PROJECT APPRAISAL REPORT ON WAREHOUSE BY AB LTD

NAME AMIT BAHUGUNA ROLL NO 55 MBA (PT) 2011-14

TABLE OF CONTENTS
EXECUTIVE SUMMARY. .. 2 CHAPTER I CHAPTER II CHAPTER III OVERVIEW OF THE INDUSTRY & COMPANY.... ............... 3 STATEMENT OF PROBLEM ....... ........ 8 COMPUTATION OF CASH OUTFLOW AND INFLOW ......... 13 TABLE 1 ......................................................................................... 14 TABLE 2 ......................................................................................... 15 TABLE 3 ......................................................................................... 16 TABLE 4 ......................................................................................... 17 TABLE 5 ......................................................................................... 18 TABLE A ........................................................................................19 TABLE B ........................................................................................20 TABLE C ........................................................................................21 TABLE D ........................................................................................22 TABLE E ........................................................................................23 TABLE F........................................................................................ 24 TABLE IIA ..................................................................................... 25 TABLE IIB .....................................................................................26 TABLE 6 ......................................................................................... 28 CHAPTER IV CHAPTER V CHAPTER VI BASIS OF COMPUTATION .... .......... 29 INVESTMENT APPRAISAL................................. ......... 32 CONCLUSION .................................................................................. 38

REFERENCES. ......... 41

EXECUTIVE SUMMARY
With a wide gap of availability and demand of warehousing space in the logistics sector, the leading financial industrial experts are predicting tremendous opportunities for investment in several initiatives and projects which are underway to boost development of state-of-theart warehouses to cater the demand of producers, exporters and importers. Various studies conducted by leading consultants in the subject have identified the locations where warehousing activities are going to flourish. Few among them are in and around Bangalore, Chennai, Rewari, Mumbai, Nasik and along the major rail-road routes passing through the length and breadth of the country. The golden quadrilateral road network, Dedicated Freight Corridor from east to west which has been planned to be developed by the Indian Railways is considered to be good for establishing such infrastructure. Already all major players like Concor, Adanis, CWC, Shubham logistics etc. have advanced their plans to put up big warehousing capacities at these locations. Chander, a satellite town of Jaipur is quite close to the Western Freight Corridor and is found to be an ideal location for setting up of a warehouse. A big chunk of land measuring 80000 sq.m is purchased wherein the capacities can be built up in one or more phases. Initially 10000 sq.m covered area warehouse with state-of-art infrastructure facilities is planned. In this project we have worked out the most economical Cash outflow i.e. investment of the project with an optimum time frame of 12 months. The fixed cost and variable cost have been worked out separately. On the basis of past financial experiences of the company, the occupancy level, tariff, expenditure and income have been estimated. Future projections with regard to income and expenditure have been considered keeping in mind the inflation and future demand so that the study matches the actual. The cost of the project and income generation has been tested with various financial tools to evaluate a perfect and sound venture. The various parameters that have been used are - Payback period, Accounting rate of return (ARR), Net Present Value (NPV) and Internal rate of return (IRR). Using these investment appraisal techniques the financial feasibility of the project has been found out.

CHAPTER I OVERVIEW OF THE INDUSTRY AND THE COMPANY

Indian logistics market
The overall logistics market in India currently stands at about $ 50 billion and is growing at a rate of 7 per cent annually on the back of the country's economic boom. The main drivers that will fuel the growth in the logistics market include the upcoming freight corridor project, building of logistics hubs and warehouses, port development, technology up gradation, investment by private players and also the impending industry status for the logistics sector.

The enormous business potential of India's domestic market, with a growing middle-class, will also drive the uptrend in logistics demand.

Talking on the future of the logistics market, the logistics market in India is poised for a fast growth in the next ten years but the domestic logistics services providers need to embrace the latest technology to keep pace with their overseas counterparts. IT will play a significant role in the growth of logistics sector and facilitate consolidation.

Most of the domestic players in the logistics sector are reluctant to adopt the latest technology available in the country. With the conferring of the industry status on the logistics sector, the logistics cost would come down to 11 per cent of the country's GDP. The cost reduction would help the sector to enhance its competitiveness in global trade. Although the sector is growing in value as well as in volume terms leading to sustainable opportunities in the logistics space, India's logistics cost is among the highest in the world at almost 13 per cent of its GDP. Logistics costs in India are estimated at over Rs 4.5 trillion, growing at a compounded annual growth rate (CAGR) of 8-12 percent. The high logistics costsis attributed to the highly fragmented Indian logistics market with small local players dominating the supply chain landscape. The industry status for the logistics sector would lead to consolidation and also bring in large, organized global players to the domestic market.

At present only 15 percent of the domestic logistics providers are in the organised sector. Once the sector is accorded the industry status, the domestic market will witness more
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organised players, especially the global players, thereby enhancing competition and cutting logistics costs. The industry status for logistics sector would enable the existing organised players in the logistics business to cater to a wider client base and become cost effective .

Apart from the availability of land and the requisite infrastructure, industry status for the logistics sector also means that the logistics services providers can avail greater loans as the borrowing rates will come down.

Small firms are often caught in a bind because they lack bargaining power to negotiate costs, which in turn puts a squeeze on profits thereby restricting their ability to invest in capacitybuilding. Bigger logistics companies on the other hand have more resources to upgrade network capabilities, systems and invest in people, thereby offering more cost-effective and efficient services.

General assessment of demand

Industries such as FMCG, pharma and food processing apart from agriculture sector have considerable requirements for integrated warehouses owing to their higher need for warehousing activity. These industries are the leading contributors in the 25.7 per cent share accounted by warehousing segment within the total Indian logistics market.

