Agritech Company Limited

Project Proposal to the Board of Directors Mr. Shivakumar, Chairman and Managing Director of Agritech Company Limited, entered in to the board room of the corporate office in Ahmedabad. While entering, he was thinking about the proposal of a new project which he is going to present to the Board of Directors of his company. The project proposal was on venturing into a floriculture unit which can produce 0.64 million cut roses and cater to local and foreign market. It was a hot summer day in the last week of March, 1994. The Board of Directors of Agritech Company Limited had to make a decision about the feasibility and viability of this project in a short time as the investment in this project has to be made immediately, so as to capitalize on the favorable marketing season of flowers in international market for the coming year, i.e., October - May. Mr. Shivakumar had a final look on the brief description of the project (Exhibit 1), which he had obtained from the project consultants and took some important key notes about the nature of the product, domestic and export markets for the product and production, financing and profitability aspect of the project. After the presentation made by Mr. Shivakumar, the Board of Directors raised some issues regarding the critical decision areas to be looked into this project, financial feasibility of the project and sensitivity of this project to various factors affecting international business unit. They felt these were to be dealt in detail, as this project involves international marketing and domestic marketing of the product leading to complex problems which may reduce the viability of the project. In addition, the project also involved the problems of speedy project implementation. Overall, the Board of Directors felt that this proposal can be pursued with utmost urgency and high priority, as the nature of the project was in line with the company's objective of developing agriculture and horticultural product exports and positive government policies towards the floriculture sector in the recent years. Also, the total investment of the project which was around Rs. 84 lakhs, and the mode of financing envisaged in the project proposal were totally in line with company's financial policies and well within their reach. In his presentation Mr. Shivakumar pointed out the need for venturing into this floriculture project with the following facts: a) World floriculture trade is reported to be worth US $ 25 -30 billion and is expected to grow to US $ 50 billion by the mm of this century. During the period between 1985 to 1990, the world trade had grown by more than 15 percent. The expected growth of the trade at international level for this decade is around 20 per cent. Roses were the largest traded flowers in the world, growing at around 10 percent annually, during 1980s.

b) In the world market, while the production has stagnated in the major producing countries in Western Europe, the demand rate is growing continuously. The reasons for the boom in the consumption of cut flowers in the developed countries were increasing standard of living, and increased mode of transportation and communication. Thus, there is an increasing demand-supply gap in the major consuming and producing countries which has to be met by exports. c) The reasons for the stagnated growth of the major producing countries in Western Europe are high labor costs and high energy costs. The energy costs are relatively high because these countries being in the temperate region have to simulate the tropical climate for the production of flowers, while this is available naturally in a tropical country like India. Moreover, the land available for cultivation of flowers and the bio-diversity in nature are also limited in these countries.

d) Advantages of Indian conditions for cultivation of flowers: India is blessed with many natural advantages which place it in an ideal position to become a leading player in the world floriculture market. India had abundant sunshine, good soil, plenty of water and different climatic zones which are favorable to produce a wide variety of flowers throughout the year. Especially, the climate is very helpful. For example, Holland and Israel uses 50 tonnes and 2 tonnes of diesel power per acre respectively, to compensate the lack of sunshine, India does not need this diesel power.
Prepared by Mr M. Narayanan, Fellow Programme student based on project work. This case is not designed to present illustrations of cither correct or incorrect handling of administrative problems. Copyright @ 1995 by the Indian Institute of Management, Ahmedabad

