Pre-Feasibility Study

Transcription

1 AUTO REPAIR & SERVICE WORKSHOP Small and Medium Enterprise Development Authority Government of Pakistan HEAD OFFICE Waheed Trade Complex, 1 st Floor, 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore Tel: (042) , Fax: (042) , [email protected] REGIONAL OFFICE PUNJAB REGIONAL OFFICE SINDH REGIONAL OFFICE NWFP REGIONAL OFFICE BALOCHISTAN Waheed Trade Complex, 1 st Floor, 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore. Tel: (042) Fax: (042) , [email protected] 5 TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) Fax: (021) [email protected] Ground Floor State Life Building The Mall, Peshawar. Tel: (091) Fax: (091) [email protected] Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) , Fax: (081) [email protected] September, 2004

2 DISCLAIMER The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his/her own due diligence and gather any information he/she considers necessary for making an informed decision. The content of the information memorandum does not bind SMEDA in any legal or other form. DOCUMENT CONTROL Document No. PREF-4 Revision 1 Prepared by SMEDA-Sindh Approved by Provincial Chief - Sindh Issue Date September, 2004 Issued by Library Officer

3 1 PROJECT PROFILE 1.1 Purpose of the Documents This document is developed to provide the entrepreneur with potential investment opportunity in setting up and operating a offering various services. This pre-feasibility gives insight into various aspects of a Workshop setup including both technical and general information for each particular service offered. The document is designed to provide all relevant details to facilitate the entrepreneur in making the correct decision providing various technological as well as business alternatives. The document also allows flexibility in change of various parameters to suit the customized needs of the entrepreneur. 1.2 Project Brief The Auto Repair market has a lot of competition, almost all offer repair and service features. Very few have fully stocked parts owing to the problem of tied up capital in case of non-utilization of these parts. However, quick availability of parts supports the service and repair departments by allowing them to turnaround jobs at a faster rate than the competition. Wheel alignment and balancing facilities are also provided by many large scale workshops along with their primary services. The proposed pre-feasibility addresses the unmet need of having a quality auto repair workshop that provides: (i) Quick and quality repair & maintenance services; (ii) Wheel Alignment and Balancing Facilities (iii) High Pressure Cleaning Services; and (iv) Easy access to new and used retail parts to meet the demands of the customer. 1.3 Opportunity Rationale The business is a viable business provided that it is operated with a good business acumen that involves having a thorough knowledge and experience of the repair and service operations and also managing the jobs with the right type of skilled manpower. When these factors combine with good customer relationship management and effective business development skills, the business is expected to give considerable profits which are expected to grow over the years Market Entry Timing The Pakistani automobile industry has registered a considerable growth over the past couple of years. It was further estimated that the car industry experienced a growth rate of

4 51.4% during July 02 to April 03 1 signifying an increasing demand for cars which is expected to continue in the future (albeit at a lesser rate). Furthermore, increasing competition between leasing companies have caused the lease rates to decline considerably which have made car an affordable commodity for a majority of the middle-income class which constitutes a considerable segment of the population of Pakistan. These factors coupled together reflect on the growing need for quality repair and service facilities. Unlike many countries, the Pakistani car industry is unique in the sense that once the car comes on the road it is expected to run for an indefinite period requiring major repair and maintenance services throughout its operational life. Moreover there is a considerable demand for wheel alignment and wheel balancing services, which is required by almost every car, whether new or old. The roughness of the roads and continuous friction causes a continuous disruption to the alignment and balancing of the wheels which require adjusting at least once every two weeks for proper upkeep and maintenance. Conclusively it can be said that there exists an ample demand for quality repair and service workshops in Pakistan and also that the existing scenario provides conducive opportunities for entry into this business venture. 1.4 Key Success Factors/Practical Tips for Success The three main critical success factors that affect the decision to invest in the proposed business setup are: i) Hands on Experience Having a thorough knowledge and hands on experience of all the relevant technical details is a must for entry into this business. Relevant work experience is the most important pre-requisite because it has a direct impact on the successful management of the business. ii) Marketing Skill Another critical factor is that the entrepreneur must have effective PR & marketing skills. These marketing skills should enable the entrepreneur to carryout business development activities to target his potential customers and also to maintain his existing client base. 1 Auto Industry in Pakistan, A research Publication by Capital One Securities, February 2004

5 iii) Technical Skill The third critical factor relates mostly to technical skills required especially for operating computerized Wheel Alignment & Balancing machines and high pressure cleaning equipment. The machine operators should be properly trained in order to completely inspect steering and suspension systems, take computer measurements, make factory adjustments to restore alignment specifications. In case of unskilled workers handling these equipment, there will be loss of time, equipment and most important of all unsatisfactory service leading to customer dissatisfaction. 1.5 Proposed Business Legal Status Although the legal status of business tends to play an important role in any setup, the proposed is assumed to operate on a sole proprietorship basis which may extend to partnership in case of addition of new services that might add significant business to the existing setup. 1.6 Project Investment This section will provide the total cost of the project. ITEM COST (RS.) Construction Office / Store 675,000 Construction Service Stations 850,000 Masonry Work 120,000 Mechanical Repairs Equipment 90,000 Denting Equipment 100,000 Painting Equipment 30,000 Wheel Alignment Machine 1,000,000 Wheel Balancing Machine 650,000 High Pressure Cleaning Equipment 550,000 Piston Pump 250,000 Spare Parts Purchases 125,000 Lubricant Purchases 25,000