Meanwhile, both manufacturers and logistics companies are hampered by the problem of poor infrastructure connectivity in rural areas. The hardest hit by the inadequate transport connectivity are likely to be the FMCG, food processing, pharma and consumer durables industries, which have a huge potential consumer base in these areas. The FMCG and food processing industry are also affected on the sourcing side, since they are highly dependent on the raw materials sourced from rural areas. Apart from development of dedicated railway freight corridors, focused development of inland waterways and the strengthening of road networks through the national highway development program are expected to improve the market reach of most industries. Owing to these efforts, professional logistics services can be extended up to rural areas, leading to a higher scale of logistics activities outsourcing.
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As India's retail sector opens up on a huge scale, domestic logistics companies are planning significant investments to expand their portfolio of services. It is expected that in the next two years, the logistics sector will have undergone major changes, offering a wide spectrum of services. Consider this: Global retail giant Wal-Mart announces its entry into India through a joint venture with Bharti. Reliance puts on its drawing board a mega plan of Rs 25,000-crore to create 100 million sq ft of retail space. The Aditya Birla group makes a retail foray with plans to invest Rs 15,000 crore. The Tatas plan to participate in the retail race with renewed vigour. Pantaloon plans to create a retail space of 30 million sq ft by 2009-10. Shoppers Stop may have 6 million sq ft of retail space by the same time. Global retailers from the US, European Union and Australia are all eyeing the retail revolution in India.

On the growth path

Indian players in the logistics space are keenly tracking these developments, as they suddenly find their services in big demand. Although some retailers, like Reliance, may have their own logistics subsidiaries, most of the others are working with third-party providers. The Indian logistics sector is at the beginning of a strong growth path. Not only retail, there are other growth drivers like the manufacturing, FMCG and auto components sectors. Players in the segment are, indeed, ramping up their capital expenditure programme. Edelweiss estimates that the six major players in this sector Concor, Gateway Distriparks Ltd (GDL), Allcargo, SICAL, Transport Corporation of India and Gati will spend Rs 3,400 crore over the next three years to cash in on the growth opportunities. These companies together invested about Rs 500 crore in the last fiscal. The companies plan to expand their service portfolios. For example, Concor and SICAL's future growth area is cold chain logistics, GDL and SICAL's is container train operations, while TCI and Gati's is warehousing. Other trucking and courier companies are leveraging on their networks to offer express and supply chain distribution solutions, apart from developing expertise in 3PL (third-party logistics) services.

Absorbing investments
The different sectors within the logistics segment are also poised to absorb significant investments. Edelweiss estimates that the container train sector (thrown open to private sector recently) will see a capital expenditure of Rs 1,600 crore in the next three years, while warehousing will get Rs 200 crore, trucking/XPS Rs 380 crore and offshore logistics Rs 250 crore. Worldwide, the logistics industry is on a growth path, with the global logistics industry estimated to be of the size of $3.5 trillion in 2005 the US market alone was estimated at $900 billion, almost 25 per cent of the global industry. In fact, about 60 per cent of the Fortune 500 companies report having at least one contract with a 3PL company. "India at present spends 13 per cent of its GDP on logistics, which is much higher than the global average. This is due to inadequate infrastructure leading to periodic bottlenecks along the routes. Another major reason is the regulatory loopholes, which raise the cost of service and cause delays.

The biggest challenge

The logistics companies at present provide services from transportation to warehousing and inventory management. But, in the near future, they will have to expand their products basket to include new value-added services, such as packaging, labelling and reverse logistics. The biggest challenge that faces these companies is that they should quickly imbibe latest technologies, such as GPC/GIS tracking of consignments, and uncork new services to cater to corporates seeking to outsource their logistics needs. Also, the Government should come out with a sound policy that facilitates the operations of the logistics companies. India's rising prominence in the manufacturing sector over the last few years has given a fresh lease of life to the logistics market, and this trend is likely to gain pace with the wave of global economic slowdown gradually receding and India emerging as one of the earliest major economies to recover from downturn. This fast-paced growth of the industrial sector, coupled with the more sturdy progress of the agricultural sector, has necessitated extensive supply chains across the country to facilitate sourcing and distribution of production. Distribution networks of most industries in India involve numerous retailers across the country, and multiple levels of intermediaries. Since companies will be hard pressed to serve such an intricate network, logistics service providers (LSPs) will fancy their chances of finding a firm foothold in the Indian market. Apart from the steady expansion of operations
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by large domestic industrial groups, an increasing number of global majors in industries ranging from automotive and electronics to pharmaceuticals and cement have been targeting a spot in the highly lucrative Indian market, says the analyst of this research. While foreign companies need to engage logistics service providers since they are not conversant with the culture, government policies, or distribution landscape of the country, domestic companies are outsourcing their logistic activities to organized third-party logistics (3PLs) to focus on their core competencies.

Most manufacturing industries such as automotive, cement, minerals, oil & gas, pharma, food processing, and fast moving consumer goods (FMCG) need multimodal transportation services as they have a widespread consumer base but limited production bases. Industries such as FMCG, pharma, and food processing also have considerable requirements for integrated logistics parks. Multimodal transportation solutions are becoming possible with the development of inter-connected transportation infrastructure facilities, especially dedicated freight corridors by the railways and improvements in coastal shipping facilities. Similarly, the construction of massive state-of-the-art warehouses at key distribution hubs is helping to meet the specialized warehousing needs of industries. These developments are encouraging companies to outsource logistics functions. With a growth over 20 percent per annum over the last 5 years, organised retailing is projected to reach US$ 30 Billion by 2014.

Company profile
The AB Ltd. is established with the main objective to provide scientific warehouse facilities for the agricultural produce, in course of 60 years of its existence its mission has undergone a change. Its mission is not only to provide warehousing facilities but also logistics service and related activities with value added services to a multi clientele. It is emerging as a leading market facilitator by providing integrated warehousing infrastructure and other logistic services.

CHAPTER II STATEMENT OF PROBLEM

With almost touching double digit GDP growth in the last decade, India is venturing into becoming a major economy which is comparable with US, China, Germany and other developed countries. One of the key sectors which is playing a significant role in driving the growth rate is logistics, which includes transportation, warehousing, inventory control and distribution. Big industrialists of the country are planning to enter this sector in a big way in the shape of SEZs (Special Economic Zones), FTWZ (Free Trade Warehousing Zones), MMLPs (Multi Modal Logistics Park), logistics parks etc. Already Reliance, Adanis, Tata realty, CONCOR (Container Corporation of India), CWC have big plans. Warehousing is one of the important parts of logistics Government of India has decided to set up freight corridors from Dadri to Mumbai (Western Freight Corridor) and Ludhiana to Calcutta (Eastern Freight Corridor). 50% of the Western Freight Corridor will be passing through the state of Rajasthan. Along the corridor big warehousing hubs are planned to facilitate speedy movement of cargo.

