EXECUTIVE SUMMARY

It has been a good learning experience to do the detailed project report on setting up of the
Handicraft industry in the RIICO industrial area, Jhunjhunu as a part of my MBA program.
The study has been made an attempt to gain better understanding about how actually the
manufacturing plant is set up.
Under this, at first I generated the product idea of handicraft, matching with my profile. The
main objective of the project is to the study the feasibility analysis of the handicraft
manufacturing plant. After the idea generation, the industry analysis at both the global and
domestic level was done to understand the market trends and other factors.
Then the market analysis was done through the survey in form of questionnaires and
interviews of the manufacturers. After this using the statistical techniques did the demand
analysis. With this the demand estimation, the technical analysis was done.
After completing the technical analysis, the financial analysis was done to check the financial
feasibility of the project. It involved the preparation of cash flow statements, working capital
requirement schedules, profitability statements and the balance sheets of 3 years. This
provided the data for using the performance indicators and other capital budgeting
techniques. Lastly, the risk analysis was done to estimate the risk involved in the project.
On the whole it was a wonderful experience & a great learning opportunity. The complete
project was an eye opener which added to my theoretical knowledge. There were times when
I was disheartened & disappointed, but there were times when things went right & made me
feel proud.
Success does not come at once; one has to start right from the scratch & struggle his way
through all hardships with courage & determination.

PROMOTERS IDEA

The idea of handicraft manufacturing was conceived by looking the aptitude & qualifications
of the conceiver (myself).

Qualifications:
- MBA in Marketing & HR
- BCA
Along with the above qualification belongingness to a Business, family will support my
project.

The idea was generated as my Uncle is a manufacturer and exporter of wooden

handicraft. So this project would provide me an in-depth knowledge to set up a
handicraft-manufacturing mill in Jhunjhunu.

The Indian Handicraft Industry is showing continuous growth rate of 15% every year.

The profitability with which the current firms are running nationally as well as
internationally is also one of the factors for conceiving the idea of handicraft
manufacturing mill.

Thus, taking all of the above factors into account the idea of setting up a handicraftmanufacturing mill was established.

FIRM AND PROMOTERS

Firm:
The firm namely Shekhawati Handicrafts, Jhunjhunu will be a sole proprietorship firm
and will function from Jhunjhunu under the concerned persons name (myself).

Promoter:
Decision for entrepreneurship is promoted by 5 major reasons. These are:

Personal
Characteristics

Personal
Environment

Personal Goals

Decision to Behave
Entrepreneurially
Business
Environment

Idea

Moreover, it is an Idea/Innovation that leads towards Entrepreneurship i.e.; idea comes

first and entrepreneurship follows afterwards.

HANDICRAFT

Introduction(start)
Handicrafts are unique expressions and represent a culture, tradition and heritage of a
country. The Handicraft Industry is one of the important productive sectors. Various
attempts have been made to define this broad and diversified industry. The following
definition strives to cover diversity and complexity of Handicraft Industry.
Defining Handicrafts:
Definition According
Organization/Information

to

United

Nations

Technology

Educational,

Community

Scientific

(UNESCO/ITC)

and

Cultural

International

Symposium on Crafts and the International Market: Trade and Customs Codification,
Manila, Philippines, October 1997:
Handicrafts can be defined as products which are produced either completely by hand or
with the help of tools. Mechanical tools may be used as long as the direct manual
contribution of the artisan remains the most substantial component of the finished product.
Handicrafts are made from raw materials and can be produced in unlimited numbers. Such
products can be utilitarian, aesthetic, artistic, creative, culturally attached, decorative,
functional, traditional, religiously and socially symbolic and significant.
Definition according to Govt. of India:
Handicraft can be defined, which is made by hand; should have some artistic value; they
may or may not have functional utility.

Importance of Handicrafts:

The Cultural Importance: Handicrafts play very important role in representing the
culture and traditions of any country or region. Handicrafts are a substantial medium
to preserve of rich traditional art, heritage and culture, traditional skills and talents
which are associated with peoples lifestyle and history.

The Economic Importance: Handicrafts are hugely important in terms of economic

development. They provide ample opportunities for employment even with low
capital investments and become a prominent medium for foreign earnings.
4

Industry Analysis

India is a country of rich culture, history and traditions. India is one of the major
producer and supplier of Handicrafts products in the world. India has been major
producer and supplier of handicrafts products since very long time. Before the industrial
development, this art and industry was a potential economic advantage for the country.
During recent years, the importance of handicrafts has been surged due to their cultural
and financial values. The small-scale industries including handicrafts can play a major
role in the development of the economy of both developed and the developing countries
equally. The 90-95% of the total industrial products of the world is produced in small
workshops run by less than 100 people. For instance, Japan, which is at the peak of the
economic development, has considered 84% of its industries as small and medium scale
industries. In countries such as India and China, handicrafts are as high as the
mechanized products in quality and volume, and are a major source of their foreign
earnings. These countries are focusing on the development of handicraft industry, in
order to strengthen the economy.
The Indian handicrafts industry is highly labour intensive, cottage based and
decentralized industry. The industry is spread all over the country mainly in rural and
urban areas. Most of the manufacturing units are located in rural and small towns, and
there is huge market potential in all Indian cities and abroad. Handicraft industry is a
major source of income for rural communities employing over six million artisans
including a large number of women and people belonging to the weaker sections of the
society.
The Handicraft sector is highly creative sector and produces large variety of crafts
products. This industry is localized segment of the domestic and international market. In
India the production of craft products are done on both large and small scale. Because of
low capital investment people can start their business on small scale. Through this
flexibility the demand and supply can be managed Hough Indian Handicraft industry is
considered a cottage industry, but it has evolved as one of the major revenue generator
over the years. There has been consistent growth of 15% over few years and the industry
has evolved as one of the major contributor for export and foreign revenue generation.