During the export season it does not rain much, so the flowers do not suffer from diseases and other adverse effects. Therefore, wastage factor would be very less. In addition, India has a huge skilled manpower base which can be successfully absorbed to use the new technologies. India also scores on the cost of unskilled labor: Rs. 40 per day versus Rs. 576 per hour in Holland. India also has a geographical advantage, as it is situated midway between the growing markets of South East Asia and Europe. The large domestic market also ensures that the non-exportable grades of products are readily consumed. e) Favorable government policies to floriculture industry: The government has declared agro-products as an extreme focus exports area. The major sops given for this industry are: i) an airfreight subsidy of 25%, ii) generous allowance for export oriented units, even those units which sell 50 per cent of their produce in the domestic market would be eligible for the benefits that the 100 per cent export oriented units are entitled to, iii) technology imports which can improve the quality of cut flowers can be procured at concessional duties, iv) In 1993 budget, central government abolished the 15 per cent duty on the import of seeds and the duty on the poly house material (which is used in making greenhouses) from a very high level of 200 per cent to 24 per cent, v) the financial institutions like ICICI have also taken a lead in financing floriculture projects and vi) the Agriculture and Processed Food Export Development Authority (APEDA) has taken a lead in scouting for technology and export markets for Indian flowers. f) There are many reasons why India has not been internationally competitive till recently, i) Airfreight costs were exorbitant: nearly 80 percent of the GIF value, ii) A 15% European Commission tax, auction commissions, and infrastructure costs were additional burdens, iii) The infrastructure facilities required for export of flowers is not very well developed. The cargo facilities for handling flowers are limited. The available storage for meat products cannot be used, since flowers cannot be stored in sub zero temperatures used for preserving meat products, iv) Airspace availability on cargo flights is one of the biggest problems faced by floriculturists, v) The technical knowledge for maintaining greenhouse conditions and post harvest handling of flowers is not available and vi) Indian flowers were not been able to keep up with the stringent quality standards of the European Community (EC), which accounts for a major chunk of the of the worlds trade.

At the end of the presentation on the proposal, the Board of Directors requested Mr. Shivakumar to give his analysis on the critical decision areas in this project, financial feasibility of the project and sensitivity and viability of the project and various factors influencing export units. They requested him to give his analysis within three days, so that a final decision could be taken immediately. Discussion with Executive Assistant Next day, Mr. Shivakumar called on his Executive Assistant, Mr. Shravan (a management post-graduate from a Well Known Institute of India), to discuss about the issues raised by the Board of Directors regarding the floriculture project. Mr. Shivakumar started the discussion with a positive note as: " Shravan, from yesterday's presentation, I could feel a sense of high enthusiasm for this floriculture project from our Board of Directors. But, we should do a thorough analysis of the different issues raised by them. In my opinion the critical decision areas in this project would be: i. Selection of location: The climatic conditions of the location can influence the quality of the flowers, energy cost of the flower production, sophistication of the technology required for greenhouses. Also, the location is very important from the point of view of nearness to the international airport as the flowers are to be airlifted immediately and at the same time proximity to an attractive domestic market is also important. Selection of cut rose varieties that are to be cultivated: The price realized on the adopted product mix will influence our income and profitability in a big way. Also, the demand growth of different varieties of cut roses, would give us some indication of the potential and marketability of our product mix. Selection of technology amongst various available technologies from different countries: This may cause a difference in the total investment to be made. Also, the incompatibility of the technology to our conditions might create a lot of maintenance problems in the future.

ii.

iii.

Also, Shravan, I would like you to go through the project report prepared by our consultants on these aspects and give your comments. From the report, please find out the financial feasibility of this project and various components involved in it.

Regarding the sensitivity issues, I feel that we should check the project's viability for the adverse changes in i) exchange rate fluctuations between dollar and rupee, ii) export prices and domestic prices, iii) cost overrun of the project, iv) transport cost fluctuations and v) wastage (loss factor). These factors would influence this project significantly because the flowers are highly perishable and international market prices would not be stable. I would like to have your analysis and report on these aspects by tomorrow evening, so that we can discuss about further issues involved in this analysis and give our final recommendations to the Board of Directors. After giving his long stint of monologue, Mr. Shivakumar gave the project consultants' report to Mr. Shravan to do the analysis. Mr. Shravan sat with that report in front of his Notebook-PC to analyze the various issues involved in the floriculture project which he has discussed with his Managing Director. Report of the Project Consultant Trade With the growing consumption, the global cut flower trade has also grown. Europe is both the largest importer and exporter of flowers. 81.3% of global imports are to Europe while 76.2% of global exports are from Europe. The main exporter and importer in Europe is Netherlands. It is the biggest flower trading country in the world. It accounts for 68 % of the world trade in flowers. The Dutch auction prices determine the global flower prices. At the United Flower Auction Center at Alsmeer in The Netherlands, 14 million flowers and 1.5 million plants are sold every day. Netherlands is number one in the transport, packing, marketing and trading of flowers. Roses are the largest traded flowers in the world, worth 1.1 billion dollars globally. In Holland alone, the market is estimated to be about 450 million dollars and it is growing by about 7-8 percent annually. India currently takes up less than 0.1% of the global cross border trade of flowers. Exports touched just Rs. 9 crore in 1991-92. This is despite having about 35,000 hectares of land under floriculture. In contrast, a small country like Israel with far less acreage, exports Rs. 500 crore worth of flowers every year. Critical Decision Areas 1. 2. 3. Deciding upon the location of the green-houses Deciding upon the varieties of roses to grow Selection of the appropriate technology and the supplier