Chander, a satellite town of Jaipur (situated 35 kms away) is near to the proposed corridor. MNCs like Cargill, Walmart in association with Bharti and Indian retail giants like Reliance, Big Bazar have strategic plans to set up distribution centres (DCs) and logistics parks on the National Highway connecting Jaipur- SikarBikaner. They have acquired large chunks of land alongside the National Highway touching Chander and beyond.

Besides agricultural produce there is demand for storage of agricultural inputs like fertilizer and industrial goods. The changing face of Chander, the satellite town of
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Jaipur has become an attractive location for logistics companies, especially 3PL (3

rd

Party Logistics) providers to develop logistics parks and modern scientific warehouses. There appears to be huge demand for new generation warehouses to be named as Distribution Centres (DCs) with multi level racking system for storage of export- import goods, retail goods of FMCG (Fast Moving Consumer Goods) with a full proof Computerised inventory control system to locate the cargo like WMS (Warehouse Management Systems) and AS&RS (Automatic Storage and Retrieval System). Chander is emerging as a tier II city with the arrival of medium and large scale industries, agriculture revolution and land area connecting to the industrial hubs of Delhi, Punjab, Haryana to the Gateway ports, there appears to be tremendous potential for industrial warehousing to cater the growing demand of the area. Major industrial players like automobile industries, electronic industries, consumer goods industries are in the process of establishing their mother warehouses in and around Jaipur to boost up their growth plans. Big retail giants like Reliance, Walmart in association with Bharti, Future Group, L.G, Samsung etc. are planning to expand their distribution in and around Jaipur for which they require storage space and since constructing their own warehouse would cost very high therefore these retails giants outsource warehousing facilities. The lifestyle of cities like Jaipur, Udaipur, Jodhpur and Kota are changing and socioeconomic development is also taking place. Consumer preferences are also changing and more and more people are switching over to big brands thereby increasing the demand for retail and FMCG goods. Also warehousing with multi racking facilities are hardly available around Jaipur. 3PL and 4PL players are also looking for such facilities in and around Jaipur. Other players like L.G., Samsung, Haier are looking for distribution centres with racking system on Jaipur- Sikar- Bikaner National Highway. HUL is also expanding its market operations beyond Jaipur city. They are looking for space with total logistic support.
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Nearly 55 percent of Delhi Mumbai Industrial Corridor is passing through the state of Rajasthan and opportunities for industrial and infrastructure development are plenty. Already many private entrepreneurs have envisaged plans to develop logistics hubs alongside the Delhi Mumbai Industrial Corridor and are investing billion of rupees on developing infrastructure and logistics hubs.

It is high time for AB Ltd. to encash upon the market opportunities and develop distribution logistics hubs to provide integrated, sophisticated set of transportation, warehousing and distribution facilities that provide access to the market place.

Warehouse infrastructure availability is still not upto the mark in India especially in the state of Rajasthan. The country lacks quality warehouses which can be compared to old class in their area, facilities etc. Availability of modern warehouses with A class infrastructure and racking system is scarce. There is strong need to develop good Distribution Centres of huge capacity which can be operated as a multi client shared facility to optimize warehousing cost.

There is clear need to utilise critical storage space to improve the space management. Multi level racking system, alongwith automatic material handling equipment and WMS (Warehouse Management System) can help to improve the space utilisation. There is a need to develop New Generation Warehouses i.e. the state of art warehouses with racking facilities, A class infrastructure, transportation facility and integrated services. In other words total logistics support backed up with IT support to meet the requirements of multi clients especially dealing in electronic goods, FMCG, etc.

AB Ltd. has 80000 sq.m of land at Chander. It is situated on NH- 11 and is well connected with rail and road. Already logistics companies / MNCs have developed their own logistics hubs on this National Highway. Since valuable land is already available at the vantage point, it is high time for the company to avail the market opportunities and develop a New Generation Warehouse with IT support to provide integrated services for multi clients.

Project details
A detailed report has been prepared to find out the cost of construction of an Industrial Warehouse at Chander. The cost includes the cost of construction of buildings, internal roads, electrification and steel racks. Cost of equipment and revenue expenditure for each year has been calculated. After findingout the cost of the project estimated income has also been calculated. To find out the
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financial feasibility of the project capital budgeting tools such as pay-back period, discounted cash flow, NPV, IRR and modified IRR have been calculated.

The total estimated investment in the project - 1765 lakhs (approx.) The revenue expenditure - Rs. 19,10,834 which increases at 12 percent per annum. The estimated income - Rs. 2,67,81,600 which increases at 10 percent per annum. The project is planned to be financed from internal sources of the company.

Objective of the study

The study is aimed to evaluate all the parameters involved in establishment of an industrial warehouse and it has been carried out in stepwise fashion with one goal of designing a financial model which gives maximum revenue generation to the company. Unlike in manufacturing sector where various parameters are more or less defined to work out a profitable venture, here for setting up of a warehouse we have to depend upon simple,, traditional profit-loss concepts.

The following parameters have been analysed:

1. Determination of warehousing peak and lean demand Methodology adopted: The data collected from multinational companies about their future requirements, other prospective users who may use this facility at later stage, the economic and general development of area. 2. Determination of peak and lean storage tariff Methodology adopted: This has been worked out on the basis of data collected for the available warehousing facilities in and around Chander, the prevailing storage tariff charged by various operators and the present and future gap in the demand and supply of availability of space.