There is huge demand for the Indian Handicraft products in both national and
international market. To match the demand and supply with quality, there is need to have
greater technological support and innovativeness with the uniqueness in industry.

Key Facts of Indian Handicrafts Industry

Indias rich cultural diversity and heritage provides a unique and huge resource for
developing craft products.

The Indian Handicraft Industry is showing continuous growth rate of 15% every year.

Handicrafts industry is one of the important segments of decentralized sector in India.

Major parts of industry operates in rural and semi urban areas throughout the country
and has potential Indian and International market with around 67000 exporters to tap
the market.

According to the national census of handicrafts, undertaken by the National Council

for Applied Economic Research the value of handicrafts produced last year were of
Rs 26, 213 Crores.

This Industry provides huge employment opportunities to artisans that include women
and people belonging to backward and weaker society. This is one of the major
sources of income there.

Indias contribution in world market is 1.2%

The total exports of crafts items: - Rs. 134129.2 millions.

Industrys share in India's exports:- 1.51 %

In spite of having diversified products, some part of Indian market are still untapped
and market is price sensitive.

Products are high priced in big and metro cities, which are beyond, reach of people
belonging middle and lower middle class.

Craft producers have to compete on price, quality and delivery for different segments.

There is poor promotion for craft products in national market.

There is lack of awareness about new traditions and among craftsmen and there is
need of technological support and training.

Classification:
Handicrafts industry comprises diversified products portfolio and there is large variety
available in market. Handicrafts products can be distinguished into following:
Metal ware, Wood ware, Hand printed textiles, Embroidered and crocheted goods,
Shawls, Carpets, Bamboo products, Zari goods, Imitation jewellery, Paintings,
Earthenware, Jute products, Marble Sculpture, Bronze Sculpture, Leather Products and
other (are u going to produce all these ) miscellaneous handicrafts.

SWOT Analysis
Strengths:

Large, diversified and potential market.

There is large product variety and range is available because of diversified culture.

It has strong, diversified and supportive retail infrastructure.

Diversified product range that service different market.

Cheap labour rates that result to competitive price.

Need low capital investment.

There is flexible production flexibility.

Low barriers of new entry.

Easy creation and development of production centres.

There is no need for macro-investment.

Industry provides potential sources of employment.

Products are high value added, and handicrafts have various applications.

It is the potential source of foreign revenue because of higher export.

Weaknesses:

Lack of infrastructure and communication facilities.

Unawareness about international requirements and market.

Lack of co-ordination between government bodies and private players.

Inadequate information of new technology.

Inadequate information of current market trends.

Less interest of young people in craft industry.

8

Lack of skilled labour.

Still confined to rural areas and small cities and untapped market.

Lack of promotion of products.

Opportunities:

Rising demand for handicraft products in developed countries such as USA, Canada,
Britain, France, Germany, Italy etc.

Developing fashion industry requires handicrafts products.

Development of sectors like Retail, Real Estate that offers great requirements of
handicrafts products.

Development of domestic and international tourism sector.

E-Commerce and Internet are emerged as promissory distribution channels to market

and sell the craft products.

Threats:

Competition in domestic market.

Quality products produced by competing countries like China, South Africa.

Better Trade terms offered by competing countries.

Increased and better technological support and R and D facility in competing

countries.

Limitations of Handicraft Industry(last point)

Inspite of having diversified products, some part of Indian market is still untapped and
market is price sensitive.

Products are high priced in big and metro cities, which are beyond the reach of people
belonging middle and lower middle class.

Craft producers have to compete on price, quality and delivery for different segments.

There is poor promotion for craft products in national market.

There is lack of awareness about new traditions and among craftsmen.

It is difficult to balance the cultural and commercial value of handicraft products.

Inadequate supply chain management and distribution reduces the sectors

commercial viability and economic sustainability.

Lack of Technological support and training.

9

Lack of Research and development for key handicraft sectors like, ceramics, paper
making etc.

There is shortage of skilled craftsmen and labour to match the competition.

Lack of ability to produce in large scale and create economies of scale.

Inadequate material testing and performance measurement.

Inappropriate energy supplies to rural and sub-urban areas.

Untapped and inaccessible market due to poor transportation infrastructure.

There are inadequate training centres to develop skilled craftsmen.

Possible Initiatives should be taken to overcome the limitations of

industry(last point)

The primary objective is to create an environment that helps the industry to compete
on the global basis.

To build the environment that will focus on: Wealth Creation, Infrastructure
Development, Training, Technological Development, and Poverty Alleviation etc. to
enhance the sector performance.

Awareness should be increased among craftsmen and customers through Trade

Events, Seminars, Craft Forums and advertisements.

