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PROJECT REPORT

ON

Handicraft Showroom
Contents:

• Introduction
• Principal Suppliers
• Market Segments
• Handicraft Industry in India
• Export Destination
• Special Efforts to This Sector
• Feasibility Study
• Financial Analysis
INTRODUCTION

Handicrafts accounts for the World’s 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 one of the largest supplier of handicrafts.

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
retailer’s 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 India’s 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 Patiala region, a survey was conducted at handicraft
shops in Patiala. For example: Dharampura Bazaar, Adalat Bazaar. 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 Patiala 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, Punjabi Jutti, Dori & Parandis
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
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 Patiala 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 , Panipat and New Delhi since there is no well-organized handicraft industry in
Punjab. So the setting up of handicraft industry itself in Punjab will fail in Patiala 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 Leela Bhawan, Patiala
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
Carpets- Their price lies between Rs. 900 to Rs. 4000
Blanket- Their price lies between Rs. 100 to Rs. 2000
Kitchen Napkin- Rs. 10
Foot Mat- Their price ranges from Rs. 80 to Rs. 350

FINDINGS OF CONSUMER SURVEY


It was found from the rural and city women of Patiala that the famous products of Patiala
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 Patiala 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 Patiala as cost of land in Patiala is
very high. So I will take showroom at monthly rent @ Rs. 20,000 at Leela
Bhawan, Patiala. The size of shop is 12”- 18”.
• 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. It’s price is about Rs. 45 per Kg. Some of the products will be produced in
the villages of Patiala city like Khes, Durries, Cushions etc. and other decorative
items, paintings, wood wares will be taken directly from Rajasthan, Panipat and
New Delhi.
• 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. It’s 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
village’s growth. Handicrafts increase the artist’s 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
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.
FINANCIAL ANALYSIS:
PROJECTED INCOME STATEMENT

1st year 2nd year 3rd year 4th year 5th year
SALES 1200000 1440000 1728000 2073600 2488320
COGS 400000 650000 750000 1000000 1250000
Gross Profit 800000 890000 978000 1073600 1238320
Operating expenses
Administrative 144000 144000 144000 144000 144000
expenses
Rent of Building 240000 243000 246000 249000 252000
Electricity Bill
-Fixed 1500 1500 1500 1500 1500
-Variable 21600 22800 24000 25200 26400
Telephone charges
-Fixed 2400 2400 2400 2400 2400
-Variable 12000 13200 14400 15600 16800
Insurance charges 5000 5000 5000 5000 5000
Transportation 50000 55000 60000 70000 80000
charges
Entertainment 36000 39000 42000 45000 48000
Charges
Operating Profits 287500 364100 438700 515900 662220
Dep. On Furniture 30000 27000 24300 21870 19683
Profits before 257500 337100 414400 494030 642537
Interest & taxes
Interest on loan 45000 36000 27000 18000 9000
Profit before Tax 212500 301100 387400 476030 633537
Tax @ 35% 74375 105385 135590 166610 221738
Profit after tax 138125 195715 215810 309420 411799

• Administrative expenses: 3 workers @ Rs. 4000 Per month


• Rent of Building: Rs. 20000 per month. After 1 year there is increase in Rent
charges i.e. Rs. 250 per month.
• Electricity bill: Fixed- Rs. 125 Per month i.e. Rs 1500 per year.
• Telephone Bill: Fixed – Rs. 200 per month i.e. Rs. 2400 per year.
• Insurance: Fixed premium amount of Rs. 5000 per year.

SCHEDULE OF DEPRECIATION

Years Opening Balance Dep. @ 10% W.D.V. basis Closing


Balance
1st 300000 30000 270000
2nd 270000 27000 243000
3rd 243000 24300 218700
4th 218700 21870 196830
5th 196830 19683 177147

SCHEDULE OF INTEREST ON LOAN

Years Loan amount Interest amount


1st 500000 45000
2nd 400000 36000
3rd 300000 27000
4th 200000 18000
5th 100000 9000