3. Determination of the cost of the project a. Fixed expenditure or capital expenditure Land and construction cost

Proportionate cost of land will be added to the project and cost will be calculated on
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the parameters of CPWD (Central Public Works Department), a premier construction company and the prevailing costing methods. For e.g. Plinth area rates for buildings, roads and ancillary buildings. Equipment External electrification Steel racks

b. Revenue expenditure Establishment cost Yearly taxes Insurance

4. To find out the financial feasibility of the project using investment appraisal methods such as : a. Pay- back period b. Accounting Rate of Return (ARR) c. Net Present Value (NPV) d. Internal Rate of Return (IRR)

Most of the public sector organisations adopt NPV/IRR method to assess the viability of the project. The same method is also applied in the instant case.

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CHAPTER III COMPUTATION OF CASH OUTFLOW AND INFLOW

DETAILS OF GODOWNS
SIZE AND CAPACITY PLINTH AREA OF EACH GODOWN CARPET AREA OF EACH GODOWN HEIGHT OF EACH GODOWN TOTAL AREA OF BOTH GODOWNS -- 125.00 m * 40.00 m = 5000 sq.m -- 124.40 m * 39.20 m = 4876.48 sq.m -- 7.00 m (Storage height) 12.00 m (Ridge height) -- 10000 sq.m

COVERED PLATFORM AREA OF EACH GODOWN FRONT SIDE -- 125 *2 = 250 sq.m REAR SIDE -- 125 *2 = 250 sq.m TOTAL COVERED PLATFORM AREA OF EACH GODOWN -- 500 sq.m TOTAL OPEN SPACE
-- 20040 sq.m

ROAD CONNECTIVITY FRONT MAIN ROAD REAR SIDE ROAD TIME OF COMPLETION DATE OF COMMENCEMENT PERIOD OF COMPLETION DATE OF COMPLETION CONSTRUCTION AGENCY PROJECT COST TOTAL PROJECT COST (as calculated in the following pages)
-- Rs. 17,64,62,110

-- 30.00 m WIDE -- 15.00 m WIDE

-- 07.07.10 -- 12 MONTHS -- 06.07.11

-- Central Warehousing Corporation (PSU)

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Table 1 ESTIMATED COST OF CONSTRUCTION OF WAREHOUSES 10000 sq.m WITH NECESSARY ANCILLARIES AT CHANDER (RAJASTHAN)

1. Cost of land (Proportionate) 2. Cost of development of land i.e., leveling, drain, etc 3. Cost of providing compound wall and gate (Table - A) 4. Cost of construction of warehouse of PEB type for 10000 sq.m capacity as per details as per Table B 5. Cost of construction of ancillary buildings (as per details) a) Office cum store block as per Table C b) Lavatory block as per Table D c) Guard room as per Table E 6. Cost of providing internal roads as per details as per Table- F 7. Cost of providing water supply arrangements (lump sum) 8. Cost of providing external services and connections etc. (lump sum) 9. Rain water harvesting (lump sum) Add 10% Departmental Charges 10. Fire fighting arrangements

Rs. Rs. Rs.

6,56,250.00 25,00,000.00 56,47,080.00

Rs. 6,62,41,875.00

Rs. 24,16,247.00 Rs. 2,10,587.00 Rs. 1,54,036.00 Rs. 3,09,61,800.00 Rs. Rs. 5,00,000.00 5,00,000.00

Rs. 15,00,000.00 Rs. 11,12,87,875.00 Rs. 1,11,28,787.00 Rs. 50,00,000.00 Total Rs. 12,74,16,662.00

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Table 2 COST OF EXTERNAL ELECTRIFICATION AT CHANDER (RAJASTHAN)

1. S/L Pole 25 @ Rs. 4500 Rs. 1,12,500.00

2. S/L Bulbs 250 W 3. W.P Box 4. T.C of S/L 5. Cable 2 x 2.5 6. Laying cable 7. Panel board with 200 ATPN bus back 63 ATPN 32 ATPN2-30A 5P MCB 8. G.I wire 9. Earthing 10. Electrical connection for electric dept. (Lump sum) 11. High Mast (market rate)

25 @ Rs. 5200 25 @ Rs. 500 25 @ Rs. 300 680 m @ Rs. 95 680 m @ Rs. 35 1 JOB @ Rs. 18500

Rs. Rs. Rs. Rs. Rs. Rs.

1,30,000.00 12,500.00 7,500.00 64,600.00 23,800.00 18,500.00

700 m @ Rs. 5 per m 2 x Rs 1078 each

Rs. Rs. Rs.

3,500.00 2156.00 1,00,000.00

2 x Rs. 650000 each

Rs. Rs.

13,00,000.00 17,75,056.00 50,251.68

Add : 3% contingencies on Rs. 16,75,056

Rs.

Rs. Add : 10% dept. charges Total Approx. Rs. Rs. Rs.

18,25,307.68 1,82,530.77 20,07,838.45

20,07,838.00

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Table 3 COST OF CONSTRUCTION OF STEEL RACKS FOR STORAGE PURPOSE AT CHANDER (RAJASTHAN)
Horizontal member 3 x 28.25 x 4 15 x 3 x 9.30 = 339.00 m = 418.50 m

15 x 2 (1.76+1.76) = 105.60 m Cross members Total weight Side stags Base @13 cm c/c (A) 4 x 14 x 5.00 = 280.00 m 1143.10 m

35 x 2 x 1143.10 x 5.80 = 464098.60 kg 2 x 15 x 4 x 4.83 = 579.60 m

3 x 2 x 217 x 1.76 = 2291.52 m 2871.12 m

Total weight

(B)

35 x 2 x 2871.12 x 3.50 = 703424.40 kg

Total weight (A+B) (as per market rate analysis) Add: 3% contingencies

11,67,523.00 @ 31.25 per kg.

Rs.

3,64,85,093.75

Rs. Rs.

10,94,552.81 3,75,79,646.56 37,57,964.66 4,13,37,610.00 (approx)

Add : 10% Dept. charges

Rs. Rs.

Angle Iron Main frame 65 X 65 X 6 mm

Base & side stags 40 X 40 X 6 mm

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Table 4 COST OF EQUIPMENT

1. Diesel generator set 125 KV 2. 80 Tonne capacity pit less computerised weigh bridge 3. Fork lift 2 Tonne capacity ( 2 no.) @ 5 lakh each 4. Platform scales and hand driven trolleys (lump sum) 5. Tubewell with water supply pipeline and underground tank (lump sum) Rs. Rs. Rs. Rs. Rs. 15,00,000.00 25,00,000.00 10,00,000.00 2,00,000.00 5,00,000.00

Total Rs.