More training centres should be opened to provide proper training to craft persons.

There should be more trade shows to facilitate craft producers to access the market.

Transportation infrastructure should be improved to access the untapped market that

would be beneficial to reduce the transportation cost.

Promotion of cultural tradition and heritage.

Promotion of Indian Tourism to attract the foreign customers.

Developing technologies to recycle natural resources to produce new products and

ensure waste minimization, product durability and reliability.

Promoting Partnership and collaboration with private sector.

There should be market platform for craft producers belonging to rural areas to
market their products.

Development of electronic platform by using internet to provide information,

database, and marketing and distribution solution.

Increased Private participation in industry.

10

There should be optimized distribution network and supply chain management.

Through improving labour productivity in a high labour intensive and price

competitive market.

There should be proper balance between cultural and commercial value of craft
products to sustain business opportunities.

Through using low cost production methods the sustainability of small business can
be improved.

Value Addition Model

The performance of Handicraft Industry can be improved and the greater value addition
can be done by implementing following model:

Identify the Potential Market

Making Effective Business Plan and Refinement in existing business

Test Marketing to test the initial potential of new products in market

Effective Operational and Technological Up gradation

Hiring skilled manpower, provide training and awareness about latest technology and
market trends and effective management.

Hiring skilled manpower, provide training and awareness about latest technology and
market trends.

Cost Effective Production; Maintain Quality Standards, and Packaging.

Set the Costing and Pricing with Quality taken to be consideration

Cost Effective Distribution Development using both Physical and Electronic

Distribution Channels (Internet, e-Commerce)

Both National and International Market Development for better Export and Foreign
Revenue.

Wooden Handicraft Industrial Overview

Wooden handicrafts are specialized skills passed on from one generation to the next. The
term 'wooden handicrafts' refers to a wide range of wooden items carrying utilitarian and
artistic value that are made by hand, or with the use of simple tools. Indian wooden

11

handicrafts reflect unmatched workmanship, fine designs, and subtle elegance. This makes
India one of the chief exporters of wooden handicrafts in the world market.
According to the classification of Indian industries, a small scale industry is defined as an
industry that is:

Not registered under the Factory Act.

Investment in fixed assets does not exceed Rs 60 lakhs.

Small scale industries are classified into two categories:

Modern small scale industries like power looms etc.

Traditional industries like handlooms, sericulture, khadi, coir, and handicrafts.

Wooden handicrafts fall in the category of small scale traditional industries.

Role in Indian Economy
The wooden handicrafts industry plays an important role in the Indian economy. This
industry requires low capital investment and other resources. The wooden handicraft sector
provides a high ratio of value addition, and has emerged as one of the major sources of
foreign exchange earnings for India.
Indian wooden handicrafts are much sought after the world over, and form an important
export commodity of India. Although India's handicraft exports show a consistent increase of
fifteen percent every year, its share in the international market is not more than two percent.
The Indian wooden handicraft sector is the second largest employment provider (after
agriculture). It employs about six million artisans. Women constitute a large section of the
handicrafts industry, including people belonging to the weaker sections of society.

Conclusion:
The Indian Handicraft Industry stands a unique place among all other industries. It represents
the rich culture, tradition and heritage of India. Indias rich cultural diversity and heritage
provides a unique and huge resource for developing craft products. The Indian Handicraft
Industry is showing continuous growth rate of 15% every year and it is one of the most
important segment of decentralized sector in India.
Most of the part of industry operates in rural and semi urban areas throughout the country
and have large and potential in Indian & International market. Indian Handicraft Industry
provides wide range of products because of countrys diversified culture, traditions and
12

heritage. There is huge demand of Indian Handicraft products in international market.

Industry provides ample opportunities for employment to people belonging to backward
and weaker classes of society. However, Indian Handicraft Industry has the status of
cottage industry in India, but it has shown promising growth and evolved as one of the
major revenue generator over the years. It has shown continuous growth at the rate of 1520% over the years and contributes major role for export and foreign earnings.
Low capital investment, Cheap and skilled labour, Diversified product portfolio, Flexible
Production are few important features of Indian Handicraft Industry. However, Lack of
Infrastructure & Technological support, Lack of awareness of international and new trends
and Poor Promotional campaigns are a few drawbacks of industry which needs to be
overcome. It is estimated that Handicraft Industry in India is all set to grow with rapid rate in
future and contribute its share towards economic development handsomely.
THE PRODUCT TO BE MANFACTURED WILL BE

WOODEN HANDICRAFTS

DECORATIVE ITEMS (Google small names)

13

MARKET ANALYSIS

Geographical Area
Jhunjhunu (RIICO Industrial Area)

Objective of the survey

To know about the market potential for the handicraft

To analyze the handicraft manufacturing, its competition, customer preferences and

their satisfaction level.

To find out the major players in the market

Source of Information
Primary (Market Survey) and Secondary data

Methodology Adopted:
Research plan was developed through conclusive research design using descriptive research
analysis methods by survey as detailed below:

Research Approach:
1. Primary data for gathering information regarding manufacturing requirements and
facilities available at Shekhawati region was collected by personal interview with
different manufacturers selected on the basis of random sampling survey method.
2. Secondary data regarding world demand and supply positions, Indian Handicraft
status and other relevant information were gathered from different websites.