6 ITEM COST (RS.) Advance Rent & Deposit 900,000 Working Capital 552,000 Pre Operating Costs 50,000 Office Furniture & Equipment 80,000 Total Cost 6,047, Proposed Product Mix A typical Auto Repair Workshop is assumed to provide the following four major services: (i) (ii) (iii) (iv) Mechanical, and Denting & Painting Wheel Alignment & Balancing High Pressure Cleaning The following table presents an overview of the proposed main services to be offered under the first two major categories identified above: MECHANICAL DENTING & PAINTING Maintenance Services Cosmetic Repair Major Repairs Accidental Repair Body Restoration Services Mechanical Repairs It is assumed that cars coming into the workshop soliciting mechanical repairs would subscribe to the following main services: (i) (ii) Maintenance Services which mostly constitute running repairs / services like Gear oil / Engine Oil / Break Oil change, Oil Filter change, spark plugs / point repair, lubricant replenishment / replacement, tuning, break shoe repairs, minor suspension repairs etc. These maintenance services are usually characterized by their very little job turnaround time and are usually disposed of within a half a day s work. Major Repairs mainly related to repair and replacement services that require comparatively greater job turnaround time and include activities like engine

7 overhaul (3 weeks), gearbox repair & replacement, steering box repair & replacement, suspension replacement (3 5 days) etc Denting & Painting Services The main denting and painting services provided to the customers would be as follows: (i) (ii) (iii) Cosmetic Repairs which are also known as touching services where minor body defacements (like scratches, dents, paint shrouding etc.) are repaired. Accidental Repairs which constitute chassis, mudguard, bumper, bonnet repairs / replacement services etc. Most of the cars coming for denting & painting services come under this category. Body Restoration Services which include complete restoration of vehicle body for example restoration of decayed body, completely destroyed accidental body restoration etc Wheel Alignment & Balancing (i) (ii) Wheel Alignment which consists of adjusting the angles of the wheels so that they are perpendicular to the ground and parallel to each other. The purpose of these adjustments is to maximize tires life and ensure a vehicle that tracks straight and true when driving along a straight and level road. Wheel Balancing refers to the proper distribution of weight around a revolving tire and wheel assembly. Poor wheel balance can have a marked impact on both the car and safety. Proper wheel balance ensures that the wheels, while spinning, do not have a heavy spot that can cause vibration and premature wear of tires, struts, shocks and other steering and suspension components. When combined with proper wheel alignment, balanced wheels ensure smooth and enjoyable driving High Pressure Cleaning High Pressure Cleaning mainly involves the cleaning of the outer body of the car through high pressure water spray which contains a car body detergent and then a little wax to smoothen the car paint.

8 1.7.5 Sublet Services Sublet services are those ancillary services that are outsourced to other specialized workshops / personnel that are not a part of the service mix offered by the Auto Repair workshop. These sublet services include items like Air Conditioner Repair & Coolant Replenishment, Machine Shop Items, Radiator Repairs, Silencer Repairs, Road Spring Repairs, Upholstery Items (seats, bumpers, plastic repairs etc.), Wheel Alignment / Balancing, Axle End / Tire Rod Repair & replacement etc. These sublet services usually form a part of the total job order of the Auto Repair Workshop and are usually a portion of the lump sum amount charged to the customer by the Auto Repair Workshop. 1.8 Recommended Project Parameters Capacity Human Resource Equipment Location 5 (Management) Local / Eurpoean / High Income 867 Cars / Month 20 (Technical Staff) Chinese Locality Financial Summary Project Cost IRR NPV Payback Period Cost of Capital (WACC) 6,047,000 33% Rs. 4,099,801 3 Years & 5 months 17.5% 1.9 Proposed Location The Auto Workshop business is very much dependent on the location of its setup. Auto Workshops located on main roads or prime locations usually depend on walk-in customers while those that are based on off-road locations have their business coming in from contacts, referrals and companies. The main factors to consider for deciding on the location are: Anticipated Source of Business: If the Auto Workshop owner has contacts and a good referral network he can setup up the workshop in an off road locality which would cost him much lower than locating himself on the main road. On the other hand if the entrepreneur wants to bank his business on walk in customers then he needs to be on main roads to provide easy access to the walk in customers but will have to comparatively pay a higher rent. This becomes more critical for wheel alignment & balancing and high pressure cleaning services.

9 Accessibility of Sublet Services As discussed earlier, most of the workshops do not offer all the services hence some services are outsourced to other specialized workshops / personnel. Quick and easy accessibility to these services would minimize job turnaround time thus the location needs to be in close proximity to these service providers. Existing Competition Concentration of similar types of workshops can give difficult competition, which increases if the competitors are well established and famous for their service. Therefore it is advisable to choose such locations only when the owner is expected to have considerable amount contacts and referrals. Quick Accessibility to Parts Market Maintaining a spare parts inventory is crucial for reducing the job turnaround time. However many auto workshops prefer to be located within close proximity to the spare parts markets to ensure ready availability of desired spare parts. Therefore less money is tied up in maintaining an adequate spare parts inventory Key Success Factors/Practical Tips for Success The main objective for an Auto Repair Workshop is to offer a hassle free quality repair and service operations that eliminate waiting on part of the customer and help to offer value added services to the customer who need their cars fixed right away. The following factors need a continuous focus for making the proposed setup a successful business venture: Growing and Maintaining a Referral Network of Customers The main factor is to attract and maintain a loyal customer base through a customer-oriented focus on business rather than concentrating on volume and losing out old customers. All the workers at the workshop need to be trained and held responsible for providing superior service and developing long lasting trust bond with the customers. This is very important in this industry, where trust and honesty reflect on the image of repair and service facilities. This would help in maintaining a consistent revenue base, to ensure stability of business on the longrun. Expedient and Convenient Auto Repair & Service Facilities This business is very unique in the sense that switching costs are almost negligible for the customer hence the main effort required is to maintain and enhance

10 customer loyalty by providing quick and quality services. Otherwise, the customer would not take time to move to other workshops. Skilled & Experienced Manpower The knowledge and experience of the entrepreneur is not sufficient to run the business smoothly. Provision of quality repair and service facilities solicits skilled and experienced workmen which are an integral component of this business. It is important that the manpower hired should have the required technical capability and customer relationship management skills. Unless the entrepreneur is not skilled and does not possess the required know-how he would not be able to properly hire and manage the manpower. Auto Parts Inventory An adequate auto parts inventory based on prior experience and business volume needs to be maintained in order to give quick service and prevent any inconvenience caused to the customer. Moreover, quick accessibility to used / new auto parts is another important factor that enables to provide hassle-free service to the customers. However, the entrepreneur needs to carefully manage the auto parts inventory to ensure that minimal working capital is tied up. Some workshops usually keep auto parts for the most common car brands while parts of less common / unpopular brand are usually made available on call basis. Specialized Skills Some Auto Workshops become famous due to their expertise in particular area / field or brand. These workshops develop their expertise over a period of years and become famous for specialized areas like Denting & Painting, Axle Repair & Maintenance etc. Some workshops are known experts for specific car brands like Suzuki, Toyota etc. These specialized skills draw the attention of car owners of particular brands or those who are facing specific problems, hence consistent quality needs to be maintained to develop such skills. Another specific issue that relates to specialized skills is the proper use of alignment and balancing equipment such that the customer is properly satisfied. This can be achieved only when the workers operating these machines are properly trained and knowledgeable about the processes.