57,00,000.00

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Table - 5 CALCULATION OF REVENUE EXPENDITURE

1. Establishment cost One superintendent One JTA/TA 2. Fringe benefits 3. 4 security guards @ Rs. 5000 each 4. RO/CO expenditure 5. Misc. Expenditure Rs. Rs. Rs. Rs. Rs. Rs. 40,000.00 35,000.00 25,000.00 20,000.00 8,000.00 10,000.00

Rs. 1,38,000.00 x 12 = Rs. 16,56,000.00 6. Insurance Re 1 per 1000 cost of building 7. Insurance Re 1 per 1000 cost of stock Rs. Rs. Total Rs. 1,27,417.00 1,27,417.00 19,10,834.00

(It has been assumed that the cost of the goods stored will be equal to the cost of the building)

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Table A COST OF PROVIDING COMPOUND WALL AND GATE AT CHANDER (RAJASTHAN)

1. Compound wall with stone masonry Total length North 72m East 346m South 61m West 291m 770 m 770m @ 3000.00 2. Steel Gate (8-AR-97) 10.5m @ 774.00 Rs. Rs. Rs. Add : Cost Index (Table IIA) @ 136.51% Add : Contingencies @ 3.00% Rs. Rs. Rs. Rs. Approx. 23,10,000.00 8,127.00 23,18,127.00 31,64,475.17 54,82,602.17 1,64,478.08 56,47,080.25 56,47,080.00

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Table B COST OF WAREHOUSES 10000 SQ.M OF HEIGHT 7.00 M AT CHANDER (RAJASTHAN)

1. Total area of godown

10000 sq.m

2. Rate of warehouse having 7 m height with open covered verandah @ Rs. 6125 per sq.m

3. Cost 10000 x 6125 4. Add : 5% for internal electrification

Rs. 6,12,50,000 Rs. 30,62,500 Rs. 6,43,12,500 Rs. 19,29,375 Rs. 6,62,41,875

5. Add : 3% contingencies

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Table C COST OF CONSTRUCTION OF OFFICE CUM STORE BLOCK AT CHANDER (RAJASTHAN) Rates are based on plinth area rates as per 1/92 CPWD

1. Main building portion300 sq.m x 2585.00 2. Add extra due to strip foundation 3. Add extra due to deeper foundation Add : 12.50% for internal electrification items on (a) Add: 4%for internal water supply of sanitary installation on item no. (a)

Rs.

7,78,500.00 -

Rs. Rs.

97,312.50 31,140.00

Add: 5% for external services on item no. (a) such as sever lines, Rs. safety tanks etc. Rs. Add : Cost Index (Table IIB) @ 148.01% Rs. Rs. Add : Contingencies @ 3.00% Rs. Rs.

38,925.00 9,45,877.50 13,99,993.28 23,45,870.78 70,376.12 24,16,246.90

Approx. 24,16,247.00

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Table D COST OF CONSTRUCTION OF LAVATORY BLOCK (one unit) AT CHANDER (RAJASTHAN) Rates are based on plinth area rates as per 1/92 CPWD

1. Main building 30.00 sq.m @ 2010.00 2. Add : Lump sum for internal water supply installation 3. Add : 12.5% for internal electrification on item (a) Add : Cost Index (Table IIB) @ 148.01% Add : Contingencies @ 3.00%

Rs. 60,300.00 Rs. 14,600.00 Rs. 7,537.50 Rs. 82,437.50 Rs. 1,22,015.75 Rs. 2,04,453.25 Rs. 6,133.60 Rs. 2,10,586.85 Approx. 2,10,587.00

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Table E COST OF CONSTRUCTION OF GUARD ROOM (one unit) AT CHANDER (RAJASTHAN) Rates are based on plinth area rates as per 1/92 CPWD

1. Guard room + time office 30.00 sq.m @ 2010 2. Add : Cost Index (Table IIB) @ 148.01% Add : Contingencies @ 3.00%

Rs. 60,300.00 Rs. 89,250.03 Rs. 1,49,550.03 Rs. 4,486.50 Rs. 1,54,036.53 Approx. 1,54,036.00

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Table F COST OF CONSTRUCTION OF INTERNAL ROADS AT CHANDER (RAJASTHAN) WITH 12 WBM BASE WITH 9 CEMENT CONCRETE 1:2:4

Total road area 3 x 126 x 30 = 11340 sq.m 1 x 140 x 15 = 2100 sq.m 2 x 60 x 15 = 1800 sq.m 1 x 40 x 20 = 800 sq.m 16040 sq.m + open area 4000 sq.m 20040 sq.m Internal roads 20040 sq.m @ 1500.00 (Market rate) Add : Contingencies @ 3%

Rs.

3,00,60,000

Rs. Rs.

9,01,800 3,09,61,800

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Table IIA COST INDEX FOR CONSTRUCTION OF COMPOUND WALL WITH STONE MASONRY AT CHANDER (RAJASTHAN) (PRELIMINARY ESTIMATES)
S.No. Description Unit Rate as per DSR including carriage (4) 256.94 404.46 426.45 399.31 245.35 1448.99 1196.25 412.50 82.50 34.50 389.00 53.00 361.29 Weightage Market rate at site for material & notified rate of wages for labour (6) 550.00 900.00 1050.00 1200.00 1000.00 3000.00 1400.00 600.00 125.00 60.00 440.00 75.00 450.00 Cost Index (5x6)/(4)

(1) 1. 2.

(2) Cement Stone aggregate a) 40 mm b) 20 mm / 10mm a) Coarse sand b) Fine sand Bricks class design 75 Shuttering material (for 1 sq.m.) a) Wall form panel (150 no.s) b) Shoulder (0.50) c) Bridge clips (1.50) d) Single clips (0.70) e) MS Tube (2.02) f) Nuts & bolts (32 no.s)

(3) Quintal Cum Cum Cum Cum 1000 Each Each Each Each R/Mtr. Each

(5) 18.50 2.00 2.50 8.25 1.25 31.00

(7) 39.60 4.45 6.16 24.79 5.09 64.18

3. 4. 5.