Research Instruments: Questionnaire (See Annexure I) was used to collect the data on
both the sensitivity of demand and supply, customer preferences and to know the market
potential and future growth.
After deciding the research approach and instruments, sampling plan was prepared.
14

Sampling Procedure: Simple random sampling method was used for survey on
representative basis.

Sample Size: 20 handicraft units

Contact Method: Personal interview with each of the manufacturer and raw material
suppliers was conducted.

Information collected from Manufacturers Questionnaire wise

Q.1 Variety of handicraft item you manufacture?
(a) Chairs
(b) Tables
(c) Book shelves
(d) Decorative items
(e) All of the above
Chairs

Tables

Book shelves

Decorative items

All of the above

18

15

As the above analysis shows that 90% manufacturer are manufacturing all the major items
like chairs, tables, bookshelves etc.

Q.2 From where you acquire the raw material for wooden handicraft?
(a) Bihar
(b) U.P.
(c) Gujarat
(d) All of the above
(e) Import from other countries, if yes specify
Bihar

U.P.

Gujarat

All of the above

11

Import from other

countries

The raw material is acquired from all the places like Bihar , U.P. , Gujarat etc. but the
analysis shows that most the wood is purchased from U.P. some part of raw is also available
in Rajasthan.
Q.3 Your Re- order point
(a) Weekly
16

(b) Fortnightly
(c) Monthly
(d) As required
Weekly

Fortnightly

Monthly

As required

13

As the analysis shows that most of the manufacturers keep inventory as per the requirement.

Q4. Order size

(a) 400 500 units
(b) 500 700 units
(c) 700 1000 units
(d) 1000 and above
400-500 units

500-700 units

15

700-1000 units

2
17

1000 units and above

As the above analysis shows that most of the manufacturer gets the avg. order 500-700 units
per month. There are only 20% manufacturers who get the orders above 700 units per month
or 1000 units per month.

Q.5. Who bears the transportation cost?

(a) Supplier
(b) Yourself
Suppliers
Yourself

4
16

18

An analysis show that mostly cases manufacturer bears the transportation cost.
Q.6 Which type of handicraft item is more in demand?
(a) Wooden
(b) Glass made
(c) Metal made
Wooden

Glass made

Metal made

Wooden items are more in demand because 45% of respondent said that wooden item is more
in demand.

Q.7 Which type of wood is more in demand in manufacturing?

(a) Babul/Aakashiya
(b) Shisham
(c) Pine
(d) Teak
(e) Mango
19

Babul

Shisham

Pine

Teak

Mango

In answer of this question 45% respondent said that shisham is more in demand after
shisham, babul made handicraft is more in demand.
Q.8 what level of Inventory you keep?
(a)
(b)
(c)
(d)

15 days
30 days
2 months
4 months
15 Days

30 Days

16

2 Months

4 Months

20

The analysis shows that most of manufacturer keep 30 days inventory. Some manufacturer
also keep 2-month inventory.

Q.9 From where you get the skilled workers?

(a) Saharanpur
(b) Barmer
(c) jaisalmer
(d) Locally

Saharanpur

Barmer

Jaisalmer

Locally

14

21

The analysis of this question shows that mostly skilled are locally available. Some part of
labour comes from Saharanpur also.

Q.10 On which basis you appoint the workers?

(a) Contractual basis
(b) Monthly basis
Contractual basis
Monthly basis

14
6

22

Most of manufacturer appoints workers on contractual basis.

Q.11 What type of facility you provide to the worker to retain them?
(a) Housing
(b) Canteen
(c) Bonus
(d) Medical

Housing

Canteen

Bonus
Medical

12
2

In the answer of this question respondent said that they provide mainly bonus to their
employees to retain them some manufacturer provide housing facility also to their workers.
There are only few manufacturer who provide medical and canteen facility to their
employees.

Q.12 What mode of selling of handicraft you use?

23

(a) Through exhibition

(b) Direct selling through retailer
(c) Export

Through Exhibition

Direct Selling through Retailers

Export

17

Mainly the mode of selling is through export. Most of manufacturers go for direct export
as per the data. As per analysis 85% respondents said that they are direct exporting their
product.

Q.13 How much margin you get while going for export?
(a) 0% - 5%
(b) 5% - 10%
(c) 10% - 15%
(d) 15% - 20%

0% - 5%

0
24

5% - 10%

10% - 15%

15% - 20%

18

If the manufacturer is going for export then the profit margin is 15-20% as per the analysis.
90% manufacturers are in favour of this. Only 10% said that they get only 10-15% profit
margin if they go for export.

Q.14 How much margin you get while going for local selling?
(a) 0%-5%
(b) 5%-10%
(c) 10%-15%
(d) 15% -20%

0% - 5%
5% - 10%
10% - 15%

3
17
0

25

15% - 20%

If the manufacturer is going for local selling then they get 5-10% profit margin.