11 2 PROCESS FLOW The Auto Workshop that provides mechanical and denting & painting services follows a basic process flow as follows: 2.1 Mechanical Services: CAR JOB ORDER TIME / COST ESTIMATE REPAIR / REPLACEMENT DELIVERY TO CUSTOMER TEST TRIAL The above diagram illustrates the basic process flow for mechanical repairs. The customer comes in with the mechanical problem wherein a job card is prepared based on the problems faced by the customer. The foreman then checks the car to check for any additional problems. The customer is then provided with time and cost estimates depending on the whether the parts need to be repaired or replaced. On agreement of the customer the job is allocated by the foreman. It is necessary to test run the car before it is finally delivered to the client. 2.2 Denting & Painting: CAR JOB ORDER TIME / COST ESTIMATE DENTING / RESHAPING PAINTING RUBBING BODY FILLING ON PATCHES BODY PREPARATION FOR PAINT DRYING FINISHING PART REPLACEMENT (IF ANY) FINAL DELIVERY TO CUSTOMER The above diagram illustrates the basic process flow for denting and painting. After the estimation of time and cost the car is given to the Head Denter who reshapes the car back into form and hands it over to the painter. Initially the reshaped body is prepared for painting by applying coating and then patches are filled which are then smoothened by rubbing. The body is then painted and left for drying after which finishing touches and

12 waxing is done to ensure proper shine. In case of accidents, irreparable parts are replaced before making the final delivery to the customer. However subletting activities can also take place during this process on need basis. 2.3 Wheel Alignment Procedure With the development of computerized alignment machines the wheel alignment process has been very much simplified. However there are two types of wheel alignments that are widely practiced: Two Wheel Alignment: The term Two Wheel Alignment is a process where both front wheels are aligned to provide the best Toe in, Caster and Camber settings to provide the best all around handling and tire wear under normal driving conditions. Four Wheel Alignment: The term Four Wheel Alignment is a process where both front and rear wheels are aligned. In a typical Four Wheel Alignment, the rear wheels are checked for toe and tracking. In a typical situation the Rear wheel "Toe" is adjusted by adding or removing small shims between the rear wheel hub and the rear axle. Tracking is checked with the computerized software and the rear axle is checked to make sure that it "tracks" properly behind the front wheels. On a Four Wheel Alignment, the adjustments are first made to true up the rear alignment, then the front is adjusted. Therefore a full Four Wheel Alignment will cost more because there is a lot more work involved. For a general overview the above diagram Rear presents an Front illustration of a car where the front wheels are not aligned to the rear thrust line. This can happen from normal wear and stress, whether the vehicle has adjustable or non-adjustable rear suspension. To steer straight ahead, the driver would have to steer the front wheels slightly to the right. A common result would be that the vehicle would possibly pull to the side. Wheel alignment requires a lot of accuracy because it takes only a small misalignment to create problems.

13 Stage 1: The first stage involves the following steps: 1. Placement of the car accurately on the alignment frame ensuring that Toe, Camber and Casters are in a proper visible position. 2. Angle readings are measured at all four wheels as indicated on the screen 3. The steering wheel is centered. 4. Front wheels are referenced to rear thrust line and set to specifications. 5. A continuous series of alignment iteration would be required unless the computer shows zero angle deviation. At the end this would result in all four wheels being parallel when the steering would be centered. This is illustrated as follows: Front Rear Stage Two: The second stage involves the following steps: 1. Angle readings are measured at all four wheels. 2. Rear wheels are set to specification. (Rear thrust line corresponds to vehicle centerline.) 3. Steering wheel is centered. 4. Front wheels are referenced to the rear thrust line and set to specification Symptoms of a Car Requiring Wheel Alignment Excessive or uneven tire wear. Steering wheel pulls to the left or right. Feeling of looseness or wandering. Steering wheel vibration or shimmy. Steering wheel is not centered when car is moving straight ahead.

14 2.3.2 Benefits of 4 Wheel Alignment Most of the customers shy away from getting rear wheels aligned because of the cost and / or their lack of knowledge of the workshops offering such services. The following are some of the benefits of a four wheel alignment the importance of which should be communicated to the customer by the Workshop employees: Reduced Tire Wear Improper alignment is a major cause of premature tire wear. Over the years, a properly aligned vehicle can add thousands of miles to tire life. Better Mileage Mileage increases as rolling resistance decreases. Total alignment sets all four wheel parallel which, along with proper inflation, minimizes rolling resistance. Improved Handling Most of the time the cars pull to one side and the steering wheel vibrates. The driver has to constantly move the steering wheel to keep the car traveling straight ahead. Many handling problems can be corrected by total 4 wheel alignment. With all the system components aligned properly, road shock is more efficiently absorbed for a smoother ride. Safer Driving A suspension system inspection should be made part of the alignment procedure. This allows for spotting worn parts before they cause costly problems. 2.4 Wheel Balancing Procedure Properly balanced tires help minimize uneven wear and extend their life. When tires are balanced, small lead weights are attached to the wheels to limit vibration of the tire and wheels as they turn. Tires and wheels should be balanced when the tires are rotated (normally every 6,000 miles), after putting on new tires, after fixing a flat tire, and any other time a tire is removed from its rim. There are two "planes" on which a wheel / tire assembly can be balanced:

