Executive Summary

The Venture
‘Right Hair Right Now Jawed Habib (RHRNJH)’ is a brand that will offer
the quality of organized services at the price of unorganized sector.
The salon will offer hair styling and hair care services.
Services
Basic
 Hair cuts

 Hair Styling

 Shave and Beard styling

 Head massage

 Face massage

Color
 Hair color

 Color highlights

Hair treatments
 Straightening

 Perming

Uniqueness
The promoter Jawed Habib has built a cult brand around his name.
Jawed Habib is primarily focused to the universe of hair care and
styling.
Branding and the organized way of conducting business is just waiting
to happen to the burgeoning unorganized hair styling and grooming
sector.

1
RHRNJH will bring Jawed Habib premium hair styling process to the
middle class segment.
RHRNJH will be a brand owned by Jawed Habib Hair and Beauty Ltd.

Target Market and Typical Customer Profiling

RHRNJH will address middle class upwards, lifestyle conscious patrons.
The brand through its proposed vast network of franchise partners is
likely to garner 5-10% of the total market share.
Competition
The competition is primarily expected from the unorganized sector and
to a small extent from the organized sector and the international
brands entering the Indian market space.
Strength and Weakness
Jawed Habib (JH) brand is known for its premiumness which might work
as a negative factor while promoting RHRNJH. On other it might just
work to its favor. One need wait and watch and subsequently bring
correction.
Management
The business will be professionally managed by an appointed GM and
his team under the mentorship of Mr. Jawed Habib. The GM will have
necessary competency to spread the business through the franchise
route.
Milestone
RHRNJH expects to spread their franchise network to strength of 1000
salons within 18-36 months. Jawed Habib is a qualified hair specialist
and along with his appointed GM forming the core management team
will be in a good step to conduct the business.
Startup Capital
Since the growth of the franchising operation is based on OPM (Other
People’s Money) an initial capital of Rs 1cr will be needed to kick start

2
the venture on an all India basis. Out of the Rs 1cr, Rs 79.79 lakhs will
be spend upon branding and setting up of base cities, with the balance
being used as working capital. Subsequently the business can be
operated from the internal accruals received as advance payment paid
out by the franchise as one time franchise fees and Territory
Reservation Deposits (TRD). In addition royalties will be received on a
continued basis to always post a positive, robust and healthy cash flow
cycles. The company needs to raise further external funds of Rs 2cr
than the initial startup fund of 1cr.

Elements that will make RHRNJH successful

 Well experienced and renowned management

 Existing skilled personnel to train new recruits

 The parent company also has a chain of training academy and

hence RHRNJH will continue to receive trained manpower.

The entire operation will be managed at the corporate level by not

more than 75 people on an all India business to administer the
franchise network. The expected overheads will be low. The business
of hair grooming is one that of very high margin. RHRNJH being
associated with the parent JH premium chain will imbibe its culture of
good service and quality.
Limitations
 Management time may be spread thin between managing
varying businesses.

Long Range Growth Objectives

3
The concept of organized branding happening in the unorganized
sector on the platform of value for money (VFM) is going to find takers
in the offshore markets. The first target could be ASEAN countries to
spread the chain through a network of country franchise/ master city
franchise/ region franchise/ unit franchise.
Financial Highlights
 Startup capital – Rs 1crore

 Expected positive cash flow 9-18 months

 Internal Rate of Return (IRR) of 168%

Key Areas of Risk

Not being able to find the initial 10-15 competent man power within a
very short time (3-6 months).

Industry Background

India’s present economic status reveals the following profile:

• Gross Domestic Product projected at Rs 46,93,602 crore (mkt

price) in 2007-08
• Per capita income of Rs 29786 in 2007-08 and growing at a rate
of 7.2% annually
• The third largest economy in terms of Purchasing Power Parity
(PPP), with a GDP of US$ 5.16 trillion PPP, and lagging only
behind USA, China. PPP is defined as the number of units of a
currency required to buy the same amount of goods and services
in the domestic market, as one US $ would buy in the USA.

4
 • Forex reserves of $290.8 billion as on Feb 8, 2008
• A robust services sector accounting for 60% of GDP, and growing
by 8% annually
• Home to more than 1 billion people and, bulging middle class
likely to exceed 300 million
• World’s third largest population of trained and industrial
manpower with a work force of 14 million industrial workers, 4
million scientific and professional workers.
• Mature financial sector and capital market with over 8500 listed
companies and market capitalization equivalent to Rs 58.49
trillion
• A policy environment that provides increasing freedom to
business enterprises and foreign investment, through periodic
liberalization of investment and trade regulations

The Indian economy is booming, and the number of families/people

coming under the ambit of higher income group is also rising annually.
This group has affordability to spend on life styles and is quality and
brand conscious.

The burgeoning economy and the increasing disposable income of the

Indian middle class have led to some major lifestyle changes. There’s a
distinct premium placed on looking and feeling good and the desire to
be attractive is on the rise. As 'feel good' is becoming very important in
today's high stress urban environment, beauty treatments at salons,
gyms, massages, the spa experience and so on have become a part of
people's lifestyles.

Like any other consumable and service, the space of beauty salon and
wellness business is also growing at a fast pace. Though highly
fragmented, the market has the presence of organized and
unorganized players. Quality services are limited to 5 star hotels,

5
Boutiques and Salons. There is a growing demand for branded quality
services in this segment. The untapped potential in the market have
given many players an opportunity to enter into beauty and wellness
services.

Market Size

The beauty salon market in India is roughly estimated at Rs 1,600

crore growing at an impressive 42 per cent. At last count, there were
81,000 beauty salons across India in cities with a population of over 1
million. For the purpose of analyzing the beauty salon industry, we
have used the following classification of the beauty salon market in
India:

Catego No of Typical Characteristics

ry Employees
Large >6 Large parlors providing a varied range of
services and/or specialization, premium
price range
Mediu 3-5 Medium parlors, medium price range
m
Small 1-2 Small parlors, limited service range
Home 1 Individuals operating from home/giving
home service

Chart 1: Population-wise estimate of parlors by category

6
 Source : Valuenotes
Research
Some observations:

• Interestingly, half of these parlours are in the ‘home’ category.