Selection of Location The criteria used to select the location are as follows 1. Climate: Production of roses for exports will take place in the winter; hence the climate in winter is an important criterion for selection of location. The ideal range of temperature for roses is 17-24C and plants can survive temperatures between 10 and 40C. Relative humidity should ideally be between 75% and 85 %. Very high humidity results in fungi and should be avoided. Radiation in India tends to be on the higher side though controls on humidity and temperature can take care of this problem to a large extent. Plants use a lot of C02, sometimes more than the amount available in the greenhouse through ventilation. The target value for roses is between 1000 and 1200 ppm. Soil: The importance of the locally available soil is not that important a factor in this project as the soil that is being used will be prepared specially and will be protected from the external environment. Transport: Since the quality of the exported rose depends to a great extent on the time it takes to reach the auction center, there should be good transportation facilities available from the location. Distance from an international airport is important because the flowers should be kept in transit for the minimum amount of lime to maintain their quality. The transportation is to be done in a refrigerated van which will take the flowers to the airport. So, the greenhouse should preferably be located on a national highway. The flowers that are sold domestically will also be transported by road to the market and in this case also the time taken for transportation is a critical factor. Domestic Markets: Distance from domestic markets is another criterion for selection of

2.

3.

4.

location because flowers unfit for exports will be sold in the domestic market and this is a substantial proportion of total sales. Nearness to an assured domestic market will be an advantage and would help to keep the transportation costs low. 5. Infrastructure: The situation of other floriculture farms in that location is another criterion because transport facilities for the roses can be shared with other producers. Other infrastructure facilities like drainage system, communication network, power and water should also be present. The four locations considered are Lonavala, New Delhi, Bangalore and Ahmedabad. The evaluation of these locations is given in Table 1. The decision to select a site should be taken after considering all the important factors that could affect the efficiency and the cost of production.

Table 1 Evaluation of different project locations Description Temperature In Summer Temperature In winter Air Humidity In Summer Air In Winter Soil Water Transport Domestic Market Other Farms Lonavala Good Very Good Moderate Good Moderate Good Moderate Good(in Bombay) Good Delhi Very Bad Moderate Good Moderate Moderate Moderate Good Good Moderate Banglore Very Good Very Good Moderate Good Moderate Moderate Moderate Moderate Good Ahmedabad Bad Bad Bad Moderate Moderate Bad Bad Bad Bad

Selection of Flower Varieties The various varieties of rose that are cultivated in the world are - Alsmeer Gold, Baccara, Carambole, Cocktail, Jacaranda, Madelon, Only Love, Sonia, Tineke, Vivaldi, Kiss. From these only four varieties are chosen, namely, Vivaldi, Kiss, Madelon and Jacaranda. These four were chosen on the basis of the following: Growth in demand over three years (1989, 1990, 1991) Total demand in 1990 Prices offered

The demand for Jacaranda has been growing at the rate of around 18% per annum in quantity terms its sales in 1991 was 20 lakh stems up from 17.7 lakh stems in 1990. Its prices are also among the above average quoted in the auction - an average price of 67 cents per stem in 1991 which was constant over the years 1989-91. Madelon averaged a growth in demand of 15 % and had sales of 48 lakh stems in 1991. Prices have been increasing over the years and were above average (62 cents per stem in 1991). Vivaldi's demand grew at the rate of 50% per annum from 6 lakh in 1989 to 9 lakh in 1990 and 12.6 lakh in 1991. This variety is the costliest variety of rose priced at an average of 98 cents over the year in 1991. The maximum price was as high as 139 cents in February. As the exports are in the winter months only, the high winter prices are even more attractive. Kiss averaged a phenomenal growth in demand of 340% annually over the years 1989-91 and ended 1991 with a demand of 23 lakh stems up from 3 lakh stems in 1989. This variety was chosen because of its high growth rate only. The average price was 41 cents per stem in 1991 down from 45 cents in 1989.

