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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.
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.
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.
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
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.
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
SCHEDULE OF DEPRECIATION
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
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
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.
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
• 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.
• SOLVENCY RATIO: This ratio indicates the relationship between the total
liabilities to outsiders to the total assets of the owner.
PROFITABILITY RATIOS
• 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.
• COST OF DEBT: The cost of debt is the rate of interest payable on the debt.
Kd = Interest/Principal*(1-Tax rate)