The large salons (with more than 6 employees, providing a wider
range of services) constitute only 4% of the total number of
beauty salons in the country. The medium size salons (with 3-5
employees, medium price range) are less than 10 percent.
• More than half of the beauty salons are in the major metros -
Mumbai, Delhi and Kolkata (population more than 10 million).
The others are balanced almost equally between the mini-metros
(population size 3 to 10 million) and the smaller towns
(population between 1 and 3 million).
• Also, there are a high number of small and home based beauty
salons in the metros.

Turnover Estimates

The total turnover of the beauty salon market to be between Rs. 1493
crores and Rs. 1805 crores in cities with more than 1 million
population.

7
Table 1: Turnover Estimates

Category Metro Mini-metro Small towns

Large 19% 39% 40%
Medium 15% 25% 19%
Small 42% 21% 27%
Home 24% 15% 14%
Total 100% 100% 100%

Source
:Valuenotes Research

Across the town classes, the large beauty salons took up 27% of the
revenue in spite of being substantially lower in numbers as compared
to the other categories. Also, of the total, the metros account for about
60% of the total turnover.
Interestingly, it is the small beauty salons that take up about 42% of
the revenues in the metros. Adding the home category the total
revenue generated is over 65% of the total.

In other towns of 1 million+ also, they take up a sizeable portion of the

revenue.
The home segment, on the other hand, despite being the largest in
numbers, takes up between 15-24% of the total revenue estimated in
this market.

Share of Revenue by Service

Table 2: Revenue from various services across categories

Segment Large Medium Small &

8
 Home
Haircut 23% 26% 30%
Hairstyle 18% 8% 1%
Wax 17% 19% 16%
Manicure 7% 7% 5%
Pedicure 9% 8% 5%
Facial 20% 31% 35%
Others 6% 1% 8%
Total 100% 100% 100%

Source :Valuenotes
Research
Across the categories of beauty salons, haircuts are the most revenue
generating
service, accounting for between 25-30% of the total revenues. Hair
styling (hair
colouring, perming, streaking etc.) contribute to about 18% of the
revenues for the
larger salons, but are very insignificant revenue earners for the other
categories. This is especially true of high-end speciality parlours.

In the medium size parlours, hairstyles lose out as the revenue

generators since the skill sets are generally perceived to be lower in
this category. However, facials, being
comparatively price inelastic, make up for 31% of the revenue
generation in this
category. This trend also follows to the smaller and home parlours as
this is a function of price rather than volumes.

Price:

The price differences are highly significant between the town classes,
with prices in the metros being considerably higher than the smaller

9
towns, the difference being upto Rs. 500 for haircuts. Price differences
are the highest in haircuts and facials, followed by hairstyles. Among
the other services, the price differences do not appear to be so
dramatic.
The main drivers for price variations are quality of the services offered
and the retention of good employees. These are also important factors
which drive customer loyalty. Also the locality in which the parlour is
located drives the price. In case of large parlours, a certain niche or
speciality determines the price points for the services offered.

Product Sales:

Product sales constitute a very low part of the revenues. In fact, it is

only the large
parlours that engaged in product sales. But this too contributed to only
about 7% of the revenues.
Only L’Oreal appears to have has managed to successfully push its
product line,
especially the hair treatment products through the beauty salons.
Some of the reasons for this being – exclusive sales of L’Oreal products
in the salons, regular training for the salon staff and sale of certain
L’Oreal products not available at any other outlets.

Growth Drivers:

• An overall increased awareness of beauty

• Improvement of technical skills, a growing demand for something
new
• Veering of beauty salons towards ‘treatment’ and ‘therapy’
• Aggressive efforts by companies like L’Oreal for their products

10
Inhibitors to growth are mainly the stiff competition due to the
establishment of small and home size parlours. This is also due to the
emergence of a lot of training institutes offering inexpensive short
duration courses.

Also, problems faced by the parlour owners include the service tax, felt
by mostly the large beauty salon owners. Undercutting by smaller
parlour owners was also another problem faced by this industry.

11
Present Status

JAWED HABIB HAIR & BEAUTY LIMITED

The Habibs chain of hair salons was started in 1983 by Mr. Habib
Ahmed. The chain is now run by his son Mr. Jawed Habib. It was about
fourteen years ago that Jawed appeared on the country's hair styling
horizon. Until that time hair coloring meant henna only. Jawed rewrote
the script and made other colors also fashionable and acceptable
across all sections of society. Cosmetics and personal hair care giant
Hindustan Lever (Indian arm of Levers Brothers) picked him as its
Brand Ambassador for its Sunsilk pro-color brand. Today Jawed's face is
one of the most recognized faces in the media & fashion world in India
and Internationally.

Under his stewardship, House of Habibs has grown from strength to

strength. Today, Habibs salons, studios and Hair Academy are bringing
smiles, happiness and status to thousands of clients cross the length
and breadth of the country. While Habibs is headquartered in Delhi,
their salons are functioning in Mumbai, Kolkata, Hyderabad, Chennai,
Kochi, Ludhiana, Jallandhar, Jaipur, Amritsar, Kathmandu and several
other places.

As of today, Habibs has over 80+ salons. Jawed Habib plans to increase
this to 100+ within the next 12 months. Jawed has opened up salons in
New York and London. Salons in Paris, Milan, Kuala Lumpur and
Mombassa are on the anvil.

12
Jawed Habib plans to launch a budget salon brand under the name of
‘Right Hair Right Now Jawed Habib’, to target the lower and middle
sections of the society. The new brand plans to specifically target the
unorganized segment of the hair salon industry pegged by observers
to be around Rs.2000 crore (some peg it as high as Rs 12,000 crore).

BRAND STRATEGY

Brand Vision
• Build a network of 'Right Hair Right Now Jawed Habib' salons
across every major city of the world.
• Build high brand visibility at street level, through greater
geographical spread, by building smaller franchise centres.
• One in every 100 salons in the world and one in every 10 salons
in India should be a 'Right Hair Right Now Jawed Habib’ salon.
• Become the first choice of every aspiring franchise owner.
• Become the safest destination for franchise investment.
• Be present in every worthwhile mall.
• Be within the walking distance of every important airport, railway
and sophisticated bus junctions.
• Build centres at a 30 minutes walking distance from each other.

13
 • Become an publicly traded company on major stock exchanges
of the world.
• Become an Blue Chip Company that offers dividends from year
one, at a rate higher than the bank's fixed deposit interest rate.