The rationale behind choosing these varieties has been to achieve a mix of high growth varieties and varieties with high margins. Vivaldi has attractive margins and good growth rate of 50%. Kiss has a low market price but a growing demand which will help us to penetrate the market. Jacaranda and Madelon are having a constant and medium market growth. The prices of these four varieties in different months of the marketing season are given in Exhibit 2 - Exhibit 5. Technology Agreement For the setting up of the green-house the technology should be obtained from Israel. There are two sources of technology available - the Dutch and the Israelis. It is decided to use the Israeli technology because of the similarity in the climate between India and Israel. There are various firms that are interested in providing technology. But the offers from the following firms are attractive: -Yoval Agricultural Products Limited - Camtec East Limited Out of these Camtec East should be selected, because of their wide ranging experience in setting up floriculture projects both in Israel and outside. They are already involved in floriculture in India and are consultants to many Indian companies. Personnel Once in every five years, the soil in the green house will have to be leveled, steamed or chemically disinfected and roses will have to be planted. The temperature, humidity and water requirement of the plants will have to be monitored 24 hours a day. The other activities that need to be done are adjusting shoots, cutting of blind shoots, pinching and disbudding, cutting bottom shoots, harvesting (twice a week), sorting and packaging, protection against diseases. The details of personnel recruited are given in Table 2. Capital Investment The different requirements of plant and machinery etc., are analyzed and cost estimates have been made. The various types of the capital investments which are to be made are shown in Exhibit 6. In a green house, the items of major capital expenditure are steel structure, ultraviolet and stabilized plastic sheets, drip irrigation system, cold room, packing shed, soil, plant material. Cost of Production The costing of the rose is done by breaking up the costs into two parts - directly traceable costs which are traced to the individual rose, and the overheads which are absorbed over the total annual production. For the purpose of absorption of the overheads the annual production figure is taken as 640,000 roses, even though the production envisaged is 720,000 roses (providing 11 per cent normal wastage). Of this, an average of 344,000 rose are assumed to be exported in the period from October to May and the remaining amount of 296,000 to be sold in India. Direct Costs The different components of the cost are: 1) Labor Cost - The labor cost consists of the direct labor of the workers that are involved in the cultivation and the cutting of the rose. The technicians and the managerial staff are not included in this because their job is not connected only with the production of the flowers. The annual cost of direct labor is assumed to be Rs 250,000 in 1993-94 and will increase at 8 per cent per annum. 2) Material Cost - Material cost includes the cost of the nutrients and chemicals used in the production of flowers. The cost of water and electricity is included separately in the cost as a part of the manufacturing overheads. The material cost includes only direct material. The annual material costs have been assumed to be Rs 400,000 in 1993-94 and will increase at 8 per cent per annum. Table 2 Personnel Requirements of the Project Description Plant Manager Technicians Workers in Green houses Harvesters Watchman Total Number 1 2 4 5 1 13

3) Packaging Cost - This cost component includes the labor charges of the packaging and the cost of packaging material itself. The packaging is done in a box which costs Rs 87.50 on an average and the number of roses in the box varies from 300 to 700 depending on whether the roses are long stemmed or short stemmed. The average number of roses to be fitted in the box is taken as 500 assuming both the types of roses are produced in equal quantity. It varies directly with the production and is increased at around 5 per cent per annum. 4) Transportation Cost - This is a major cost component for the exported rose. The cost of air freight to the Amsterdam is Rs 72.45 per kg. Each box of rose weighs 15 kg and contains 500 roses on an average. So this cost is divided between 500 roses equally. This cost is calculated for 387,000 flowers. The other cost is cost of transportation from Lonavla to Bombay. This is assumed to be Rs 3200 per trip and the schedule of the trips have been decided as 15 per month. This local transportation cost will be incurred for the selling of the domestic rose as that also has to be transported to Bombay. The number of shipments over the year and the weight shipped in each trip is shown in the table below. It varies directly with the production and is increased at 6 per cent per annum.

Transport particulars No. Of Shipments Weight Shipped Per Trip (In Kgs.) Total Weight (In Kgs.) No. Of Flowers Transported Total Freight Cost (In Rs.) Cost Of Transport Per Unit (In Rs.)

Export 36.00 322.50 11610.00 387000 841145 2.45

Local 120.00 185.00 22200.00 740000 384000 1.30

5) Selling Expenses - The selling of the roses in the auction center involves paying a duty to the Dutch Government. This duty amounts to 15% of the export value, which is the selling expense of exported rose. It varies directly with the production and is increased at 6 per cent per annum. The rose sold in the domestic market incurs a selling expense, assumed to be equal to Rs 420,000 annually and increasing at 8 per cent per annum.