Demand Analysis
After conducting the market survey in the form of questionnaire and interview of the
manufacturers, the next step is to estimate the effective demand in the past and the present.
As per the secondary data the demand of wooden handicraft is as follows:
Total Demand in units = 9200000 units/year (on an average of all items listed below)
Category wise demand of wooden handicraft:

S. No.

Items

Item wise demand in unit/year

Chairs

15, 64,000

Dining tables

11, 96,000

Coffee tables

18, 40,000

Book shelves

11, 04,000

Sopha

4, 60,000

Bad

5, 52,000

Other decorative items

24, 84,000

Total export from India

92, 00,000 units/year

26

Supply:
Area

Manufacturer

Supply(units/month)

Sikar

400

Jhunjhunu

2,410

Jaipur

10

5,650

Mundwa

2,100

Total supply by these

20 manufacturer

10,560units/month

So annual demand of these 20 manufacturer is = 10560*12

= 126,720 units/ year
Total manufacturer of wooden handicraft in Shekhawati region = 300
Total supply = {300*126720}/ 20
= 1900,800 units /year

Demand-Supply Gap Estimation

The demand of handicraft is 9200000 units/ year and the supply is 1900,800 units/ year.
So the demand supply gap is:
= 9200000-1900800
= 7299200 units/ year
This gap is currently filled in by the manufacturers who are located outside Rajasthan which
is fulfilled by nearby states like U.P., Madras, and Jammu & Kashmir. So to fill this gap the
handicraft manufacturing unit can be set up locally.

Demand Forecasting
The information collected in market analysis is helpful in forecasting estimated demand for
my product. As 0.082% of the total market is the potential market for my product, this is the
market for local brands. On the basis of this survey, my product will replace 0.082% of the
total demand. The market is growing with a growth rate of 15 %; accordingly my production
will be there. These also decide my capacity as on the basis of the market demand my
27

capacity will be 60% for 1st year & than will grow accordingly. The plant will run only in one
shift.
The production and capacity related data will be:
Year

Operating
capacity

No. of shifts

Total Production

(In 8hrs/day)

(Units /year)

2009

60%

7200

2010

65%

7800

2011

70%

8400

2012

76%

9120

2013

82%

9840

2014

89%

10680

2015

97%

11640

Marketing Channel
Most producers do not sell their goods directly to the final users; between them stands a set of
intermediaries performing a variety of functions. These intermediaries constitute a marketing
channel. The marketing channels just not only serve the markets but they also make markets.
Will be selling through exhibitions ,
Currently, the existing marketing channel of the wooden handicraft manufacturers is as
follows:

Manufacturers

Distributors

End Users

28

Strategic Marketing Plan:

Wooden handicraft is being an unbranded commodity, so as such the manufacturers incur no
promotional expenditure. Sometimes they just increase the commissions or the margins of
these, if the targets are achieved enormously.
But in order to differentiate the product and capture the existing market and to develop strong
customer base, some strategic marketing plan is necessary to be designed and implemented.
Various strategies that will be used being a new entrant are:

Steady supply with timely delivery to fulfil the demand of the domestic area as well
as outside area and good quality would be one of the strategic strength of the
marketing plan.

Apart from good quality good designs are an important factor. These designs will be
based on traditional pattern so that it can impress foreign customer.

Besides from these efforts e-commerce is also a promotional tool for marketing of this
product. So I will do online selling also in order to promote my product.

So orders will also be taken online apart from fax and telephonically.

29

Technical Analysis

Process involve in manufacturing of wooden handicraft:

A lot of skill and hard work goes into every piece of Indian wooden handicraft. It mirrors
Indian culture, and each handicraft is a masterpiece in its own right. Let's take a peek at the
actual process which goes into creating a piece of wooden handicraft.

Raw wood available in the form of logs is cut into planks of desired thickness and
length.

The piece of wood is then seasoned to obtain a texture which is favourable for
carving.

Decorative patterns are first drawn on the wood with a pencil.

The design is then carved into the wood with a carving tool.

Craftsmen inlay the wooden handicraft with metal, bone, or wood which gives off a
contrast effect, enhancing the intricacies of the carved design.

Different pieces of carved wood are joined together to make complete, functional
objects.

A protective coating is applied with a suitable wood finish.

Production Time
Wood carving is a time consuming process. The time needed by Indian craftsmen to create
carved wooden handicrafts may range anywhere from a week (for small items) to a few
months (for large items which require elaborate carving techniques.

Production Tools
Indian craftsmen have a wide range of tools at their disposal, depending on the stage of
production. Some of them are as follows:

Saws: Powered by an electric motor, Band saws are used to cut off scrap wood
effortlessly. Chain saws are used to cut logs for large carvings.

Drills are primarily used to drill holes, and they are available with several attachments
to perform sanding, sawing, mixing paint etc.

30

Lathes are used to turn wood. They are used to make spherical, cylindrical or round
objects. They are handy while making vases, bowls, and plates.

Primarily used for whittling and chip carving, Carving knives are also used to make
the surface of the wood smooth.

Wood-carving chisels have a sharp flat edge which is used to cut into the wood. They
are available in bent, straight, and spoon shapes.

U-gouges have curved cutting edges which form a 'u' shape, hence the name.
Craftsmen use them to remove large pieces of unwanted wood, to define large shapes,
and to round out the edges.

Also known as parting tools, V-gouges are used to cut fine lines. They are used for
outlining while carving intricate patterns.

These tools are not specific and easily available at local market because it is
manufactured locally.

Machinery Involved
S. No.

Particulars

No.