Brand Core Values

• Bring contemporary hair cuts and styling to the fashion and
quality conscious segment of the middle class.
• Make designer hair cuts and styling affordable by stripping away
ambience frills.
• Add value to the grooming of the patron in a holistic manner
through subtle suggestions and training of hair stylist.
• Be the first to bring, fashion trends in haircuts, styling and hair
care breakthroughs.
• Use the best possible material and ingredients.
• Maintain international standards of hygiene even in small cities
and towns.
• Create work environment where individual and team creativity
and performances are encouraged and rewarded in a just and
transparent manner.
• Become the first choice place for patrons, franchisees and
employees.
• Achieve a smile on franchise partners face all the time by
providing excellent support and honest projections.
• Become a great fun place to work at.
• Become the best place to showcase fashion, productivity and
efficiencies talents.
• Achieve patron satisfaction at any cost.

14
Brand Core Purpose
• Bring benefits of an organised sector to patrons of unorganised
sector at prices they are used to paying.
• Bring the brand and its business benefits within the grasp of
small, educated and fashion conscious entrepreneurs.

Brand Visionary Goals

 Build 1000 strong franchisees centres in three years.

Profiles of Target Markets

• Size of the market

With the economy growing at an average rate of 8.5% per annum
for the last 4 years, the number of households coming under middle
and upper income bracket is steadily on the rise. As a pointer to this
the group seekers (see table: 3) which formed 2.4% of population in
95-96 increased to 5% of the population in 2001-02 and are
projected to comprise of 10% of the population in 2009-10. Similarly

15
 the group strivers (see table: 3) which were just 0.4% of the
population in 95-96 are projected to be 3% of the population in
2009-10. These two groups’ seekers and strivers form the middle
class and upper middle class population of India.
The other major spending force in India's new consumer market will
be our last segment—upper class households, earning more than 1
million rupees. They include near rich, clear rich, sheer rich and
super rich groups. Please refer to the table 3 below to estimate the
size of target population which is middle, upper middle and
upper class households of India.

Table 3: Income figs, in Rs. per annum at 2001-02 prices,

households in ‘000s
Classificatio 1995- Chang
Income class 2001-02 2009-10
n 96 e
Deprived <90000 131,17
135,378 114,394 -13%
6
Aspirers 90000-200000 28,90
41,262 75,304 161%
1
Low class households- Total 160077 176640 189698 19%
Seekers 200000-
3881 9034 22268 474%
500000
Strivers 500000-
651 1712 6173 848%
1000000
Middle class households-
4532 10746 28441 528%
Total
Near Rich 1000000-
189 546 2373 1156%
2000000
Clear Rich 2000000-
63 201 1037 1546%
5000000
Sheer Rich 5000000-
11 40 255 2219%
10000000
Super Rich >10000000 5 20 141 2720%
Upper class households- 268 807 3806 1320%

16
Total

• Segment

Table 4: Segmentation chart

Area Details
1 Geographic
a Region North, South, East, West & Mid India
Metropolitan cities, Tier I cities & Tier II cities
b Cities (see fig: 1)
c Population More than 5 lacks of population with in a city.

2 Demographics
a Age All age groups
b Gender Male, Female
Middle (2, 00,001- 5, 00,000 p.a.), Upper
middle (5, 00,001- 10, 00,000 p.a.), High
c Income (above 10, 00,000 p.a.)

Socio economic
d classification A1, A2, B1, B2, C, D, E1, E2.

3 Psychographic
a Lifestyle Outdoor oriented, fashion oriented.
Stylish, innovative, non conventional, fun
b Personality loving.

4 Behavioural
a Occasions Regular
b Benefit Quality, service, economy, speed
Non users, potential users, premium salon
c User status user
d User rate Medium
e Loyalty status None, medium, strong, absolute.
Unaware, aware, informed, interested,
f Readiness stage desirous.
Attitude towards
g product Positive, negative, indifferent.

17
Fig: 1

• Growth of the market

The middle class currently numbers some 50 million people, but by

2025 will have expanded dramatically to 583 million people- some 41
percent of the population. These households will see their incomes
balloon to 51.5 trillion rupees -11 times the level of today and 58
percent of total Indian income.

Today there are just 1.2 million upper class households accounting for
some 2 trillion rupees in spending power. But a new breed of
ferociously upwardly mobile Indians is emerging—young graduates of

18
India's top colleges who can command large salaries from Indian and
foreign multinationals. Their tastes are indistinguishable from those of
prosperous young Westerners—many own high-end luxury cars and
wear designer clothes employ maids and full-time cooks, and regularly
vacation abroad. By 2025, there will be 9.5 million Indians in this class
and their spending power will hit 14.1 trillion rupees—20 percent of
total Indian consumption.

As the seismic wave of income growth rolls across Indian society, the
character of consumption will change dramatically over the next 20
years. A huge shift is underway from spending on necessities such as
food and clothing to choice-based spending on categories such as
household appliances, beauty market and restaurants. Households that
can afford discretionary consumption will grow from 8 million today to
94 million by 2025.

19
Competitive analysis

• Five force analysis

Fig 2: Porter’s five forces

Threat of Industry (Segment) rivalry is – STRONG

We have identified the unorganised sector as our competition, and

they are likely to put intense battle by reducing their prices.

20
The other competitions like – L’Oreal & Lakme would not pose a serious
threat because of price disparity & different positioning.

Threat of new entrants is - STRONG

Almost anybody can enter this segment because of low entry barrier
due to low overall cost of capital investment to set up the small size
salon.
As foreign brands like ‘Tony & Guy’ have already made their presence
felt in India. Reliance is gearing up to enter this untapped segment
with ‘Wellness’ centres.

Threat of substitute products is – WEAK

The formulation used for treatment in a salon can be substituted by

over the counter formulation. However the percentage of sales to top
line is very low.

Threat of buyers’ growing bargaining power is – WEAK

Due to competitive pricing which is at par with the unorganised & semi
organised sector and coupled with value addition such as free
shampoo wash etc., the buyer has little choice.

Threat of suppliers’ growing bargaining power is – WEAK

Suppliers of consumables are far too many in India and abroad. They
will happily formulate any type of formulations as per clients’
specifications & hence due to intense competition within the industry
the suppliers’ threat is negligible.

21
• Analysis of current competition

The Indian lifestyle industry was until recently being dominated by the
unorganized segment. However, now with the entry of organized
players in the segment, the business seems ready for a turnaround.
Like any other consumable and service, the space of hair salon
business is also growing at a fast pace.