Indirect Costs 1. Managerial Overheads - The salary paid to the two technical assistants and the manager who will look after the management of the green house is included as the managerial overheads. This amounts to Rs. 160,000 annually in 1993-94 and increasing at 9 per cent per annum. This cost is allocated to both the categories of the rose equally. Interest and Depreciation - The interest and depreciation burden is as calculated in the proforma balance sheet (Exhibit 7). It is divided equally over the total annual production.

2.

From the direct and indirect costs the cost of production of the rose is determined as in Table 3.

Price Estimation Estimation of Future Export Prices The US dollar prices of the various flowers in 1989, 1990 and 1991 are used to estimate the prices in future (Exhibits 2-5). There are wide variations in prices from month to month, hence prices are estimated month-wise. A very conservative policy of price estimation is followed, maintaining them at the same level for each of the succeeding years, in order to avoid overstating of profits.

Cost of Production (in Rs. per cut rose) Year Direct costs Labor cost Material cost Packaging cost Selling exp. [Export] Selling exp [Domestic] Transport [Export] Transport [Domestic] Indirect costs Managerial overheads Interest Depreciation Marketing expenses Other overheads Exports total cost Exports variable cost Domestic total cost Domestic variable cost 0.27 2.44 0.81 1.25 0.72 12.61 7.12 8.28 3.07 0.30 1.78 0.73 1.35 0.77 14.19 9.25 9.06 4.43 0.32 1.43 0.66 1.46 0.84 14.53 9.83 9.13 4.75 0.35 1.07 0.60 1.58 0.90 14.94 11.09 9.23 5.09 0.38 0.71 0.54 1.70 0.97 15.40 10.44 9.39 5.46 0.26 0.42 0.13 2.57 0.96 3.74 1.30 0.46 0.73 0.21 3.89 1.66 3.97 1.38 0.49 0.79 0.22 4.12 1.79 4.21 1.46 0.53 0.85 0.23 4.37 1.93 4.46 1.55 0.57 0.92 0.24 4.63 2.08 4.73 1.64 1994-95 1995-96 1996-97 1997-98 1998-99

The next step was to convert the prices to Indian rupees. The dollar-rupee convertibility was considered to be 1 $ = Rs. 33.92 in 1993. The assumption made is that the Indian rupee would depreciate with respect to the US Dollar at the rate of 6% per annum. This seemed to be a reasonable rate given the difference in inflation rates of the two countries to be around 6%. Estimation of Future Domestic prices The different varieties of roses are priced at Rs.6 per flower in 1993-94 increasing at the rate of 8% annually thereafter. At present, roses of much lower quality cultivated in open fields are sold in retail for around Rs.3. Hence, Rs.6 per rose is easily realizable. This is due to the fact that these flowers are superior to those cultivated in open fields and could well fetch Rs.15-18 if the market could appreciate the quality. Cash Flows of the Project The cash flows were calculated using the monthly sales of each individual variety and the associated variable costs. An equal amount of flowers of the 4 different varieties are produced every month [i.e., 9250 and 10750 flowers for domestic and export market respectively of each variety per month]. The investment was assumed to be made in the first year of operation i.e., financial year 1994-95.] The Discount rate for the project was calculated as below: Cost of Equity : 40 % (high risk category) Cost of Debt : 18 % Long term Equity Ratio : 2 : 1 Hence weighted average cost of capital (WACC) : 25.33 % The project being in the agricultural sector would be exempted from Income Tax. As far as the resale value at the end of five years is concerned, a conservative value of 50 per cent of the depreciated gross block at the end of five year is concerned. The cash flows from the project for the five years are given in Table 4.

Table 4 Cash Flow Statement (Rs. in lakhs) Year Sales Revenue Contribution less: fixed costs PBDIT Tax Cash Profit less: investment less: WC increment Resale value Net Cash Flow 1994-95 71.48 46.95 14.31 32.64 0.00 32.64 84.40 23.45 0.00 -75.21 1995-96 110.52 70.31 15.48 54.83 0.00 54.83 0.00 7.80 0.00 47.03 1996-97 117.58 74.73 16.74 57.99 0.00 57.99 0.00 1.91 0.00 56.08 1997-98 125.10 79.43 18.09 6134 0.00 61.34 0.00 2.05 0.00 59.29 1998-99 133.10 84.42 19.55 64.87 0.00 64.87 0.00 2.16 29.49 92.20

Note: only five-eighth of the flowers produced in 1994-95.