15 1. The radial or static plane. Imbalance on the static plane can be described as wheel "bounce" or wheel hopping, up and down. 2. The lateral or dynamic plane. Imbalance on the dynamic plane can be described as side to side shake of the tire and wheel assembly, "shimmy" or "wobble". Radial or Static Plane (Bounce) Lateral or Dynamic Plane (Wobble) The radial and lateral balancing wheel procedure is very simple wherein the wheel are removed from the car and mounted onto the balancing machine one at a time. The computer screen shows the angular deviations between the rim and the wheel (rubber) and with the help of the machine the operator tries to balance the wheel horizontally and vertically at best Symptoms of a Car Requiring Wheel Balancing The most common signs of unbalanced tires are vibration and noise problems. When driving with an out-of-balance wheel, the wheel literally bounces down the road rather than spinning smoothly. This can affect the speed, handling and mileage of the car. Most new models have lightweight suspension systems and are therefore, more sensitive to imbalance than older cars. It is advised that the workshop employees recommend their customers to have their car s wheels balanced when rotating the tires, about every 6,000 miles, etc. It is not uncommon for wheels to lose a wheel weight from time to time; so periodic balancing minimizes the impact of unbalanced wheels on the car. 2.5 High Pressure Cleaning

16 High Pressure Cleaning & service mainly involves the cleaning of the outer body of the car through a diesel driven pressure pump machine which ejects water at a very high pressure from the hoses. The car is parked on a ramp after which it is lifted into the air by a Pressure Piston Pump. The water slightly mixed with detergents for proper cleaning is sprayed from the spray guns after which dry air is also used to remove any water drops left on the body. Some Service stations also spray dry air slightly mixed with wax to give a shiny finish which increases the life of the body paint. However most of the service stations manually remove the water droplets with cleaning clothes. 2.6 Equipment Requirement The equipment required for running an Auto Workshop would relate to the activities that the workshop tends to undertake. In this case, the equipment required would be as follows: MECHANICAL REPAIRS & MAINTENANCE Equipment Number Estimated Cost (Rs.) Complete Mechanical Toolbox 2 26,000 Work Bench 2 5,000 Vice 2 9,000 Tool Box Cupboard 1 5,000 Voltmeter / Ammeter 2 5,000 Timing Light 2 12,000 Battery Charger 1 7,000 Compression Gauge 1 6,000 Others - 15,000 Total 90,000 DENTING Equipment Number Estimated Cost (Rs.)

17 Denting Toolbox 2 20,000 Mechanical Toolbox 1 13,000 Pressure Jack (Large) 1 30,000 Gas Cylinder 1 6,000 Carbide Tank 1 3,000 Welding Kits 2 6,000 Drill Machine (Hand) 2 3,000 Puller Jack 1 4,000 Others - 15,000 Total 100,000 PAINTING Equipment Number Estimated Cost (Rs.) Painting Compressor (2 hp; 1k lbs) 1 15,000 Spray Gun (Small) 1 3,000 Spray Gun (Large) 1 4,000 Pipe 1 1,000 Others - 7,000 Total - 30,000 HIGH PRESSURE CLEANING Equipment Number Estimated Cost (Rs.) High Pressure Cleaner (including Piston Pump) 1 550,000 Piston Pump 1 250,000 Total - 800,000 WHEEL ALIGNMENT & BALANCING Equipment Number Estimated Cost (Rs.)

18 Complete Computerized Alignment Equipment (Including Heads, Disc plates etc.) A Class Computerized Wheel Balancing Machine 1 1,000, ,000 Total - 1,650, Spare Parts & Lubricants Inventory As is practiced widely, the proposed workshop would maintain an estimated inventory of Rs. 125,000 for spare parts & lubricants Spare Parts & Consumables This would mainly include items for general repairs like bush, break shoes, filter, points, clutch plates, spark plugs, nuts / bolts etc. for about 8 to 10 models of most common car brands like Suzuki, Toyota and Honda. These purchases would also include daily consumables items like carbide, sand papers etc. that are required for denting & painting services. It is estimated that initial purchases for spare parts & consumables would amount to Rs. 125,000 which would subsequently average to purchases of Rs. 3,200 on a daily basis (Rs. 80,000 for 25 day month) after commencing of operations Lubricants The workshop would also be required to keep a minimum inventory of lubricants to meet the immediate requirements of the customer. Usually lubricants are expensive and many workshops don t find it affordable to keep a large inventory of such items. It is estimated that an initial inventory of Rs. 25,000 would be required for lubricants and the monthly purchases would amount to Rs. 10,000 per month after resuming of operations. 3 MACHINERY & EQUIPMENT

19 3.1 Wheel Alignment Machine The procedure of wheel alignment was traditionally carried out based on manual iterations which was largely dependent on the skill of the worker. The system was totally manual where the angles and the alignment deviations were brought into conformity through guesswork. Through the subsequent introduction of technology, alignment machines were introduced which later developed in totally computerized and automated alignment packages in which the alignment can now be done by sitting on a computer. Majority of the wheel alignment machinery in the market is computer operated with software based operating system. Some machines have electronic panels that only show the deviations while the newer ones have a computer interface having more features. While buying the alignment equipment, its important features need to be considered like o o o User friendly interface of the software. Nowadays most machines are based on XP based alignment software offering a very easy interface for the worker. The features of the software is also another important factor wherein the depth and extent of alignment procedures and aspects are considered The features of the machine / alignment equipment need to be considered especially the alignment time. Most of the newly automated machines require only 5 minutes for complete alignment while the others which are possessed by a majority of the alignment shops usually take minutes for complete alignment. The prices of wheel alignment machines are based on two factors (i) Condition and (ii) Make or Brand. Wheel alignment machines have a very long life lasting for over years with very little depreciation. Because of this many machine suppliers in local markets are refurbishing old / used machinery by repainting them and selling them in the market. There are two main makes of the machinery (i) of European Origin of famous brands like LAUNCH, RAV, BIESRBERTH, HOFFMAN etc. and (ii) of Chinese Origin. However since China is relatively new in this technology many people prefer to opt for European brands because of their quality of features and brand establishment. Brand new European machines cost around Rs. 850,000 1,000,000 (A Class) while the others cost around Rs. 650, ,000 (B Class). Brand new Chinese machinery with A Class features also costs around Rs. 650, ,000 but despite the low cost people prefer to opt for European brands since Chinese Machinery are still in the testing stages.