Though highly fragmented, the market has the presence of organized

semi organised and unorganized players. Quality services are limited
to premium branded salons located in posh areas or 5 star hotels. They
are only focused on a small segmentation of people due to their
premium positioning of the brand. Else there is an unorganised market
of lower end salons which provide services in economy price.

Now here is a market space which is still untapped where in a

customer can get quality service from a renowned & well established

22
brand in less money. There is a growing demand for branded quality
services in this segment.

The untapped potential in the market have given some players an

opportunity to enter into hair salon business. Brands like ‘Just Cut’ has
been trying to bridge the gap between barber shop & the conventional
salon, Reliance has also identified the potential & is ready to hit the
market with their chain of salons ‘wellness’. Foreign brand ‘Tony & guy
have also tried to take advantage of this gap and have come up with
some outlets recently.

The current size of the beauty salon industry is estimated at between

Rs.1493 and Rs.1805
crores. This is attributed to the advent of foreign TV channels,
changing lifestyles, higher purchasing power and greater awareness
and need for ‘beauty’. There is a huge potential to gain from this
untapped market. Any company which comes up with good branding &
marketing strategies & also manages to effectively execute it will gain
immensely from this untouched area.

Marketing Strategy and Product Sales

Forecasts

As we have two customers 1 - direct customer i.e. franchisee holders

and 2- in direct customer i.e. the patrons. Therefore the marketing
strategy will be set at two levels & will be different for each level.
The main objective of marketing strategy at present should consider
following points:

23
 1. Proper positioning
2. Accurate segmentation
3. Informing the potential client
4. Induce trials
5. Securing distribution & retail outlets (for consumables)
6. Point of parity & differentiation
But the basis of our marketing strategy is a simple: satisfied clients
are our best marketing tool. When a client leaves our business with a
new look, he or she is broadcasting our name and quality to the public.

5 Ps

1. Product/Services
Jawed Habib is primarily focused to the universe of hair care and
styling. The brand will offer the quality of organized services at the
price of unorganized sector. The salon will offer hair styling and hair
care services. The services include the following:

Basic
 Hair cuts

 Hair Styling

 Shave and Beard styling

 Head massage

 Face massage

Color
 Hair color

24
  Color highlights

Hair treatments
 Straightening

 Perming

And also there will be range of hair consumables which will be sold in
these outlets. We plan to highlight reputation of the owner and other
"beauticians" as providing superior personal service.

2. Positioning

The promoter Jawed Habib has built a cult brand around his name. Our
outlets will bring Jawed Habib premium hair styling process to the
middle class segment. We are positioning it as a low in cost, high in
quality, with brand name of Jawed Habib. It stands for offering a value
for money. The brand promises high quality hair cut in a bare minimum
infrastructure. Therefore what we are selling is not an experience but a
quality hair cut.
Brand positioning statement “low priced, quality hair styling branded
salon”

3. Place

The brand will be visible at strategic locations which have a very high
human traffic density such as shopping malls, theatres, railway
junctions, and bus junctions; we plan to provide an easy accessible
location for customers around the country.

25
4. Pricing

The pricing strategy is based upon the lower middle class being able to
afford the same. The table 5 gives rates of various services offered in
the salon.

Table 5: Price list (All figures in INR)

Sr. Services Offered Rates

No.
1 Hair Cut and Shampoo 100
2 Shave and Beard 50
3 Hair Treatment 100
4 Face Massage 100
5 Manicure/Pedicure 100
6 Colour Technical: 400
7 Highlights Average price: 800
8 Straightening / Perming Rs. 999/- 999+

5. Promotion

The promotional campaign has two goals:

(a) Generate walk- in for the salon.
(b)Generate and convert enquiries to franchise appointments.

We suggest usage of ½ page advertisements once a month in the first

choice city newspaper. In addition to this, a certain amount of
presence will be needed at street level i.e. usage of Outdoor media,
but at the eye level (bus shelters, etc.).
Some amount of exposure in the initial stage on television should
prove to be cost-effective. Experimentation with promotion on the

26
internet should be encouraged. Participation in the local exhibitions,
outdoor media, internet advertising, distribution of flyers, in-theatre
advertising, should be encouraged.
The budget we have proposed is Rs 2.72 Crore for first year. Rupees 5
Crore and Rs 7.25 Crore will be spent in the second and third year
respectively. The normal advertising should be built around brand
reinforcement and corporate communication such as image building
exercises.
Product Sales Forecast

The following table and charts show our projected product sales. The
sales projection has been computed with the following assumptions:
 Annual product sales per franchisee is taken as Rs 2,40,000
 The product sales increases by 10% every year.
 The product costs increases by 10% every year.
Table: 6: Product sales forecast (All figures in INR)
Sales Monthl Annual / FY2008- FY2009 FY2010-
y Franchi 09 -10 11
see
Hair Products 20000 2,40,000 5840000 6602200 1956086
0 00
Other - - - - -
Total Sales 20000 2,40,00 5840000 6602200 1956086
0 00
0

Direct cost of
Sales
Hair Products 12000 144000 3504000 3961320 1173651
0 60
Margin to 5000 60000 1,460, 16,505, 48,902,
000 500 150
Franchisee
Total Direct 17000 204000 4,964, 56,118, 166,267,
000 700 310
cost of sales

27
Chart: 2

Franchisee Program Snapshot

Project Requirements:
• Space: 300 sq ft built up. (210 Sq ft carpet).
• Total Project Investment: Rs. 7.60 Lacs
• Gestation period: 1 month

Table 7: Total Project Investment: (All figures in INR)

Sr. Investments Amount

No.
1 Franchise Fees 1,25,000
2 Territory Reservation Deposit 1,25,000
3 Deposit (for space) 3 months’ rent @Rs. 1,35,000
45,000/- pm.
4 Total Infrastructure investments 3,25,000
5 One-month Working Capital (One-month 50,000
Rent, Rs. 45,000/- + Electricity, Rs. 5,000/-)
Total 7,60,000

• Upfront payment towards item nos. 1, 2 and 4 of table: 6, i.e. Rs.

5.75 Lacs has to be made to the Franchisor to make the
franchise agreement effective.
• Investments (items 3 and 5) will vary from city to city and area
to area.

28
 • Monthly rent computed @ Rs. 150 per sqft. Therefore, 300 sqft X
Rs. 150 = Rs. 45,000/- per month.