Rate

Amount

Chemical treatment plant

200000

200000

Seasoning plant

300000

300000

Surface planner

30000

270000

Grinder(small)

2500

12500

Grinder(big)

7000

35000

Driller

1500

3000

Band show (aara machine)

25000

25000

Gaze machine

30000

90000

Ziksha machine

3000

3000

10

Sanding machine

30000

30000

Total:

968500

31

These machines will be purchased from Ludhiana as many manufacturers are making these
machines. Therefore, these are available at competitive prices.

Location and site development

The area for setting up a handicraft manufacturing unit is decided after surveying all
the potential areas. The location of plant will be in RIICO industrial area in
Jhunjhunu district.
The rate of land is Rs 500sq meters (one side road plot), of area 2,000sq meters or 21529sq ft.

Structure and Civil works:

S. No.

Particulars

Size

Area

Rate

Amount

Factory shed

30*60

1800

200

3,60,000

2 stock room

18*20

360

200

72000

Guard room

8*10

80

200

16000

Power room

8*10

80

200

16000

Boundary wall

Washroom

220000
6*8

48

200

9600

12*10

120

200

24000*5=120000

5 labour quarters 7

Room

Washrooms

6*8

48

200

9600*5=48000

9.

Office room

15*12

180

200

36000

10.

Fire fitting
Total

39200
9,36,800

Utilities
The important utility used in handicraft manufacturing is power.
Other necessary utilities used in plant are: Fans 2
Tubelights-20

32

 Computer with laser printer

Furniture comprise of office table, cello chairs.

Materials
Babool/Aakashiya: This is available in Rajasthan and some part of Gujarat. The rates of
babool are Rs.20 / sq ft
Shisham: Most of wooden handicraft is made of shisham wood. The highest demand is of
shisham made wooden handicraft. This is available in Gujarat, U.P. & Bihar. This is made
available by local wholesale timber merchant. The rates are Rs. 30/sq ft.
Pine: Rs. 25 /sq ft. These are less demanded.
Teak: Rs. 80 /sq ft
Mango: Rs. 25 /sq ft
Only Shisham will be used to manufacture wooden handicraft because it is more in demand
and suitable for these type of handicrafts.

Labour Requirements
Handicraft is a labour intensive product and it is all depend upon labour only and all kind of
labour requirements are there like in this we need skilled , semi skilled and unskilled
workers. So total requirements are as follows:
Employees

Number

Salary (Rs.)
Per day

Per month

Annually

Production
Supervisor

5000

60000

Accountant

5000

60000

Skilled Workers

150

4500

54000*5 =
2,70,000

Semi skilled
Workers

125

3750

45000*8 =
3,60,000

Unskilled
workers

100

3,000

36000*3 =
1,08,000

Peon

2,500

30,000

Guard

2,500

30,000

Total

20

9,18,000
33

Strategy to appoint & retain employees

On time payment is a best retention strategy. So I will give on time payments to retain
my skilled worker.

Medical facility to all worker and employees.

Occasional bonus to skilled workers.

Housing facility: I will provide labour quarter to skilled worker who are not from
local areas.

I will provide employment to their spouses based upon their ability.

34

FINANCIAL ANALYSIS

Cost of Project
Particulars

Cost in Rs

Land & Site development

10,63,600

Building

9,36,800

Plant & Machinery

9,68,500

Other Fixed Assets

2,30,000

Preoperative Expenses

2,71,995

Preliminary Expenses

1,94,282

Provision for Contingency

1,94,282

WC Margin
Total

26,189
38,85,648

Means of Finance
Particulars

Cost in Rs.

Promoter's Capital

12,95,203

Long/ medium Term Loan from Banks

25,90,445

Total

38,85,648

Basic Assumptions underlying Financial Projections

The profitability and other projections may be prepared on the basis of following
assumptions:1.) The construction period will last for one year.
2.) The company would work for 360 days per year on a 1 shift basis. The installed
capacity on this basis works out to 12000.

35

3.) The company will start commercial production on July 1, of year 1. The expected
capacity utilization will be 60% in first year, 65% in the second year, and 70% for the
third year and so on.
4.) Wages and salaries are expected to be Rs 918000.
5.) Factory overheads expenses will be Rs 32880 for the first year.
6.) Administration expenses will be Rs 360000 per annum.
7.) The term loan will be repaid in 14 equal half-yearly instalments, with the first
instalment due at the end starting of first operating year. The interest rate on the
outstanding term loan will be 12%.
8.)

The bank finance for working capital will cost 12% interest rate.

9.)

The depreciation rates for company law purposes are as follows:

Building

: 3.34%

Plant and Machinery

: 8%

Miscellaneous Fixed assets

: 5%

11. The depreciation rates for the income tax purposes are as follows, under the written down
value method:
Building

: 10%

Plant & Machinery & Miscellaneous Fixed assets: 33.33%

12. The income tax rate applicable is 30%. Further 10% of Gross Total income will be
allowed as deduction for newly set up industrial undertaking under sec. 80I for 10 years
from the initial year.
13.) The current assets requirements are expected to be as follows:Raw materials

: 30 days

Stock-in-process

: 1 day

Finished goods

: 4 day

Book debt

: 7 days

14.) The suppliers of raw material will provide trade credit for 15 days.
15.) The salvage value is assumed to be 5% of Fixed Assets.
16.) The corporate tax rate is 30% p.a.