20 For the purpose of this study we have assumed procurement of a new European branded machinery costing around Rs. 1,000,000 having the latest features and easy to operate facilities. 3.2 Wheel Balancing Machines The Wheel balancing Machinery is available on similar brands and makes as those of alignment machines. However the price variation of these electronically operated machines is greater where used machines cost around Rs. 200,000 while new ones cost around Rs. 1,200,000. For the purpose of this study we have assumed purchase of a wheel balancing machinery containing good features and costing around Rs. 650,000. The wheel balancing equipment similar to alignment equipment has a very long life but requires more maintenance as compared to alignment machinery. 3.3 High Pressure Cleaning Equipment High pressure cleaning equipment is relatively delicate machinery which has a lot of deprecation such that it needs to be replaced after every 3 years. Usually the water tank and the pressure valves and hoses loose their durability within this time period and need to be completely replaced. For some service stations the replacement time period ranges around 2 years depending on the continuous use of the product. High pressure cleaning equipment is available in local markets ranging from Rs. 750,000 to 800,000 of various European Brands like ITM ITALIA, EUROCLEAN, KRENZELEY etc. Due to its high depreciation the high pressure equipment requires a lot maintenance costs on a monthly basis which even amounts to one fourth of its original cost per month. For the purpose of this study we are assuming a quality pressure cleaning equipment costing around Rs. 550,000 having life of 3 years with a maintenance cost of approximately 25 % of its written down value. An additional Rs. 250,000 will be required for the purchase and installation of Piston Pressure Lift. Since the machines require diesel fuel for operation, it is assumed that the fuel cost would be Rs. 5,000 per month.

21 4 LAND & BUILDING REQUIREMENT 4.1 Land Requirement The proposed Auto Workshop setup is assumed to operate in 1,000 sq. yards that allows ample space for Denting & Painting and Mechanical services and also for general parking services for walk-in customers. 4.2 Covered Area Requirement The workshop is assumed to be totally covered with around 95% of the total area catering to technical works and the remaining 5% for General Office and Stores. It is recommended that minimum space be utilized for office and store setup to allow maximum number of cars within the workshop vicinity. The covered area for workshop operations would be divided between the proposed services and would assume the following break up (including parking for standby / waiting customers): Mechanical Works 350 Sq. Yards Denting & Painting 300 Sq. Yards Wheel Balancing & Alignment 150 Sq. Yards High Pressure Cleaning 150 Sq. Yards 4.3 Recommended Mode The proposed land will be acquired on a rental basis with 3 month deposit and 3 months advance rent after which rent will be payable on a monthly basis. 4.4 Office Furniture & Equipment A total of Rs 80,000 is required for purchase of office furniture and related equipment. The following table gives an assumed breakup: OFFICE FURNITURE Item Number Estimated Cost (Rs.) Table & Chair Set (Owner) 1 10,000 Table & Chair Set (Customer Service) 1 5,000 Air Conditioner (Split Unit) 1 30,000 Waiting Chairs 10 10,000

22 Sofa Set for Customers 1 15,000 Curtains / Interior Décor - 10,000 Total 80,000 The Office Furniture & Equipment will be depreciated at the rate of 10% per annum according to the diminishing balance method for the projected period. 4.5 Suitable Location The proposed location for an Auto Workshop considering the factors mentioned earlier would be in a medium high income locality area where almost all of the nearby residents are expected to have at least one car. 5 HUMAN RESOURCE REQUIREMENT The Auto Workshop is a labor intensive industry where the labor cost constitutes a considerable portion of the cost of sales. The following table gives a breakup of the total administrative manpower required to operate the proposed setup. GENERAL MANAGEMENT Designation / Type Number Monthly Salary (Rs.) Owner 1 - Accountant 1 2,500 (10-12 hours) Purchaser 1 5,000 Office Assistant / Store Keeper 1 2,500 Guard 1 2,000 (Night Duty Only) Considering the size of the proposed establishment it is assumed that the owner would be managing the overall affairs of the workshop. A part-time accountant is required to process and check bills, invoices, job orders etc. The accountant is required to come at least once a week with a minimum duration of 3 hours per each visit. The purchaser would be primarily responsible for making daily purchases; spare parts inventory purchases and other purchases as and when required. The office assistant would be responsible for handling customers & complaints, following-up on bills and managing

23 all activities related to spare-parts store keeping. A security guard would be required for ensuring safe custody of customer cars during the night. The following table gives the details for the proposed technical labor that forms the integral part of the cost of sales: JOB / DUTY ALLOCATION Designation / Type Number Monthly Salary (Rs.) Foreman 1 8,500 MECHANICAL REPAIRS & MAINTENANCE Designation / Type Number Monthly Salary (Rs.) Mechanics (Ustad) 2 12,000 Assistant Mechanics 2 8,000 Helpers 2 3,000 DENTING Designation / Type Number Monthly Salary (Rs.) Head Denter (Ustad) 1 8,000 Denters 2 12,000 Assistant Denter 1 4,000 Helper 1 2,000 PAINTING Designation / Type Number Monthly Salary (Rs.) Painter Ustad 1 8,000 Assistant Painters 2 10,000 Helper 1 2,000 Total ,500 The foreman would be responsible for checking and diagnosing the customer s car to ascertain any additional repairs / replacements that might not have been identified by the customer. Once the estimates and repair / replacement work is agreed with the customer