Sensitivity Analysis Sensitivity of Profitability to exchange rate fluctuations In the following sensitivity analysis, the percentage depreciation in the Rupee vis-a-vis the US Dollar has been assumed to be on an annual basis. Hence the most likely scenario has been assumed to be a 6% depreciation per annum. The range is considered to be depreciation up to 12 per cent per annum. Sensitivity of profitability with respect to sales price changes The viability of the project has to be calculated in a scenario of negative to positive price realization in domestic and foreign markets. A range of 80 to 120 percent of the estimated price is considered to find out the v i a b i l i t y of the project Sensitivity of profitability with respect to cost overrun The cost of the project has been assessed to be Rs.84.4 lakhs. The entire project execution takes less than 3 months; hence it is not very likely that costs will rise to the extent of 40%. So an analysis showing 40 per cent cost overrun has to be made. Sensitivity of profitability with respect to transport costs The cost of transportation works out to Rs. 2.45 per rose. If rose is being sold for approximately Rs.25, the importance of this variable can be judged. From the analysis, the viability of the project can be calculated if transportation cost goes up by 5-40% per annum for the next five years. Sensitivity of profitability with respect to wastage factor In this, the impact of a loss in output on the overall profitability could be assessed. Stems are imported from Israel for all 4 greenhouses (i.e., 100% capacity utilization). However, it is possible that some plants do not produce the expected output of flowers. The estimates used by us for annual production could be lower than the estimates given. So, an analysis has to be made to increase the wastage factor by another additional 15 per cent, from the allowed 11 per cent Issues to be Discussed and Analyzed After going through the project consultant's report, Mr. Shravan, started listing down the issues to be analyzed, which are given below.

1. 2. 3. 4. 5.

The macro economic developments in India and the advantages and constraints of floriculture industry. The critical decision areas to be considered for a floriculture unit, the options available, the criteria to be used to analyze the options and the evaluation of different options. The financial feasibility of the project - Net Present Value [NPV] and Internal Rate of Return [IRR] of the project. The sensitivity of the financial feasibility [NPV & IRR] of the project to the various factors influencing the export oriented units. Based on the analysis made give the evaluation about the overall feasibility of the project.

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Exhibit 1 Brief Description of the Project 1. 2. Nature of the enterprise General Description a. Product b. Technology Private Limited Company Roses of four varieties - Kiss, Vivaldi. Jacaranda and Madelon - produced mainly for exports. Stems to be imported from Israel and grown under protected and semi controlled environment by the use of four greenhouses. Modem rose production techniques to be followed. Midway between Pune and Bombay, at Lonavla on the Bombay - Pune highway. 12.00 31.75 12.75 15.90 07.00 05.00 84.40 30.000 24 Exports 10,750 33 % Hotels, Embassies Netherlands , Japan in

3.

4.

5. 6.

7 8.

c. Location Capital Expenditure (Rs. in lakhs) Land and Building Greenhouse, equipment Plant and Soil Technology Margin Money for WC Miscellaneous TOTAL Operational information No. of Plants Blooms / plant / year Estimated Production Domestic Per month per variety 9250 Break Even Point Markets Domestic Exports Distribution Exports though Auction House Netherlands through export houses Domestic direct distribution Financing Equity Term Loan Profitability ROI

Rs. 21.10 lakhs Rs. 63.3 lakhs 38.57 %

Exhibit 2 Estimation of Future Export Prices Rose Jacaranda Average Price (US $) Month 1991 1990 January 0.79 0.83 February 0.92 0.89 March 0.67 0.63 April 0.45 0.52 May 0.60 0.45 October 0.50 0.52 November 0.67 0.74 December 0.74 0.74 Average 0.67 0.67 Std. Devn. 0.14 0.15

1989 0.75 0.85 0.53 0.59 0.45 0.64 0.71 0.85 0.67 0.14

Month January February March April May October November December Average

1993 0.79 0.89 0.61 0.52 0.50 0.55 0.71 0.78 0.67

Estimated Price (US $ ) 1994 1995 1996 0.79 0.79 0.79 0.89 0.89 0.89 0.61 0.61 0.61 0.52 0.52 0.52 0.50 0.50 0.50 0.55 0.55 0.55 0.71 0.71 0.71 0.78 0.78 0.78 0.67 0.67 0.67