2.00

2.49

6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Lime Primer & paint MS angles Barbed wire weighing 9.30 kg per 100 m Mason Belder / coolie Bhisti / Mate Fitter / black smith / painter White washer T&P a) Mixer b) Vibrator

Quintal Litre Quintal Quintal Each Each Each Each Per day Per day Per day

250.00 68.50 1615.44 2595.59 120.00 93.00 99.40 120.00 99.40 250.00 250.00

0.25 0.25 6.00 1.00 6.25 13.75 4.00 1.90 0.60 0.25 0.25 100.00

560.00 130.00 4100.00 8000.00 300.00 250.00 250.00 300.00 250.00 1000.00 500.00

0.56 0.47 15.23 3.08 15.63 36.96 10.06 4.75 1.51 1.00 0.50 236.51

Net cost index : 136.51%

25

Table IIB COST INDEX FOR ANCILLARY BUILDINGS AT CHANDER (RAJASTHAN)

S.No. Description Unit Rate as per DSR including carriage (4) 1448.99 256.94 1630.44 426.45 399.31 68.5 Weightage Prevailing Market Rate Cost Index (5x6)/(4 ) (7) 21.74 31.04 52.62 17.24 9.02 5.69

(1) 1. 2. 3. 4. 5. 6.

(2) Bricks 35 class designation Cement OPC Steel Aggregate 20 mm size Sand (coarse sand) Paint a) Synthetic enamel paint 50% b) Dry distemper 50%

(3) 1000 Quintal Quintal Cum Cum Litre

(5) 10.50 14.50 19.50 7.00 3.00 3.00

(6) 3000.00 550.00 4400.00 1050.00 1200.00 130.00

7.

Ply and common wood a) 12 mm particle board 25% b) 12 mm medium density fibre board 25 % c) Steel window standard section 50%

Sq. M

224.44

5.00

900.00

20.05

8.

Pipes a) 15 mm GI pipe b) 100 mm HCI pipes c) 20 mm black conduits

Metre 33.33% 33.33% 33.33%

53.92

2.50

155.00

7.19

9.

10. 11.

12.

Lamps & fans a) Ceiling fans 48 50% b) 1.20 m fluorescent fitting with single tube 50% Electrical machinery a) Motors 7.5 HP (pump set) 1500 RPM Wires and cables a) Wire ( 70% of 1.5 sq.mm & 30 % of 4.0 sq.mm ) 75% b) Cables (30 sq.mm) 25% Labour a) Unskilled 50% b) Skilled50%

Each

366.50

3.50

990.00

9.45

Each Metre

24800.00 122.90

2.50 4.00

45000.00 150.00

4.54 4.88

Each

106.50

25.00

275.00

64.55

100.00

248.01

Net cost index : 148.01%

26

CASH INFLOW
Estimated Income calculation
1. Proposed area of 2 godowns : 10000 sq.m

2. Occupancy : 85%

3. Storage charges @ Rs. 135 per sq.m per month

4. Estimated yearly income : 85% ( 10000) x 135 x 12 = Rs. 1,37,70,000 per year

5. Income from open area storage (50% of open space @ Rs. 90 per sq. m per month) = 50% (20040) x 90 x 12 (yearly) = Rs. 1,08,21,600 per year

6. Income from truck parking (avg. 20 trucks per day @ Rs. 100 per truck per day) = 20 x 100 x 365 = Rs. 7,30,000 per year

7. Income from weigh bridge (Avg. 100 trucks per day @ Rs. 40 each) = 100 x 365 x 40 = Rs. 14,60,000 per year

8. Income from pest control and fumigation (lump sum) = Rs. 5,00,000 per year

9. Total estimated income = 1,37,70,000 + 1,08,21,600 + 7,30,000 + 14,60,000 = Rs. 2,67,81,600

27

Table - 6 CALCULATION OF CASH FLOW

Building
Equipment

127416662
5700000

1%
5%

Straight line
WDV

Tax

36%

Year

Income

Expenditure

PBDIT

Dep. Building

Dep. Equipment

PBT

Tax

PAT

Cash Flow

0
1 26781600.00 1910834.00

-176462110
24870766.00 1274166.62 285000 23311599.38 8392175.78 14919423.60 16478590.22