24 the foreman would then allocate the job and ensure its timely completion. The foreman would also be required to check the cars (trial run) before delivering them to the customers. WHEEL ALIGNMENT & BALANCING Designation / Type Number Monthly Salary (Rs.) Operator (Incharge) 1 8,000 Assistant Operator 1 4,000 HIGH PRESSURE CLEANING Designation / Type Number Monthly Salary (Rs.) Cleaner (Incharge) 1 8,000 Assistant Cleaner 1 4,000 Total 4 24,000 The total monthly salary of the technical staff would amount to Rs. 146,500 and is assumed to increase by 10% per annum. 6 FINANCIAL ANALYSIS & KEY ASSUMPTIONS The project cost estimates for the proposed Auto Workshop have been formulated on the basis of discussions with relevant stakeholders and experts. The cost projections cover the cost of land, building, inventory, equipment including office furniture etc. The specific assumptions relating to individual cost components are given as under: 6.1 Revenue & Cost Projections Revenue projections for this Auto Workshop include sales streams from two main sources i.e. Denting & Painting and Mechanical Repairs & Maintenance. The Sales are expected to grow at a real rate of 12% per annum which reflects on the anticipated growth in the number of cars on the road hence the business is expected to increase based on volume rather than increased service charges Gross Margins The following table gives the Gross Margins for the proposed services: SERVICE GROSS MARGIN Denting & Painting 27 %

25 SERVICE Cosmetic Touchups Accidental Repairs Full Body Restoration GROSS MARGIN 14 % 29 % 30 % Mechanical Repairs & Maintenance 29 % Maintenance Services Major Repairs 33 % 14 % Wheel Alignment & Balancing 90 % Alignment Balancing 91 % 89 % High Pressure Cleaning 76 % Overall 56 % Margins on Parts / Lubricants / Services The Auto Workshop being a service oriented setup charges a margin on each of the products it uses and services it provides. The following table presents the breakdown of the margin: SERVICE MARGIN Spare Parts 10.0 % Lubricants 12.5 % Subletting 25.0 % It is assumed that the cost of parts, lubricants and sublet service is expected to increase at the rate of 10 % per annum for the projected period. 6.2 Rent Cost The rent for the assumed premises will be Rs. 150,000/- per month. It is assumed that Rs. 900,000 will be given in advance before possession of premises. This will include 3 months deposit and 3 month advance rent. The rent would be payable on a monthly a basis and is expected to increase at the rate of 10% per annum for the projected period.

26 6.4 Pre-Feasibility Study 6.3 Construction Cost The Auto Workshop involves construction cost which translates into three main components as follows: Office / Store Construction which involves a two storey building in which the ground floor would accommodate the owner s office and administration while the first storey would serve as a store for spare parts and other items. The office and store construction cost is taken to be as Rs. 750 per square feet which comes to a total of Rs. 675,000 for the two storey structure (450 sq. ft. x 2). This cost is inclusive of all accessories and fittings except for AC and Office Furniture. Masonry work would be required in the area allocated for Denting & Painting and Mechanical Works. It is assumed that the proposed workshop would be able to accommodate 6 cars for mechanical repairs and around 8 cars for denting & painting at one time. This would require a total of 14 bay areas to be constructed with underground ducts and ramps in 6 of the bay areas for mechanical repairs. The cost for masonry will be as follows: MASONRY WORK FOR BAY AREAS Item Bay Areas Estimated Cost (Rs.) Mechanical Work (Duct & Ramp) 6 60,000 Denting 4 30,000 Painting 4 30,000 Total ,000 The third main construction would be required for making two separate sections for (i) Wheel Alignment & Balancing and (ii) High Pressure Cleaning. The cost of construction for these would be approximately o o Wheel Alignment & Balancing (Rs. 400 per Sq. Feet x 1000 Sq. Feet) High Pressure Cleaning (Rs. 400 per Sq. Feet x 1000 Sq. Feet) requiring high ceiling for piston pump car lift.

27 CONSTRUCTION COST FOR WHEEL ALIGNMENT / BALANCING & PRESSURE CLEANING Item Estimated Cost (Rs.) Wheel Alignment & Balancing 400,000 Ramp for Alignment 50,000 High Pressure Cleaning 400,000 Total 850,000 (Note: For wheel alignment there should be at least a minimum space of 5 feet from the front & back end of the car and a space of 2 feet at the sides for flexibility in operating the machine) 6.4 Utilities Requirement The following table presents the assumed breakup of utilities on a monthly basis: UTILITY MONTHLY CHARGES (RS.) Electricity 12,000 Water 10,000 Telephone 2,500 Entertainment 1,000 Total 25,500 It is assumed that utilities expenses will increase by 10% every year. 6.5 Depreciation on Building & Equipment Depreciation on Building, Technical Equipment, Alignment & Balancing Equipment and Office Furniture & Fixtures is assumed to be at the rate of 10% per annum based on the diminishing balance method for the projected period. Depreciation on High Pressure Cleaning Equipment will be calculated on a straight-line basis with no salvage value at the end of 3 rd year; hence it has been assumed that this equipment will be replaced after every three years at a cost which will be 10% greater than the acquisition cost of the previous equipment.

28 6.6 Labor Allocation Costs The technical labor costs form an integral part of the cost of sales for the proposed Auto Workshop. This makes it difficult to trace the labor costs specifically to the services offered since a person can work on more than one function at one time. For the purpose of this study the following breakup of labor costs are considered according to the workload based on the number of cars for a particular type of service: Labor Cost per Car (Rs.) Denting & Painting Mechanical Repairs Monthly pay Cosmetic Accident Restoration Minor Major Mechanical 46, ,000 23,000 Denting 38,000-28,500 9, Painting 30,000 18,000 4,500 7, Foreman 8,500 1,700 1,700 1,700 1,700 1,700 Total 122,500 19,700 34,700 18,700 24,700 24,700 Cars (Estimated) Labor Costs 3,283 4,957 9, , Working Capital & Pre Operating Costs It is estimated that an additional amount of approximately Rs. 516,000 will be required as cash in hand to meet the working capital requirements / contingency cash for the initial stages. The requirement is based on the utilities and salaries expenses for at least three months. The following table gives the break up. ITEM 3 MONTHS COST (RS.) Utilities 76,500 Salaries 475,500 Total 552,000 The provision for pre operating costs is assumed to be Rs. 50,000 which will be amortized equally over a 5 year period.