1997 0.79 0.89 0.61 0.52 0.50 0.55 0.71 0.78 0.67

1998 0.79 0.89 0.61 0.52 0.50 0.55 0.71 0.78 0.67

1999 0.79 0.89 0.61 0.52 0.50 0.55 0.71 0.78 0.67

Month January February March April May October November December

Estimated Rupee price after Annual Depreciation of Rupee vis-a-vis US Dollar 6% 1993 1994 1995 1996 1997 1998 26.80 28.41 30.11 31.92 33.84 35.87 30.08 31.88 33.80 35.82 37.97 40.25 20.70 21.94 23.26 24.65 26.13 27.70 17.63 18.69 19.81 21.00 22.26 23.60 16.96 17.98 19.06 20.20 21.41 22.70 18.76 19.89 21.08 22.35 23.69 25.11 23.93 25.36 26.88 28.50 30.21 32.02 26.34 27.92 29.59 31.37 33.25 35.25 Exhibit 3 Estimation of Future Export Prices Rose Madelon Average Price (US $) Month 1991 1990 January 0.57 0.63 February 0.86 0.73 March 0.61 0.51 April 0.41 0.40 May 0.66 0.47 October 0.54 0.37 November 0.57 0.56 December 0.73 0.64 Average 0.62 0.54 Std. Devn. 0.13 0.11

1999 38.02 42.67 29.36 25.01 24.06 26.61 33.94 37.36

1989 0.71 0.86 0.53 0.52 0.47 0.46 0.50 0.58 0.58 0.13

Month January February March April May October November December Average

1993 0.64 0.81 0.55 0.44 0.53 0.45 0.55 0.65 0.58

Estimated Price (US $ ) 1994 1995 1996 0.64 0.64 0.64 0.81 0.81 0.81 0.55 0.55 0.55 0.44 0.44 0.44 0.53 0.53 0.53 0.45 0.45 0.45 0.55 0.55 0.55 0.65 0.65 0.65 0.58 0.58 0.58

1997 0.64 0.81 0.55 0.44 0.53 0.45 0.55 0.65 0.58

1998 0.64 0.81 0.55 0.44 0.53 0.45 0.55 0.65 0.58

1999 0.64 0.81 0.55 0.44 0.53 0.45 0.55 0.65 0.58

Month January February March April May October November December

Estimated Rupee price after Annual Depreciation of Rupee vis-a-vis US Dollar 6% 1993 1994 1995 1996 1997 1998 21.71 23.02 24.40 25.86 27.41 29.06 27.32 28.96 30.70 32.54 34.49 36.56 18.64 19.76 20.95 22.20 23.53 24.95 15.08 15.98 16.94 17.96 19.03 20.17 18.00 19.08 20.23 21.44 22.73 24.09 15.40 16.33 17.31 18.35 19.45 20.61 18.49 19.60 20.78 22.02 23.34 24.75 22.06 23.38 24.78 26.27 27.85 29.52 Exhibit 4 Estimation of Future Export Prices Rose Vivaldi Average Price (US $) Month 1991 1990 January 1.04 1.14 February 1.39 1.19 March 1.10 0.77 April 0.64 0.65 May 0.83 0.67 October 0.90 0.97 November 0.84 1.06 December 1.03 1.39 Average 0.97 0.98 Std. Devn. 0.21 0.25

1999 30.80 38.76 26.44 21.38 25.54 21.85 26.23 31.29

1989 1.26 1.26 0.88 0.79 0.71 1.08 0.87 1.14 1.00 0.20

Month January February March April May October November December Average

1993 1.15 1.28 0.92 0.69 0.74 0.98 0.92 1.19 0.98

Estimated Price (US $ ) 1994 1995 1996 1.15 1.15 1.15 1.28 1.28 1.28 0.92 0.92 0.92 0.69 0.69 0.69 0.74 0.74 0.74 0.98 0.98 0.98 0.92 0.92 0.92 1.19 1.19 1.19 0.98 0.98 0.98