Revenue from service

Table 8: Revenues (Average Day):

Sr. No. Service Rates No. of Incom

(INR) Custom e
ers (INR)
1 Hair Cut 100 15 1,500
2 Shave and Beard 50 5 250
3 Hair Treatment 100 5 500
4 Face Massage 100 5 500
5 Manicure/Pedicure 100 3 300
6 Technical 999 (avg) 2 1,998
Total (Avg) 5,048

Table 9: Sales according to Weekdays:

Days Type Sales Revenues

(INR)
Sat, Sun High +100% 20,192.0
Mon, Wed, Fri Med +20% 18,172.8
Tue, Thu Low Avg 10,096.0

Table 10: Periodic Revenues: (All figures in INR)

Sr. No. Time Period Amount

1 Per Week 48,460.80
2 Per Month 2,09,996.80
3 Per Annum 25,19,961.6

Revenue from Products

29
Table 11.1: Periodic Revenues: (All figures in INR)

Sr. No. Time Period Amount

1 Sales per Month 2o,ooo
2 Sales per Annum 2,40,000

Table 11.2: Total Revenue: (All figures in INR)

Sr. No. Item Amount

1 Revenue from service 25,19,961.6
2 Revenue from products 2,40,000
Annual Total 2759961.6

Table 12: Expenses: (All figures in INR)

Sr. No. Item Amount

1 Rent 45,000
2 Salaries (3@ Rs. 6,000 pm, 1@ 26,000
Rs. 8,000 pm)
3 Consumables 5,000
4 Product cost 15,000
5 Other expenses 10,000
Monthly Total 1,01,000
Annual Total 12,12,000

30
Table 13: Unit Franchisee P / L: (All figures in INR)

Income
Services 25,19,961.6
Products 2,40,000
Total Annual Income 27,59,961.6

Expenses
Running Expenses 12,12,000
Royalty to Franchisor 1,20,000
Total Annual Expenses 13,32,000

Earnings before taxes 14,27,961.60

Loan Facility

RHRNJH with give a collateral guarantee of up to 75% of the total

investment (Rs. 7.5 lakhs) to the bank.

Exit Policy

If the franchisee wishes to exit the business within the first three years,
RHRHJH will buy back the franchise operation after paying the
franchisee his investments.

Operational Plans
Execution steps
1. Establish Corporate Office cum base city office in Mumbai
2. Implement a corporate advertising campaign
3. Implement a franchise enquiry generation campaign for western
India.
4. Appoint franchisees and train them
5. Establish base city office in Ahmedabad. Base city offices will
give leverage to appoint franchisees.

31
 6. Recruit franchisee appointment and support team in both the
base cities
7. Set up type A base city offices in Delhi, Hyderabad, Calcutta and
Lucknow
8. Set up type B base city offices in Jaipur, Cochin and Indore.
9. Recruit franchisee appointment and support team in the newly
set up base cities
10. Implement a franchise enquiry generation campaign on all India
bases.
11. Appoint franchisees and train them.
12. Advertise to promote the services offered in RHRNJH brand
so that adequate numbers of walk-ins are generated for each
franchise centre.
13. Continue to advertise and prospect for franchisees and
appoint them as a routine function.
14. Carry out research to find out effectiveness of various
measures.

Table 14: Phases of Execution

Phase 1 (July08-Sep Phase 2 (Oct08- Phase 3
08) March09) (FY09-11)
Activi 1. Establishment of 1. Establishment of 1. Appointment
ty Corporate Base City offices of
Office in Mumbai and at Franchisees.
Base City Offices at Delhi, Hyderabad,
Mumbai and Calcutta, Lucknow,
Ahmedabad. Cochin, Jaipur &
Indore.
2. Appointment of 2. Advertising
2. Appointment of Franchisees. Campaign.
Franchisees. 3. Advertising

32
 3. Advertising Campaign.
Campaign.

Calculation of Critical Path

Fig 3: Network Diagram

Network Diagram

Activities:
1-2 Establishment of Corporate Office.
2-3 Establishment of Base City at Mumbai.

33
2-4 Appointment of Franchisees.
2-5 Advertising Campaign.
3-6 Establishment of Base City at Ahmedabad.
4-9 Appointment of Franchisees.
5-9 Advertising Campaign.
6-7 Establishment of 4-Base City.
7-8 Establishment of 3- Base City.

Table: 15 Calculation of Earliest & Latest time for an activity

(All figures in months)

34
Activi Durati Earliest Earliest Latest Latest Slack
ty on Start Finish Finish Start (L-D)-E
Month Time Time Time Time
s (E) (E+D) (L) (L-D)
(D)

1-2 1 0 1 1 0 0

2-3 1 1 2 3 2 1

2-4 3 1 4 4 1 0

2-5 3 1 4 5 2 1

3-6 1 2 3 8 7 5

4-6 0 4 4 8 8 4

4-9 6 4 10 10 4 0

5-9 5 4 9 10 5 1

6-7 1 4 5 9 8 4

7-8 1 5 6 10 9 4

8-9 0 6 6 10 10 4

From the table 15, we find that “Critical Path” includes activities
1-2, 2-4 & 4-9.

35
6 M’s of Capacity

Methods
The GM (Operations) will control the 8 base city offices. Each of the
base city will appoint and support franchisee within their specified
territory.
Materials
Stocks will be centrally received in Delhi and Godowned. Delhi will
receive orders from branches (Base City Offices). Retail and Salon will
place order to Delhi via net. Delhi will instruct Branches to reach
Consumables / Durables as the case may be to the salon.
Delhi will not stock goods for more than a week whereas branches will
stock goods on a 45 day cycle.
Branches will deliver consumables once every 15 days based on the
impress system without being ordered. Salon can also place special
order to base city in pre-determined lots.
Manpower
A stock-keeper will be accountable for receiving and handling of goods
in Delhi. Upon receiving the goods from suppliers, he will inspect the
goods for quantity and damages. Once satisfied, he will make an entry
into the computer as per the bar codes and sign the supplier’s invoice.
A copy of the invoice would also go into the record files. The goods will
be stored at appropriate places and then it will be dispatched to the
base city branches as per the schedule.
Machinery
A broadband network would link the Corporate Office to the Base City
Office and network of 1000 franchisees. Through this online platform
franchisees will be able to place their orders and send daily reports to

36
the concerned authorities. This technology backbone will also provide a
database necessary for smooth functioning of the network.
Messages
The franchisees will share sale information with the branch offices on
daily bases.
Money
The startup capital will be raised through term loan. Additional capital
will be raised through equity route. This amount will be used to run the
business for 6 month. By that time the business would have created
sufficient cash reserves for itself to grow on its own.