29 6.8 Account Receivables A collection period of 45 days is assumed for sales. Further provision for bad debts has been assumed equivalent to 10% of Gross receivables. 6.9 Traveling & Miscellaneous Office Expenses A monthly figure of Rs. 5,000 (200 per day) is assumed to be incurred for traveling expenses and office purchases which are expected to increase at the rate of 10% per annum for the projected period Financial Charges It is assumed that long-term financing for 5 years will be obtained in order to finance the Auto Workshop setup which would mainly include Construction of Building, Masonry work, Purchase of Equipment etc. This facility would be required at a rate of 15% (including 1% insurance premium) per annum with 60 monthly installments over a period of five years. The installments are assumed to be paid at the end of every month Taxation The tax rate applicable to sole proprietorship is the same as that of the salaried individual. Therefore, we are assuming that the tax rate would be the same for the proposed photo lab setup Cost of Capital The cost of capital is explained in the following table: Particulars Rate Required return on equity 20.0 % Cost of finance 15.0 % Weighted average cost of capital 17.5 % The weighted average cost of capital is based on the debt/equity ratio of 50: Owner s Withdrawal It is assumed that the owner with withdraw from the business once the desired profitability is reached from the start of operations. The amount would depend on business sustainability and availability of funds for future growth.

30 6.14 Key Assumptions Item Assumption(s) Sales Increase 12 % per year Increase in Cost of Sales 10 % per year Increase in Staff Salaries 10 % per year Increase in Utilities (Electricity / Water / 10 % per year Gas) Increase in Rent 10 % per year Increase in Office Expenses 10 % per year Debt / Equity Ratio 50 : 50 Depreciation o Building & Masonry Work 10 % per annum (Diminishing Balance) o Technical Equipment 10 % per annum (Diminishing Balance) o Office Furniture & Equipment 10 % per annum (Diminishing Balance) o Wheel Alignment & Balancing 10 % per annum (Diminishing Balance) o Piston Pump Car Lift 10 % per annum (Diminishing Balance) o High Pressure Cleaning Straight Line 33 % per year High Pressure Cleaning Maintenance Cost 25 % of Cost Price High Pressure Cleaning Replacement 3 years Lease Period 5 Years Lease Installments Monthly Financial Charges (Lease Rate) 15 % per annum Tax Rate Income Tax on Salaried Individuals

31 6.15.a Revenue & Cost MONTHLY REVENUE / COST SCHEDULE Item Revenue / Fee Charged (Rs.) Cost of Sales (Rs.) Fee Charged (Rs.) Estimated Cars Revenue Material Labor Spare Parts Lubricants Subletting Total Cost Gross Margin (%) Denting & Painting 181, ,271 27% Cosmetic Touchup (3 Piece Patching & Paint) 5, ,000 1, ,698 14% Accidental Repairs 13, ,000 3,000 4, ,285 29% Full Body Restoration 30, ,000 6,000 9,350 2, ,400 42,288 30% Mechnical Repairs 190, ,556 29% General Repairs 1, , ,130 33% Major Repairs 20, ,000-12,350 3, ,426 14% TOTAL 371, ,827 28%

32 ASSUMPTIONS ASSUMPTIONS Full Body Restoration % age of Revenue General Repairs % age of Revenue Spare Parts 10% Sublet 7% Subletting 10% Parts 45% Lubricant 2.5% Lubricant 5% ASSUMPTIONS ASSUMPTIONS Accidental Repairs % age of Revenue Major Repairs % age of Revenue Spare Parts 5% Parts 20% Subletting 5% Lubricant 2.5% Lubricant 1% Subletting 5.0%

33 6.15.b Revenue & Cost MONTHLY REVENUE / COST SCHEDULE Item Revenue / Fee Charged (Rs.) Cost of Sales (Rs.) Gross Margin (%) Fee Charged (Rs.) Estimated Cars Revenue Material Labor Spare Parts Lubricants Subletting Total Cost Wheel Alignment / Balancing 125,000 12,000 90% Wheel Alignment , ,000 91% Wheel Balancing , ,000 89% High Pressure Cleaning 62,500 17,000 73% High Pressure Cleaning , ,000 73% TOTAL 187,500 29,000 85%

34 6.16 Projected Income Statement AUTO WORKSHOP Projected Income Statement (Rs.) Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 Revenue 6,702,000 7,506,240 8,406,989 9,415,827 10,545,727 11,811,214 13,228,560 14,815,987 16,593,905 18,585,174 Denting & Painting 2,172,000 2,432,640 2,724,557 3,051,504 3,417,684 3,827,806 4,287,143 4,801,600 5,377,792 6,023,127 Genera l Repairs / Maintenance 2,280,000 2,553,600 2,860,032 3,203,236 3,587,624 4,018,139 4,500,316 5,040,354 5,645,196 6,322,620 Wheel Alignment & Balancing 1,500,000 1,680,000 1,881,600 2,107,392 2,360,279 2,643,513 2,960,734 3,316,022 3,713,945 4,159,618 High Pressure Cleaning 750, , ,800 1,053,696 1,180,140 1,321,756 1,480,367 1,658,011 1,856,972 2,079,809 Net Sales 6,618,225 7,412,412 8,301,901 9,298,130 10,413,905 11,663,574 13,063,203 14,630,787 16,386,481 18,352,859 Cost of Sales 3,561,930 3,918,123 4,309,935 4,740,929 5,215,022 5,736,524 6,310,176 6,941,194 7,635,313 8,398,844 Gross Profit 3,140,070 3,588,117 4,097,054 4,674,899 5,330,705 6,074,690 6,918,383 7,874,793 8,958,592 10,186,329 Gross Profit Margin 46% 47% 48% 49% 50% 51% 52% 53% 53% 54% General Administrative & Selling Expenses Salaries 144, , , , , , , , , ,544 Utilities Expense 306, , , , , , , , , ,532 Rent Expense 900, ,000 1,089,000 1,197,900 1,317,690 1,449,459 1,594,405 1,753,845 1,929,230 2,122,153 Office Miscellaneous & Traveling Expenses 60,000 66,000 72,600 79,860 87,846 96, , , , ,477 Amortization of Preliminary Expenses 10,000 10,000 10,000 10,000 10, Maintenance Expense 91,667 45, ,833 50, ,917 55, ,008 Depreciation Expense 567, , , , , , , , , , Subtotal 2,079,500 2,136,217 2,210,878 2,469,511 2,578,735 2,699,529 3,034,990 3,208,888 3,409,808 3,839,694 Operating Income 1,060,570 1,451,900 1,886,175 2,205,388 2,751,970 3,375,161 3,883,393 4,665,905 5,548,784 6,346,635 Financial Charges(15%PerAnnum) 424, , , ,591 66, Earnings Before Taxes 636,414 1,098,314 1,614,502 2,028,797 2,685,746 3,375,161 3,883,393 4,665,905 5,548,784 6,346,635 Tax 101, , , , ,511 1,053,806 1,231,688 1,505,567 1,814,574 2,093,822 Net Profit 534, ,404 1,176,927 1,446,218 1,873,235 2,321,355 2,651,706 3,160,338 3,734,210 4,252,813 Monthly Profit After Tax 44,568 70,117 98, , , , , , , ,401

