is obtained by dividing contribution i.e. sales minus variable cost, by the EBIT.

Years Sales Less: variable cost Variable cost @25% Electricity Bill Rent Telephone charges Contribution EBIT Operating leverage Financial leverage Composite leverage

1st 900000

2nd 108000 0

3rd 132000 0 330000 11000 246000 13500 959500 459675 2.08 1.05 2.08

4th 150000 0 375000 11500 249000 14000 109050 0 597606 1.82 1.03 1.82

5th 1800000

225000 10000 240000 12000 6[=53000 137000 4.76 1.4 6.67

270000 10500 243000 12750 783750 276250 2.84 1.13 2.84

450000 12000 252000 14500 1311500 824867 1.59 1.01 1.59

COST OF DEBT: The cost of debt is the rate of interest payable on the debt. Kd = Interest/Principal*(1-Tax rate) Years 1st Interest 40000 Principal 50000 0 5.2% 2nd 32000 40000 0 5.2% 3rd 24000 30000 0 5.2% 4th 16000 20000 0 5.2% 5th 8000 100000 5.2%

Actual Interest on loan is 8%, but after paying tax it comes to 5.2%

BREAK EVEN POINT: It may be defined, as that point of sales volume at w3hich total revenue is equal to total cost. It is a point of no profit, no loss. 19

Sales revenue at break-even point= Fixed costs+ Variable costs. B.E.P.= Total fixed cost/ P/V Ratio P/V Ratio= Contribution/Sales * 100 Years Sales Variable cost Variable cost @ 25% Electricity bill Rent of Building Telephone charges CONTRIBUTION Fixed cost Administrative expenses Rent Electricity Bill Telephone charges Insurance Dep. On Furniture Dep. On Vehicles Total fixed cost P/V Ratio Break Even Point 1st 2nd 900000 108000 0 225000 10000 12000 653000 270000 10500 3000 12750 783750 3rd 132000 0 330000 11000 6000 13500 959500 4th 150000 0 375000 11500 9000 14000 109050 0 180000 240000 500 500 5000 10000 80000 516000 72.56 180000 240000 500 500 5000 9500 72000 503000 72.57% 180000 240000 500 500 5000 9025 64800 499825 72.69% 678077 180000 240000 500 500 5000 8574 58320 492894 72.7% 677983 180000 240000 500 500 5000 8145 52488 486633 72.86% 667901 450000 12000 12000 14500 1311500 5th 1800000

% 711136 693124

CONCLUSION:
At the end I would like to conclude that establishing a handicraft industry in bathinda will be profitable business. There are more reasons that show it is profitable business because today again handicraft products are in trend and its are demanded by a large number of peoples and people used its for decorating their home. It also provides employment to 20

labours. No doubt the project is having some weakness and there is some competition, but if the analysis has been done it shows that it is profitable business to set the a showroom of handicraft products there. .

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