Organizational Strategy: 7S Model

Fig 4: 7S Model

Structure

Strategy System

Super ordinate
Goals

Skills Style

Staff

• Super ordinate goals

1. “To give a hair cut once to everybody on the planet earth”
2. Kill unorganised & semi organised sector.
• Structure

37
 Head office will control 9 branch offices and these branch offices
will in turn control the network of 1000 franchisees throughout
India. The structure will be as of a hybrid organisation. Head
office will have a functional structure & branch office will have a
matrix structure.
The branch office will be performing following functions.
1. Lead Management and appointment of franchisees
2. Servicing franchisees with consumables
3. Representing the interest of groups other activities in
their designated territories
4. Will carry out primary research on consumer &
franchisees feedback.

• Strategy
Provide services at value for money (VFM) which will be achieved
by striping down on the frills & passing the benefits to the
customer.
This strategy is based on Philips Kotler’s principle of “Less for
Less”
• System
Subscription will be bought from an IT (web based enterprise)
service provider that provides usage for a company.
A common virtual platform will facilitate sharing of image,
information & data amongst head office, branch office &
franchised unit.
• Skills
The promoter has specialized skills in hair styling in addition to
entrepreneurial and other related skills, their management
consultant has special skills in management, marketing, brand

38
 communication & franchising. The team member will have skill
set in planning, operations and control of franchise business
format.
• Style
A paradox of culture would be present within the organization. In
technical department creativity & experimentation would be
encouraged whereas in operation department pristine
management science would be followed. Individual creativity will
be encouraged with in a framework of team. Members are
expected to take decisions within pre set limits. The job profile
will be clearly defined; however the members are expected to
work across functions in response to changing needs of the
organisation.
• Staffing
The head count at the head office & branch offices will be kept
low, limiting it to total India strength of 75 personnel, whereas
thousands will work under the umbrella of the brand, at pay &
administration of individual franchise partner.
A 360 degree quarterly appraisal will be implemented. Technical
& best management practice training will be conducted half
yearly or on need basis.

Management and Administration

Management Structure
The structure will be as of a hybrid organization. Head office will have a
functional structure and base city office will have a matrix structure. In
all there will be nine base city offices.
These nine base cities are classified as Type A and Type B base cities.
Delhi, Hyderabad, Lucknow, Kolkata are type A and Ahmedabad, Kochi,

39
Jaipur and Indore are type B. Mumbai will function as Head office cum
type A base city office. Head office will control 9 base city offices and
these base city offices will in turn control the network of 1000
franchisees throughout India.
The organization structure shown below (see fig: 5) defines the line of
Authority and Responsibility within the organization.

Fig 5: Right Hair Right Now Jawed Habib Organization

Structure

GM (Operation) will head RHRNJH and report to the unit board. He will
have an executive assistant to assist him. Both of them will sit in Head
office. Every base city will have a base city manager who heads it and
report to the GM (Operation).

40
Each type A base city has an appointment team and a support team.
Each appointment team consists of an appointment manager, an
appointment executive, and an appointment junior executive. Similarly
the support team also has support manager, executive and junior
executive. All Type A base city excluding Mumbai will employ 8 staffs
including the office assistant. Mumbai, in addition to the above
employee’s, will have a HR manager, a sourcing manager, a sourcing
executive, an accounts manager and additional office assistant. All
Type B base cities will employ 4 staffs consisting of a base city
manager, appointment manager, support manager and office
assistant.

Key Staffing
Promoter
Jawed Habib, the promoter, hails from the 1st family of hairstyling in
India. He is a renowned Fashion Hair Stylist and businessman. Jawed
Habib appeared on the country's hair styling horizon about fourteen
years ago. Jawed Habib, is a Post Graduate of French literature from
Jawaharlal Nehru University, New Delhi went to London's Morris School
of Hair Dressing and London School of Fashion for a 2 year courses in
the art and science of Hair Styling and Grooming. He is already there in
Limca Book of World Records with a feat of 410 non-stop haircuts in a
day. Today Jawed's face is one of the most recognized faces in the
media & fashion world in India and Internationally.

General Manager (operations)

Zafar Khan, the general manager, graduated from Sir J.J. School of
Applied Art, he did a few stints with design studios and a publication
house before setting up his own design studio. Formally trained as a
graphic artist, he taught himself the science of Management,
Marketing and Franchising. Influenced by the teachings of the

41
century’s greatest management thinker Peter Drucker, Zafar focused
himself to ‘success engineer’ businesses of small owners. Amongst his
credentials, Zafar counts his awards for brand excellence (2005),
design and display 1995, success engineering business of Jetking
Infotrain Ltd, Teleman, Digital Academy, Kachins, Ofran and others.
Zafar was also fortunate to train under Mr. Suresh Bansal,
CMD, Melstar Ltd and Mr. Raj Saraf, CMD, Zenith Computers Ltd as
their CEO and Creative Director for their in-house Advertising Agency.
Currently Mr. Khan is the CEO and Creative director of Atlantis IMC
which is his own company.

Base city Office Manager

The base city office manager will be an MBA in marketing and who has
experience in service industry with a minimum experience of 5 years in
handling managerial and service operations. He will have good
leadership, networking and interpersonal skills.

Personnel Plan

In the phase 1, we will start our operations in the western region by

setting up 2 base city offices in Mumbai and Ahmedabad. Phase 1 will
have 11 people and as we move in the phase 2 we will gradually
recruit and fill all the positions of the organization. In the beginning of
4th quarter 08-09, we will start our full fledge operations with our entire
staff of 63 people. Further, growth and expansion of business will
increase our staff requirement, which will be taken care by the HR
manger

Table 16: Personnel: Phase 1(July, August, September, 2008)

Designation No of Monthly Total salary
peopl salary

42
 e

General Manager 1 75,000 75,000

Executive Assistant to General 1 25,000 25,000
Manager
HR Manger 1 25,000 25,000
Base city Manger 2 35,000 70,000
Franchisee Support Manager 2 25,000 50,000
Franchisee Appointment 2 25,000 50,000
Manager
Office assistant cum Peon 2 3,500 7,000
Total People 11
Total Payroll per month 3,02,000