36

SALES FORECASTING

Year
Sales

SALES FORECAST
2009
2010
3288000
3562000

2011
3836000

37

Bibliography

www.indianhandicraftexporter.com
www.google.co.in
www.wikipedia.com
www.yahoo.com
www.ori.nic.in
www.answers.com
www.handicraftdpr.htm

38

Annexure: 1
Questionnaire (Manufacturer)
Name____________________________

Company name___________________

Area of production_________________

Year of Establishment___________________

1) Variety of handicraft item you manufacture?

a) Chairs

c) Decorative items

b) Tables

d) Any other

2) From where you acquire the raw material for wooden handicraft?
a) Bihar

c) Gujarat

b) U.P.

d) Import from other countries

3) At what frequency do you order the raw material stock?

a) Weekly

c) Monthly

b) Fortnightly

d) As required

4) Order size
a) 400-500 units

c) 700-1000 units

b) 500-700 units

d) 1000 units and above

5) Who bears the transportation cost?

a) Supplier
b) Yourself
6) Which type of handicraft item is more in demand ?
a) Wooden
b) Glass made
c) Metal made

7) Which type of wood is maximum in demand for manufacturing?

39

a) Babul/Aakashiya

d) Teak

b) Shisham

e) Mango

c) Pine
8) What level of Inventory you keep?
a) 15 days

c) 2 months

b) 30 day

d) 4 months

9) From where you get the skilled workers for the ornamental work?
a) Saharanpur

c) Jaisalmer

b) Barmer

d) Locally

10) On which basis you appoint the workers?

a) Contractual
b) Monthly basis
11) What type of facility you provide to the worker to retain them?
a) Housing

c) Bonus

b) Canteen

d) Medical

12) What mode of selling of handicraft you use?

a) Through exhibition
b) Direct selling through retailer
c) Export
13)

14)

How much margin you get while going for export?

a) 0%-5%

c) 10%-15%

b) 5%-10%

d) 15% -20%

How much margin you get while going for local selling?
a) 0%-5%

c) 10%-15%

b) 5%-10%

d) 15% -20%

40

Annexure: 2
Interest Term Loan
14 Equal Instalments @ 12% per annum
Loan O/S
Loan O/S at
Loan O/S at
at the
the end of 1st the end of 2nd
Year beginning
half year
half year
1
2590445
2405413
2220381
2
2220381
2035349
1850317
3
1850317
1665285
1480253
4
1480253
1295221
1110189
5
1110189
925157
740125
6
740125
555093
370061
7
370061
185029
0
Note: term loan of 25, 90,445 will be paid

Interest
for the
1st half
year
155426
133222
111019
88815
66611
44408
22204

Interest
for the
2nd half
year
144324
122120
99917
77713
55509
33306
11102

Total
interest
for the
term loan
299750
255342
210936
166528
122120
77714
33306

Annexure: 3
Working Capital Requirements
Items
Raw materials
Stock in process
Finished goods
Book debts
Total Current Assets
Less: Margin for WC
from long term
sources (25% of RM
CAs)
Less: Trade credit for
raw materials
Bank finance for WC

Norms in days
30.00
1.00
4.00
7.00
42.00

INTREST @ 12 %

1st year
62500
1837
14698
25722
104757

2nd year
67708
1990
15923
27866
113487

3rd year
72916
2143
17148
30009
122216

26189

28371

30554

62500
16068
1928

67708
17408
2088

72916
18746
2249

41

Annexure: 4
Depreciation
A. Asset Valuation for depreciation purpose

Asset expenses
Land
Building
Plant & machinery
Miscellaneous fixed
assets
Total

Share of
Share of
Preoperative Contigency
Basic cost
cost
margin
1063600
90435
64596
936800
79655
56896
968500
82349
58821
230000
3198900

19556
271995

13969
194282

Total
1218631
1073351
2291982
263525
3665177

B. Depreciation schedule for company law purposes (SLM)

Building
3.34%
40702
Plant & machinery
8%
85868
Miscellaneous fixed assets
5%
114599
Annual depreciation
16.34%
241169

C. Depreciation schedule for income tax purposes (WDV)

Assets
1st yr
2nd yr
3rd yr
Building
107335
96601
86941
Plant & machinery &
Miscellaneous fixed
assets (33.3%)
Total

851750
959085

567862
664463

378593
465534

42

Annexure: 5
Profitability Estimates (Estimates of Working Results)
Installed Capacity
Production
Capacity Utilization
A. Sales Realization
B. Cost of production
*Raw Materials
*Power
*Wages & Salaries
*Factory Overheads
C. Admn & Selling Expenses
*Admn Expenses
*Selling Expenses
D. Gross Profit Before interest
E. Total Financial Expenses
*Interest on Term Loans
*Interest on Bank Borrowings
F. Depreciation
G. Operating Profit
H. Preliminary Expenses W/O
I. Profit/ Loss Before Tax
J. Provision for Tax
K. Profit After Tax
L. Retained Profit
M .Add: *Depreciation
*Preliminary Expenses W/O
*N. Net Cash Accruals