35 6.17 Projected Balance Sheet AUTO WORKSHOP Projected Balance Sheet (Rs.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Assets Current Assets Cash & Bank Balance 552, ,879 1,371,554 2,032,376 2,146,430 3,100,595 4,960,684 6,328,771 8,595,775 11,162,954 13,266,437 Accounts Receivable (Net) 0 83,775 93, , , , , , , , ,315 Lubricants & Spare Parts Inventory 150, , , , , , , , , , ,061 Prepaid Rent 900, , , , , , , , , , ,000 Total Current Assets 1,602,000 1,975,654 2,546,882 3,237,113 3,383,743 4,373,993 6,274,058 7,686,436 10,002,513 12,624,070 14,787,813 Fixed Assets Building & Workshop 1,645,000 1,480,500 1,332,450 1,199,205 1,079, , , , , , ,576 Technical Equipment 220, , , , , , , ,225 94,703 85,233 76,709 Office Furniture 80,000 72,000 64,800 58,320 52,488 47,239 42,515 38,264 34,437 30,994 27,894 Machinery 2,200,000 1,851,667 1,519,833 1,202,850 1,485,898 1,175, ,878 1,232, , ,244 1,063,353 Total Fixed Assets 4,145,000 3,602,167 3,095,283 2,620,755 2,762,013 2,324,478 1,910,530 2,163,144 1,769,363 1,392,777 1,741,532 Intangible Assets Pre Operating Costs 50,000 40,000 30,000 20,000 10, Total Assets 5,797,000 5,617,820 5,672,165 5,877,868 6,155,756 6,698,471 8,184,588 9,849,580 11,771,876 14,016,847 16,529,345 Owner's Equity 3,023,500 3,258,310 3,799,714 4,576,640 5,522,859 6,846,094 8,317,448 9,969,154 11,879,492 14,113,702 16,616,515 Long Term Liability 3,023,500 2,584,510 2,074,951 1,483, , Total Equity & Liabilities 6,047,000 5,842,820 5,874,665 6,060,118 6,319,781 6,846,094 8,317,448 9,969,154 11,879,492 14,113,702 16,616,515

36 6.18 Projected Statement of Cash Flows AUTO WORKSHOP Projected Statement of Cash Flows (Rs.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year10 Cash Flow From Operating Activities Net Profit 0 534, ,404 1,176,927 1,446,218 1,873,235 2,321,355 2,651,706 3,160,338 3,734,210 4,252,813 Add: Depreciation Expense 0 567, , , , , , , , , ,980 Amortization Expense 0 10,000 10,000 10,000 10,000 10, (Increase) / decrease in receivables (83,775) (10,053) (11,259) (12,610) (14,124) (15,819) (17,717) (19,843) (22,224) (24,891) (Increase) / decrease in inventory (15,000) (16,500) (18,150) (19,965) (21,962) (24,158) (26,573) (29,231) (32,154) (35,369) Net Cash Flow From Operations 0 1,013,869 1,354,234 1,652,295 1,905,610 2,301,087 2,710,088 3,033,588 3,517,003 4,067,180 4,585,532 Cash Flow From Financing Activities Receipt of Long Term Debt 3,023,500 Repayment of Long Term Debt (438,990) (509,559) (591,473) (686,555) (796,922) Owner's Equity 3,023,500 (300,000) (300,000) (400,000) (500,000) (550,000) (850,000) (1,000,000) (1,250,000) (1,500,000) (1,750,000) Net Cash Flow From Financing Activities 6,047,000 (738,990) (809,559) (991,473) (1,186,555) (1,346,922) (850,000) (1,000,000) (1,250,000) (1,500,000) (1,750,000) Cash Flow From Investing Activities Capital Expenditure (1,645,000) Office Furniture (80,000) Technical Equipment (2,670,000) (605,000) (665,500) (732,050) Lubricant & Parts Inventory (150,000) Preliminary Operating Expenses (50,000) Advance Rent (900,000) Net Cash Flow From Investing Activities (5,495,000) (605,000) 0 0 (665,500) 0 0 (732,050) NET CASH FLOW 552, , , , , ,165 1,860,088 1,368,088 2,267,003 2,567,180 2,103,482 Cash at the Beginning of the Period 0 552, ,879 1,371,554 2,032,376 2,146,430 3,100,595 4,960,684 6,328,771 8,595,775 11,162,954 Cash at the End of the Period 552, ,879 1,371,554 2,032,376 2,146,430 3,100,595 4,960,684 6,328,771 8,595,775 11,162,954 13,266,437