Table 17: Personnel: Phase 2 (October 2008 to March 2009)

Designation No of Monthly Total salary

People Salary
General Manager 1 75,000 75,000
Executive Assistant to General 1 25,000 25,000
Manager
HR Manger 1 25,000 25,000
Accountant 1 12,500 12,500
Sourcing Manager 1 35,000 35,000
Assistant Sourcing Manager 1 20,000 20,000
Base city Manger 9 35,000 3,15,000
Franchisee Support Manager 9 25,000 2,25,000
Franchisee Appointment 9 25,000 2,25,000
Manager
Executives requirement 10 18,000 1,80,000
Junior Executives requirement 10 12,000 1,20,000
Office assistant cum Peon 10 3,500 35,000
Total People 63

43
 Total Payroll per month 12,92,500

The head count at the head office & base city offices will be kept low,
not exceeding 75 personnel in total, whereas thousands will work
under the umbrella of the brand, at pay & administration of individual
franchise partner. A 360-degree quarterly appraisal will be
implemented. Technical & best management practice training will be
conducted half yearly or on need basis.

A paradox of culture would be present within the organization. In

technical department creativity & experimentation would be
encouraged whereas in operation department pristine management
science would be followed. Individual creativity will be encouraged with
in a framework of team. Members are expected to take decisions
within pre set limits. The job profile will be clearly defined; however the
members are expected to work across functions in response to
changing needs of the organization.

We also propose to have a cross functional team consisting of experts

and professionals. The team will have one professional each from
Marketing, Accounting and Finance, Human resource and Hair stylist
trained in Jawed Habib’s hair academy. This team will be created and
stationed at the head office to provide expertise help to all the
franchisees in the period of crisis. They will revamp and customize
their marketing and promotional plan, check the points of control in
accounts and finance, evaluate the performance of the personnel in
the franchisee and provide creative and service related support. This
team will be formed to pull a franchisee out of crisis, which affects
their sales.

44
Financial Projections

The project requires an initial start-up capital of Rs 1 crore during

phase I. The entire amount will be raised through a term loan from
banks. This start-up capital will be used for the setting up of base city
offices, carry out brand building exercises and to meet the working
capital requirements for phase I.
Additional amount of Rs 2 crore will be investment in the business
during phase II. The entire amount will be raised through equity route.

45
The tables 18 and 19 given below explain the details of investments to
be made during phase I and phase II of the project.

Table 18: Investments: Phase I

Sr. No Details Amount
1 Base city Offices* 548000
2 Rent Deposit 135000
3 Inventories 96000
4 Advertising Expenses 7200000
5 Working capital 2021000
requirements
Total 10000000

Table 19: Investments: Phase II

Sr. No Details Amount
1 Base city Offices* 2,240,000
2 Rent Deposit 9,45,000
3 Advertising Expenses 10,576,450
4 Working capital 62,38,550
requirements
Total 2,00,00,000

* Refer to appendix 1 for the details of expenses for setting up base

city offices

Revenue Generation
Revenue generation for this business model fulfils all the important
characteristics: (1) Market share, (2) Cash Flow, (3) Expenses and (4)
Conclusion.

Market Share
The total size of beauty salon industry is estimated at 1600 crore. This
venture Right Hair Right Now Jawed Habib’ with its network of

46
franchisee’s will have market share of 10% at the end of 3 years since
inception.

Cash Flow
The venture ‘Right Hair Right Now Jawed Habib’ will have its cash flow
coming from the following streams:
 One time Franchisee fees of Rs 1.25 lakhs to be paid by each
franchisee at the time of registration
 One time Territory Reservation deposit of Rs 1.25 lakhs to be
paid by each franchisee at the time of registration.
 Royalty of Rs 1.2lakhs to be paid by each franchisee every year
 Franchisee renewal fee of Rs 1lakhs to be paid by each
franchisee every two year
 Sale of Hair care products, books and electronics

Expenses
The bulk of franchising expenses are towards advertising and
promotion, followed by staff and rental expenses. However, the gap
between the two is considerable. Minor expenses are towards
travelling, stationery and telephone etc.

Conclusion
This format of business model offer best cash flows as it is based on
Other People’s Money (OPM).

Key Assumptions

47
The financials that are enclosed have the following assumptions:
 No of franchisee to be appointed during first, second, and third
year are 111, 333 and 556 respectively.
 Staff salaries raise by 5% every year
 EMI for term loan is assumed to be at the rate of 13%

Start-up Requirements (All figures in INR)

Start up Assets
Fixed Assets 268,000
Inventories(Consumables and Products) 96,000
Cash Requirements fromStart-up 9,636,000
Additional Cash Raised -
Cash Balance on Starting Date 9,636,000
Total Assets 10,000,000

Liabilities and Capital

Secured Loan 10,000,000
Loss at Start-up(Start-up Expenses) -
Accounts Payable (Outstanding bills) -
Other current Liabilities -
Total Liabilities 10,000,000