1997 1.15 1.28 0.92 0.69 0.74 0.98 0.92 1.19 0.98

1998 1.15 1.28 0.92 0.69 0.74 0.98 0.92 1.19 0.98

1999 1.15 1.28 0.92 0.69 0.74 0.98 0.92 1.19 0.98

Month January February March April May October November December

Estimated Rupee price after Annual Depreciation of Rupee vis-a-vis US Dollar 6% 1993 1994 1995 1996 1997 1998 38.87 41.20 43.67 46.29 49.07 52.01 43.44 46.05 48.81 51.74 54.84 58.13 31.12 32.99 34.97 37.07 39.29 41.65 23.50 24.90 26.40 27.98 29.66 31.44 25.01 26.51 28.10 29.78 31.57 33.46 33.33 35.33 37.45 39.70 42.08 44.60 31.33 33.21 35.20 37.31 39.55 41.92 40.25 42.67 45.23 47.94 50.82 53.87 Exhibit 5 Estimation of Future Export Rose Kiss Average Price (US $) Month 1991 1990 January 0.48 0.55 February 0.51 0.51 March 0.41 0.39 April 0.32 0.34 May 0.45 0.31 October 0.32 0.29 November 0.42 0.47 December 0.40 0.39 Average 0.41 0.41 Std. Devn. 0.06 0.09 Prices

1999 55.13 61.62 44.15 33.33 35.47 47.28 44.44 57.10

1989 0.62 0.40 0.35 0.47 0.41 0.41 0.48 0.49 0.45 0.08

Month January February March April May October November December Average

1993 0.55 0.48 0.39 0.37 0.39 0.34 0.46 0.43 0.42

Estimated Price (US $ ) 1994 1995 1996 1997 0.55 0.55 0.55 0.55 0.48 0.48 0.48 0.48 0.39 0.39 0.39 0.39 0.37 0.37 0.37 0.37 0.39 0.39 0.39 0.39 0.34 0.34 0.34 0.34 0.46 0.46 0.46 0.46 0.43 0.43 0.43 0.43 0.42 0.42 0.42 0.42

1998 0.55 0.48 0.39 0.37 0.39 0.34 0.46 0.43 0.42

1999 0.55 0.48 0.39 0.37 0.39 0.34 0.46 0.43 0.43

Month January February March April May October November December

Estimated Rupee Rupee 1993 1994 18.63 19.75 16.18 17.15 13.07 13.85 12.70 13.47 13.22 14.02 11.48 12.17 15.51 16.44 14.43 15.30

price after Annual Depreciation of vis-a-vis US Dollar 6% 1995 1996 1997 1998 20.93 22.19 23.52 24.93 18.18 19.27 20.42 21.65 14.68 15.56 16.50 17.49 14.27 15.13 16.04 17.00 14.86 15.75 16.69 17.69 12.90 13.67 14.49 15.36 17.42 18.47 19.58 20.75 16.22 17.19 18.22 19.32

1999 26.42 22.95 18.54 18.02 18.76 16.28 21.99 20.47

Exhibit 6 Fixed Investments Plant / Machinery / Equipment Green house Irrigation system Building (office and packaging) Unforeseen / miscellaneous Technology fee Computers Plant Material Land Margin money for WC Rockwool Soil Plastic cover and nets Sulphur evaporators Cooling fans Equipment transportation cost Supervision fee Total Investment Total Area covered

Rs. 1600000 400000 800000 500000 1500000 600000 1200000 400000 700000 75000 125000 120000 90000 240000 90000 8440000 4000 Sqr mt.

Exhibit 7 Proforma Profit and Loss Statement (Rs in lakhs) Profit and loss statement (Rs. in lakhs) ** Year 1994-95 1995-96 1996-97 1997-98 1998-99 Sales 71.48 110.52 117.58 125.10 133.10 Labor costs 1.69 2.92 3.15 3.40 3.67 Material costs 2.70 4.67 5.04 5.44 5.88 Packaging costs 0.81 1.36 1.42 1.49 1.56 Commission 8.84 13.38 14.18 15.03 15.93 Selling exp. (Domestic) 2.84 4.90 5.29 5.71 6.17 Transport costs 7.66 12.99 13.77 14.60 15.47 Managerial expenses 1.73 1.89 2.06 2.24 2.44 Interest 15.61 44.39 9.12 6.84 4.56 Depreciation 5.19 4.69 4.24 3.84 3.47 Marketing expenses 8.00 8.64 9.33 10.08 10.88 Other overheads 2.50 2.70 2.92 3.15 3.40 Consultant charges 1.00 1.08 1.17 1.26 1.36 Other production exp. 1.08 1.17 1.26 1.36 1.47 Profit / loss 11.84 38.75 44.63 50.66 56.84 ** In the financial year 1994-95, only five eight of the production is made and sold both in export and domestic markets.