29995392.00

2101917.40

27893474.60

1274166.62

270750

26348557.98

9485480.87

16863077.11

18407993.73

33594839.04

2312109.14

31282729.90

1274166.62

257212.5

29751350.78

10710486.28

19040864.50

20572243.62

4
5

37626219.72
42141366.09

2543320.05
2797652.06

35082899.67
39343714.03

1274166.62
1274166.62

244351.875
232134.2813

33564381.18
37837413.13

12083177.22
13621468.73

21481203.95
24215944.40

22999722.45
25722245.31

47198330.02

3077417.27

44120912.76

1274166.62

220527.5672

42626218.57

15345438.69

27280779.88

28775474.07

52862129.63

3385158.99

49476970.63

1274166.62

209501.1888

47993302.82

17277589.02

30715713.81

32199381.62

59205585.18

3723674.89

55481910.29

1274166.62

199026.1294

54008717.54

19443138.31

34565579.23

36038771.98

66310255.40

4096042.38

62214213.02

1274166.62

189074.8229

60750971.58

21870349.77

38880621.81

40343863.25

10

74267486.05

4505646.62

69761839.43

1274166.62

179621.0818

68308051.73

24590898.62

43717153.11

45170940.81

11

83179584.38

4956211.28

78223373.10

1274166.62

170640.0277

76778566.45

27640283.92

49138282.53

50583089.17

12

93161134.50

5451832.41

87709302.09

1274166.62

162108.0263

86273027.45

31058289.88

55214737.57

56651012.21

13

104340470.64

5997015.65

98343454.99

1274166.62

154002.625

96915285.75

34889502.87

62025782.88

63453952.12

14

116861327.12

6596717.21

110264609.91

1274166.62

146302.4937

108844140.79

39183890.68

69660250.11

71080719.22

15

130884686.37

7256388.94

123628297.44

1274166.62

138987.369

122215143.45

43997451.64

78217691.81

79630845.80

28

CHAPTER IV BASIS OF COMPUTATION

The following assumptions have been made while calculating the cash inflows and outflows: 1. Land cost has been considered at the acquisition / purchase price. 2. The cost of proportionate area has been taken into consideration i.e. out of the total land area of 80000 sq.m at Chander, 35000 sq.m will be used for this project. 3. The calculation for the cost of construction for the various buildings, godowns has been taken based on Delhi Schedule of Rates (DSR) of Central Public Works Department (CPWD), a premier construction agency of the Government of India and these rates have been brought to the level of Chander by appropriating the cost with respective cost indexes. These cost indexes have been prepared incorporating the prevailing market rates for construction material and labour. A market rate certificate has been shown at the end of this chapter and is approved by the assistant engineer. 4. The cost of equipment is based on prevailing market rate. 5. 3 % contingencies and 10% departmental charges have been added to the cost of building, electrification and steel racks. 6. For the purpose of Insurance : a. Building Insurance: Re 1 per 1000 cost of building. b. Goods stored: Re 1 per 1000 cost of the goods. It has been assumed that the cost of the goods stored is equivalent to the cost of the building. 7. The storage cost is Rs. 135 per sq.m per month and it has been assumed that on an average 85% of the storage space will be occupied. This assumption is based on the data of already existing warehouses.

29

8. The rate of depreciation is as follows: a. Building: Depreciation is charged at 1% per annum on straight line basis. b. Equipment: Depreciation is charged at 5 % per annum on written down basis. 9. The tax rate applicable is 36 % including surcharge. 10. The time period for this project has been taken as 15 years so that the project of such magnitude is viable even in case of slowdown of the economy and various other factors. 11. It has been assumed that the income increases by 12% per annum and the expenditure increases by 10% per annum. This is due to inflation and GDP growth. The salary and wages increase by 4-5% as there is general increase in dearness. The inflation rate is approximately 8 % on yearly average basis. Thus we have taken an increase of 10 % in expenditure and to cover this increase in expenditure the tariff rates are revised in such a manner that the income increases by 12% per annum. 12. The rate of return is 10 % as per the trend in warehousing business. 13. The reinvestment rate is 9% since the company is expected to reinvest its cash flows at a higher rate of return because of recovery in markets and high inflation. The government is expected to tighten interest rates. The market rate certificate for material, labour and machine hiring is shown on the next page.

30

Rates of material and labour at Chander (Rajasthan)

MATERIAL
1. Sand 2. 20 mm stone aggregate 3. 10 mm stone aggregate 4. RR stones 5. Bricks class density 75 6. Bricks class density 35 7. Laterite stone 8. Stone aggregate 40 mm size 9. Stone aggregate for road work 10. Cement 11. Bitumen 12. Reinforcement steel 13. Structural steel 14. Good earth Rs. 1200 per cum Rs. 1050 per cum Rs. 800 per cum Rs. 750 per cum Rs. 3000 per 1000 no.s Rs. 3000 per 1000 no.s Rs. 15 each Rs. 900 per cum Rs. 750 per cum Rs. 550 per quintal Rs. 35897 per tonne Rs. 44 per kg. Rs. 46 per kg. Rs. 200 per cum

LABOUR
1. 2. 3. 4. Mason Helper Coolie (female) Painter Rs. 300 per day Rs. 250 per day Rs. 200 per day Rs. 250 per day

HIRE CHARGES
1. Concrete mixer 2. Vibrator 3. Road roller MARKET RATE CERTIFICATE Certified that the market rates incorporated for the preparation of PR for construction of 10000 sq.m warehouse at Chander, Rajasthan are verified with the prevailing market rates of Chander and found correct. Rs. 1000 per day Rs. 500 per day Rs. 1500 per day

ASSISTANT ENGINEER

31

CHAPTER V INVESTMENT APPRAISAL

The four techniques are as follows: 1. Pay-back period 2. Accounting rate of return 3. Net Present Value 4. Internal rate of return

Pay- back period

It favours projects which generate substantial cash inflows in the earlier years. Now, if risk tends to increase with futurity in general, this may be true the pay back criterion may be helpful in weeding out risky projects. The limitation of pay-back period is that it does not consider time value of money and it also ignores cash flows beyond the pay-back period.

32

Year 0 1 2 3 4 5 6 7 8

Cash Flow 176462110 16478590.2 18407993.7 20572243.6 22999722.5 25722245.3 28775474.1 32199381.6 36038772

Cumulative Cash Flows -176462110 -159983519.8 -141575526.1 -121003282.4 -98003559.98 -72281314.68 -43505840.61 -11306458.99 24732312.99

The above table shows that for this project the pay-back period lies between 7-8 years.

Accounting Rate of Return (ARR)

The accounting rate of return, also called the average rate of return is defined as Profit after tax (PAT) Book value of the investment

The higher the accounting rate of return, the better the project. Projects which have an ARR equal to or greater than a pre specified cut-off rate of return which is usually between 20 percent and 30 percent are accepted; others are rejected.

33

Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Total Total/15

Dep. Building 1274166.62 1274166.62 1274166.62 1274166.62 1274166.62 1274166.62 1274166.62 1274166.62 1274166.62 1274166.62 1274166.62 1274166.62 1274166.62 1274166.62 1274166.62

Dep. Equipment 285000 270750 257212.5 244351.875 232134.2813 220527.5672 209501.1888 199026.1294 189074.8229 179621.0818 170640.0277 162108.0263 154002.625 146302.4937 138987.369

PAT 14919423.60 16863077.11 19040864.50 21481203.95 24215944.40 27280779.88 30715713.81 34565579.23 38880621.81 43717153.11 49138282.53 55214737.57 62025782.88 69660250.11 78217691.81 585937106.29 39062473.75

Book Value 176462110.00 174902943.38 173358026.76 171826647.64 170308129.15 168801828.24 167307134.06 165823466.25 164350273.50 162887032.06 161433244.35 159988437.71 158552163.06 157123993.81 155703524.70 154290370.71 2466657215.37 164443814.36

ARR

=PAT/ Book Value 23.75%

Book value = Initial Investment Depreciation ARR of the project is 23.75%

34

Net Present Value (NPV)

The net present value (NPV) of a project is the sum of the present values of all the cash flows positive as well as negative that are expected to occur over the life of the project.