1st yr
12000
7200
60
3288000
1322880
750000
60000
480000
32880
410000
360000
50000
1555120
301678
299750
1928
241169
1012273
194282
817991
30022.50
787968.50
787968.50
241169
194282
1223419.50

2nd yr
3rd yr
12000
12000
7812
8476
65
70
3562000
3836000
1433120
1543360
812500
875000
65000
70000
520000
560000
35620
38360
444167
478333
390000
420000
54167
58333
1684713
1814307
257430.000 213185.000
255342
210936
2088
2249
241169
241169
1186114.333 1359952.667
194282
194282
991832.333 1165670.667
170561.400 282391.500
821270.933 883279.167
821270.933 883279.167
241169
241169
194282
194282
1256721.933 1318730.167

43

Annexure: 6
Tax Calculation
1st yr
817991

2nd yr
991832

3rd yr
1165670

241169
1233001
664463
568538
568538
170561.40

241169
1406839
465534
941305
941305
282391.50

1st yr

2nd yr

3rd yr

1295203
787968.50
2220381
16068

1295203
1609238
1850317
17408

1295203
2492517
1480253
18746

3885661

1365497.50
62500
5685131

1555739
67708
6327918

1745273
72916
7032005

3665177

3665177

3665177

3665177

3665177

241169
3424008

482338
3182839

723507
2941670

26189
194282
3885648

62500
1837
14698
25722
2059225
97141
5685131

67708
1990
15923
27866
3031592
97141
6327918

72916
2143
17148
30009
3968119

Profit/ Loss Before Tax

Add: Depreciation for company law
purposes
Total
Less: Depreciation for Tax purposes
Gross Total Income
Total Income
Income Tax @ 30% of Total Income

241169
1059160
959085
100075
100075
30022.50

Annexure: 7
Projected Balance Sheet
Construction
Period End
Liabilities
Share Capital
Reserve & Surplus
*Term Loans
* WC Adv
Current Liabilities &
Provisions
* Trade Credit
Total
Assets
Fixed Assets
* Gross Block
* Less: Accumulated
Deprecition
* Net FA
Current Asset Loans & Adv
* Raw Materials
* Stock in Process
* Finished Goods
*Book Debts
Cash & Bank Balances
*Preliminary Expenses
Total

1295203
2590445

7032005

44

Annexure: 8
Projected Cash Flow
Construction
Period
Sources of Funds
Share Issue
PBT with Interest Added
Back
Depreciation
Preliminary Expenses W/O
Increase in Secured Medium
& Long term Borrowings
Increase in Bank
Borrowings for WC
Increase in State Govt
Special Incentive Loan
Total (A)
Disposition of Funds
Capital Expenditure
Increase in WC
Preliminary Expenses
Decrease in Secured
Medium & Long term
Borrowings
Interest on Term Loan
Interest in Bank Borrowings
for WC
Taxation
Total (B)
Opening Balance of Cash &
Bank
Net Surplus/ Deficit (A)(B)
Closing Balance of Cash &
Bank

1st yr

2nd yr

3rd yr

1119669
241169
97141

1249262
241169
97141

1378855
241169

16068

1340

1338

1474047

1588912

1621362

42257

3522

4227

185032
299750

185032
255342

185032
210936

1928
30022.50
558989.50

2088
170561.40
616545.40

2249
282391.50
684835.50

26189

2059225

3031592

26189

2033036

972367

936527

26189

2059225

3031592

3968119

1295203

2590445

3885648

3665177
194282

3859459

45

Annexure: 9
Operating Cash flows
A
B
C
D

Total funds
Revenues
Operating Costs
Depreciation
Interest on working capital
E advance
F Interest on term loan
H Profit before tax
I Tax
J Profit after tax
L Net salvage value of fixed assets
M Net salvage value of current assets
N Initial investment
P Operating cash flows
Q Terminal cash flow
R Net cash flow

0 yr
3885648

1st yr

2nd yr

3rd yr

3288000
1732880
959085

3562000
1877287
664463

3836000
2021693
465534.000

1928
299750
294357
30022.50
264334.50

2088
255342
762820
170561.40
592258.60

2249
210936
1135588
282391.50
853196.50

1434594

1436922.60

1467960

1434594

1436922.60

1467960

3885648

3885648

46

Annexure: 10
BREAK EVEN POINT FOR THE PROJECT
A Sales Realisation

Amount
3288000

Amount Amount
3562000 3836000

B Variable Costs
Raw Materials
Interest On Working Capital
Power & Water
Selling & Distribution Expenses
Total

750000
1928
60000
50000
861928

812500
2088
65000
54167
933755

C Fixed Cost
Wages And Salaries
Repairs And Maintainance
Depriciation
Administrative Expenses
Interest On Term Loan
Total

480000
10000
241169
360000
299750
1390919

1390919 1390919

D Contribution(A-B)

2426072

2628245 2830418

p/v ratio

73.78564

Break Even Point In Terms Of Volumes Of Sales

1885081

Break Even Point In Terms Of Installed Capacity

57.33214

875000
2249
70000
58333
1005582

47

YEARS

2009

2010

2011

Fixed cost

1390919 1390919 1390919

total cost
Sales Realisation

2252847
74
01
3288000 3562000 3836000

Break Even Point In Terms Of Volumes Of Sales

1885081

23246

23965

18850
81

18850
81

48