PROJECTED BALANCE SHEET

1st year 2nd year 3rd year 4th year 5th year
CURRENT ASSETS
Cash in hand and at bank 693125 665840 791950 107324 1354723
0
Inventories 100000 250000 300000 250000 300000
Total Current Assets 793125 915840 109195 132324 1654723
0 0
Fixed Assets
Furniture 270000 243000 218700 196830 177147
Total Fixed Assets 270000 243000 218700 196830 177147
TOTAL ASSETS 106312 115884 131065 152007 1831870
5 0 0 0
LIABILITIES & CAPITAL
Owner’s Capital 500000 500000 500000 500000 500000
Reserves & Surplus 138125 333840 585650 895070 1306870
9% Secured Loan 400000 300000 200000 100000 NIL
Creditors 25000 25000 25000 25000 25000
Total 106312 115884 131065 152007 1831870
5 0 0 0

• Repayment of Loan is Rs. 100000 at the end of each year.

PRESENT VALUE OF CASH INFLOWS

Years Cash inflows P.V.@ 10% Present Value Cumulative


Value
1st 168125 .909 152826 152826
2nd 222715 .826 183963 336789
3rd 240110 .751 180323 517112
4th 331290 .683 226271 743383
5th 431482 .621 267950 1011333

Present value of Cash inflows = Rs. 1011333

PRESENT VALUE OF CASH OUTFLOWS

Years Cash outflows P.V. @ 10% Present Value


Initial 500000 1 500000
1st 100000 .909 90900
2nd 100000 .826 82600
3rd 100000 .751 75100
4th 100000 .683 68300
5th 100000 .621 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. 1011333-Rs. 879000= Rs.132333
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 4th year is Rs743383
and it is Rs.1011333 at the end of 5th year. Hence discounted pay back period falls
between 4 and 5 years. To be exact,
Discounted pay back period =4 years & 135617 / 267950
=4 years and 6 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 @12%D.F. P.V. PV @15%D.F. P.V.


1st 168125 .892 14996 .869 146101
7
nd
2 222715 .797 17750 .756 168373
4
3rd 240110 .712 17095 .653 156792
8
4th 331290 .635 21036 .567 187841
9
th
5 431482 .567 24483 .494 213152
7
95363 872259
5

The present value of net cash inflows at 12% rate of discount is Rs. 872259 and at 15%
rate of discount, it is Rs. 953635 and present value of cash outflows is Rs. 879000. It
means IRR falls between these two discount rates.
= 12% + 74635/(953635-872259) * 3
= 12% + 74635/ 81376 * 3
= 14.75%
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 1st 2nd 3rd 4th 5th


Current Assets 79312 91584 109195 132324 1654723
5 0 0 0
Current liabilities 25000 25000 25000 25000 25000
Current Ratio 31.7 36.6 43.6 52.9 66.18

• 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 1st 2nd 3rd 4th 5th


Liquid assets 69312 66584 79195 107324 1354723
5 0 0 0
Current liabilities 25000 25000 25000 25000 25000
Liquid Ratio 27.7 26.6 31.6 42.9 54.18

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 2nd 3rd 4th 5th


Outsider’s funds 40000 30000 200000 100000 NIL
0 0
Insider’s funds 63812 83384 108565 139507 1806870
5 0 0 0
Ratio 0.63 0.36 0.18 0.07 -

• SOLVENCY RATIO: This ratio indicates the relationship between the total
liabilities to outsiders to the total assets of the owner.

Years 1st 2nd 3rd 4th 5th


Total liabilities to 425000 325000 225000 125000 25000
outsiders
Total Assets 106312 115884 131065 152007 1831870
5 0 0 0
Ratio 0.39 0.28 0.17 0.08 0.014

• FIXED ASSETS TO PROPREITOR’S FUNDS: This ratio shows the


relationship between fixed assets and proprietor’s funds.

Years 1st 2nd 3rd 4th 5th


Fixed assets after 27000 24300 218700 196830 177147
depreciation 0 0
Proprietor’s funds 63812 83384 108565 139507 1806870
5 0 0 0
Ratio 0.42 0.29 0.20 0.14 0.098

• RATIO OF CURRENT ASSETS TO PROPRIETOR’S FUNDS: This ratio


shows the extent to which proprietors’ funds are invested in current assets.
Years 1st 2nd 3rd 4th 5th
Current Assets 79312 91584 109195 132324 1654723
5 0 0 0
Proprietors’ 63812 83384 108565 139507 1806870
funds 5 0 0 0
Ratio 1.24 1.09 1.01 0.95 0.92

• 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 2nd 3rd 4th 5th


Net profit before interest & 25750 33710 41440 49403 642537
taxes 0 0 0 0
Fixed interest charges 45000 36000 27000 18000 9000
Ratio 5.72 9.36 15.35 27.45 71.39

PROFITABILITY RATIOS

• OPERATING PROFIT RATIO: It establishes the relationship between


operating profits and sales.