The formula for present value is Cash flow/(1.10)^t The formula for NPV is NPV (rate, value1, value2) - Initial Investment.

35

Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Cash Flow -176462110 16478590.22 18407993.73 20572243.62 22999722.45 25722245.31 28775474.07 32199381.62 36038771.98 40343863.25 45170940.81 50583089.17 56651012.21 63453952.12 71080719.22 79630845.80 NPV

Present Values 14980536.57 15213217.96 15456231.12 15709119.9 15971490.59 16243004.94 16523374.08 16812353.1 17109736.32 17415353.11 17729064.17 18050758.35 18380349.68 18717774.95 19062991.37 76913246.19

r=

10%

NPV

NPV(E1,B3:B17)+B2 76,913,246.19

The NPV for this project is Rs. 76,913,246.19

Internal Rate of Return (IRR)

Accept: If the IRR is greater than the cost of capital Reject: If the IRR is less than the cost of capital

36

The following table shows the calculation of IRR using excel. The formula used is IRR (values, [guess])
Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Cash Flow 176462110.00 16478590.22 18407993.73 20572243.62 22999722.45 25722245.31 28775474.07 32199381.62 IRR = 36038771.98 40343863.25 45170940.81 50583089.17 56651012.21 63453952.12 71080719.22 79630845.80

IRR(B2:B17) 15.16%

The IRR for this project is 15.16%

37

CHAPTER VI CONCLUSION
With the world becoming flat, major world economies like U.S, Japan and UK are looking at China, India, Indonesia and other developing countries whose economy is growing at a much faster pace as compared to the world leaders. China and India have started posing threat because of their tremendous growth rate. This increase in growth rate is mainly on account of improvement / creation of basic infrastructure like transportation, aviation, rail- road- port connectivity. The huge population which was a great cause of concern few years back is now a huge market for consumption of all the products required in day to day life. With the increase in demand of consumer durables, their production, transportation, storage and inventory control management has become an utmost important aspect for the industries in the sector. In nut shell the existence of U.S, France, Japan, etc. is dependent upon the developments taking place in India and China. The U.S companies are trying hard to establish their roots in these countries. For their survival they have started imparting with the technologies which earlier they were shielding for their own benefit. In such scenario the Indian government is also providing a platform by creating state- of- the- art infrastructure in the shape of Dedicated Freight Corridor which will enable speedy movement of cargo from consumption areas to the gateway ports and vice-versa. To support speedy sorting, storage, despatching, etc state-of- the- art warehousing hubs are required and in the pretext of such economical development the creation of warehouses will be a good venture for companies in increasing their profit graph. The Western Freight Corridor will be passing through Rewari, Phulera, Kanakpura, Shrimodhpur, Kishangarh, Ajmer and as such the areas near to these places will be quite suitable for establishing warehousing facilities. Chander suburb of Jaipur is an ideally located town which fulfils all the requirements such as availability of land, water, road-rail connectivity, nearness to a city, availability of labour, industrial peace, which are needed for establishing a warehouse.

38

With this background project planning for a medium size warehouse of 10000 sq.m covered area with state- of- the art infrastructure facilities has been considered with scope of future expansion. This capacity with an average occupancy of 85 % utilization will fetch reasonably good returns in short as well as long term. The cost of the project including the land and basic equipment has been worked out as 1765 lakhs. The income flow and expenditure chart has been worked out taking into account all the components of depreciation, income tax , cost indexes and a comfortable IRR of 15.16 % has been obtained, which is quite attractive for setting of the project. The initial investment can be recovered within a short span of 7-8 years. These calculations are based on conservative utilization of 85 % where in actual the warehouses are found to be operating at a level of 110 to 120 % occupancy. If such level is achieved there will be bumper profits for the company. The following points elaborate whether the project is feasible or not : 1. Pay- back period : The project gives a pay-back period of 7-8 years i.e. the initial investment can be recovered within a time period of 7-8 years which is acceptable looking at earlier projects. Thus the project is acceptable according to the pay-back period. 2. Accounting rate of return (ARR): The accounting rate of return for this project is 23.75 %. The industry average for ARR is 20 % and since the ARR of the project is greater than 20 % the project is feasible. 3. Net Present Value (NPV) : The NPV of the project is Rs. 76,913,246.19 in 15 years time which is positive. Since the NPV is positive the project is viable to invest in.

39

4. Internal rate of return (IRR): In case of a public company, IRR is the most important criteria in deciding whether to invest in the project or not. Since the IRR is 15.16% which is more than10% of the cost of capital, therefore the project is worthwhile to invest in. Thus we conclude that the project is financially feasible since the cash outflow of 1765 lakhs in a project of 15 years can be covered in just 7-8 years. The investment in Chander project is worthwhile and the company can go ahead of developing the infrastructure with IRR of 15.16%. There will be value addition in the form of increase in the value of land/ asset at Chander as it is strategically located and huge numbers of MNCs / logistics companies are making huge investments in this area. The corporation can enjoy long term benefits by investing in this project.

40

REFERENCES
1. Wikipedia article on capital budgeting 2. Financial management Theory and Practice by Prasanna Chandra- Tata McGraw Hill Publication. 3. Article Indian logistics market to double by 2012 Silicon India news bureau-Friday, 09 November 2007. 4. Article Retail boom fuels growth in logistics sector Amit Mitra The Hindu Business Line Monday, 15 January 2007. 5. Article Logistics market may reach Rs. 5.5 lakh crore size by 2014 The Economic Times 21 February 2010 PTI 6. Delhi Schedule of Rates a government of India publication. 7. Central Public Works Department circulars for cost indexes. 8. Detailed Project Report (DPR) for setting up similar facilities by Central Warehousing Corporation at Surajpur, Noida.

41