Years 1st 2nd 3rd 4th 5th


Operating profits 287500 364110 438700 515900 662220
0
Net sales 120000 144000 172800 207360 2488320
0 0 0 0
Ratio 23.95% 25.28% 25.39% 25.87% 26.61%

• 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 2nd 3rd 4th 5th


Net profit after tax 138125 195715 215810 309420 411799
Net Sales 120000 144000 172800 207360 2488320
0 0 0 0
Ratio 11.5% 13.6% 12.5% 14.9% 16.55%
• RETURN ON INVESTMENT: It shows the relationship between net profit after
interest and taxes and the net worth of the owner.

Years 1st 2nd 3rd 4th 5th


Net profit after interest & 13812 19571 215810 309420 411799
tax 5 5
Net worth 63812 83384 108565 139507 1806870
5 0 0 0
Ratio 21.6% 23.4% 19.87% 22.18% 22.8%

• FINANCIAL LEVERAGE: It is calculated as:

Years 1st 2nd 3rd 4th 5th


EBIT 25750 33710 41440 49403 642537
0 0 0 0
EBIT-Interest 21250 30110 38740 47603 633537
0 0 0 0
Financial leverage 1.2 1.12 1.07 1.03 1.01

• COST OF DEBT: The cost of debt is the rate of interest payable on the debt.
Kd = Interest/Principal*(1-Tax rate)

Years 1st 2nd 3rd 4th 5th


Interest 45000 36000 27000 18000 9000
Principal 50000 40000 30000 20000 100000
0 0 0 0
5.85% 5.85% 5.85% 5.85% 5.85%
Actual Interest on loan is 9%, but after paying tax it comes to 5.85%

OPERATING LEVERAGE: It is obtained by dividing contribution i.e. sales minus


variable cost, by the EBIT.

Years 1st 2nd 3rd 4th 5th


Sales 120000 144000 172800 207360 2488320
0 0 0 0
Less: variable cost
COGS 400000 550000 750000 100000 1250000
0
Electricity Bill 21600 22800 24000 25200 26400
Telephone charges 12000 13200 14400 15600 16800
Transportation charges 50000 55000 60000 70000 80000
Entertainment expenses 36000 39000 42000 45000 48000
Contribution 680400 760000 837600 917800 1067120
EBIT 257500 337100 414400 494030 642537
Operating leverage 2.64 2.25 2.02 1.85 1.66
Financial leverage 1.2 1.12 1.07 1.03 1.01
Composite leverage 3.16 25.52 2.16 1.91 1.67
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.
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 1st 2nd 3rd 4th 5th


Sales 120000 144000 172800 207360 2488320
0 0 0 0
Variable Cost
COGS 400000 550000 750000 100000 1250000
0
Electricity Bill 21600 22800 24000 25200 26400
Telephone charges 12000 13200 14400 15600 16800
Transportation charges 50000 55000 60000 70000 80000
Entertainment expenses 36000 39000 42000 45000 48000
Contribution 680400 760000 837600 917800 1067120
Fixed Cost
Administrative expenses 144000 144000 144000 144000 144000
Rent 240000 243000 246000 249000 252000
Electricity Bill 1500 1500 1500 1500 1500
Telephone charges 2400 2400 2400 2400 2400
Insurance 5000 5000 5000 5000 5000
Dep. On Furniture 30000 27000 24300 21870 19683
Interest on Loan 45000 36000 27000 18000 9000
Total fixed cost 467900 458900 450200 441770 433583

P/V RATIO = Total Contribution/ Total Sales *100


= 4262920/8929920*100
=47.74%
TOTAL FIXED COST = Rs. 2252353
BREAK EVEN POINT= Rs. 2252353/47.74%
= Rs. 4717958

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