Total Funding Requirements 10,000,000

Table 20: Quarter wise Project Cash Flows

48
 Project Cash Flows
(All figures in Rs. lakhs)
Sl. NoIncome Q2FY08-09
Q3FY08-09
Q4FY08-09
Q1FY09-10
Q2FY09-10
Q3FY09-10
Q4FY09-10
Q1FY10-11
Q2FY10-11
Q3FY10-11
Q4FY10-11
1 No of franchisee 12 37 62 67 78 89 99 109 129 149 169
2 Income from Franchisee
3 Franchise Fees (X No of franchisee @ Rs 1.25L) 15 46.25 77.50 83.75 97.50 111.25 123.75 136.25 161.25 186.25 211.25
4 Territory Reservation deposit (X No of franchisee @ 15
Rs1.25L)46.25 77.50 83.75 97.50 111.25 123.75 136.25 161.25 186.25 211.25
5 Royalty (X No of franchisee @ Rs 1.2L) 0 0 0 0 14.40 44.40 74.40 80.40 108.00 151.20 193.20
6 Franchisee Renew al fee (X No of franchisee @ Rs 1L)0 0 0 0 0 0 0 0 12 37 62
7 Product Sales 2.40 14.40 41.60 87.78 134.64 188.32 249.48 348.48 432.70 530.95 643.96
8 Total 32 107 197 255 344 455 571 701 875 1092 1322
9 Expenses
10 Product cost 2.04 12.24 35.36 74.61 114.44 160.07 212.06 296.21 367.79 451.31 547.37
11 Advertising & Promotion 72 125 75 125 125 125 125 181.25 181.25 181.25 181.25
12 Salaries
13 GM -Operation (X 1 @ 75,000) 2.25 2.25 2.25 2.36 2.36 2.36 2.36 2.48 2.48 2.48 2.48
14 Executive Assistant to GM (X 1 @25,000) 0.75 0.75 0.75 0.79 0.79 0.79 0.79 0.83 0.83 0.83 0.83
15 Base city M anagers(X 9 @ 35,000) 0.70 5.95 9.45 9.92 9.92 9.92 9.92 10.42 10.42 10.42 10.42
16 Franchise appointment M anager (X 9 @25000) 0.50 4.25 6.75 7.09 7.09 7.09 7.09 7.44 7.44 7.44 7.44
17 Franchise appointment Executive (X 5 @18000) 0 1.98 2.70 2.84 2.84 2.84 2.84 2.98 2.98 2.98 2.98
18 Franchise appointment Jr.Executive (X 5 @12000) 0 1.32 1.80 1.89 1.89 1.89 1.89 1.98 1.98 1.98 1.98
19 Franchise support M anager (X 9 @25000) 0.50 4.25 6.75 7.09 7.09 7.09 7.09 7.44 7.44 7.44 7.44
20 Franchise support Executive (X 5 @18000) 0 1.98 2.70 2.84 2.84 2.84 2.84 2.98 2.98 2.98 2.98
21 Franchise support J r.Executive (X 5 @12000) 0 1.32 1.80 1.89 1.89 1.89 1.89 1.98 1.98 1.98 1.98
22 HR M anager (X 1 @25000) 0.50 0.75 0.75 0.79 0.79 0.79 0.79 0.83 0.83 0.83 0.83
23 Accountant (X 1 @12500) 0 0.38 0.38 0.39 0.39 0.39 0.39 0.41 0.41 0.41 0.41
24 Sourcing M anager (X 1 @35000) 0 1.05 1.05 1.10 1.10 1.10 1.10 1.16 1.16 1.16 1.16
25 Assistant Sourcing M anager (X1 @20000) 0 0.60 0.60 0.63 0.63 0.63 0.63 0.66 0.66 0.66 0.66
26 Office Assistant cum Peon (X 10 @ 3500) 0.14 0.70 1.05 1.10 1.10 1.10 1.10 1.16 1.16 1.16 1.16
27 Utilities
28 For Corporate office cum base city office
29 Rent (600 sqft @ Rs 150/ sqft) 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70 2.70
30 Electricity (@7500/ month) 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23
31 Telephone (@20000/ month) 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60
32 Office expenses(@10000/ month) 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.30
33 Travelling Expenses(@100000) 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
34 Contingency 0.68 0.68 0.68 0.68 0.68 0.68 0.68 0.68 0.68 0.68 0.68
35 For base city Office
36 Rent (300 sqft X8 @ 150/ sqft) 0.45 6.30 10.80 10.80 10.80 10.80 10.80 10.80 10.80 10.80 10.80
37 Deposit (X 8 @ 3months Rent) 1.35 9.45 0 0 0 0 0 0 0 0 0
38 Electricity (X8 @5000) 0.05 0.70 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20
39 Telephone(X8 @12000) 0.12 1.68 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88
40 Office expenses(X8 @5000) 0.05 0.70 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20
41 Travelling Expenses(X8 @25000) 0.25 3.50 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00
42 Contingency 0.23 2.23 2.21 2.21 2.21 2.21 2.21 2.21 2.21 2.21 2.21
43 Total 89.38 196.84 180.93 272.12 311.95 357.58 409.57 552.00 623.59 707.10 803.16
44 Net Cash Flow (56.98) (89.94) 15.67 (16.84) 32.09 97.64 161.81 149.38 251.61 384.55 518.50

Projected Profit and Loss

49
Shown below are our profit and loss projections for the next three
years.

Chart 3: Highlights

50
Pro Forma Profit and Loss Account (All figures in INR)

FY2008-09 FY2009-10 FY2010-11

Total Income 33,590,000 162,592,000 398,988,600
Franchise Fees 13,875,000 41,625,000 69,500,000
Territory Reservation deposit 13,875,000 41,625,000 69,500,000
Royalty - 13,320,000 53,280,000
Franchisee Renewal fee - - 11,100,000
Product Sales 5,840,000 66,022,000 195,608,600
Cost of Goodssold 4,964,000 56,118,700 166,267,310
Product Cost 4,964,000 56,118,700 166,267,310
Grossprofit 28,626,000 106,473,300 232,721,290
OperatingExpenses 22,746,817 55,123,868 80,046,785
Management Staff Salaries 7,164,000 16,285,500 17,099,775
Rent 2,565,000 5,400,000 5,400,000
Telephone 648,000 1,392,000 1,392,000
Electricity 262,500 570,000 570,000
Office expenses 285,000 600,000 600,000
Travelling Expenses 1,875,000 3,600,000 3,600,000
Advertising & Promotion (1/3rd of
annual expenses) 9,066,667 25,733,333 49,900,000
Contingency 671,550 1,156,200 1,156,200
Depreciation* 209,100 386,835 328,810
Profit before interest andtax 5,879,183 51,349,432 152,674,505
Interest 883,553 833,879 390,880
Profit before Tax 4,995,630 50,515,553 152,283,625
Tax @ 33.99% 1,698,015 17,170,236 51,761,204
Profit after tax 3,297,616 33,345,316 100,522,421
* Every year’s advertising and promotion is to be treated as CAPEX
(Capital Expenditure) and therefore, needs to be amortized over a
period of 3 years.
*Depreciation is calculated on WDV method at the rate of 15% p.a.

51
Projected Cash Flow
We expect to manage cash flow over the next three years simply by
the growth of the cash flow of the business. The business will generate
more than enough cash flow to cover all of its expenses.

Chart4: Cash flow

52
Pro Forma Cash Flow (All figures in INR)

FY2008-09 FY2009-10 FY20010-11

Pro FormaCashFlow
Opening Cash Balance 9,636,000 9,260,479 15,516,570
CashReceived 53,590,000 162,592,000 398,988,600
Franchise Fees 13,875,000 41,625,000 69,500,000
Territory Reservation deposit 13,875,000 41,625,000 69,500,000
Royalty - 13,320,000 53,280,000
Franchisee Renewal fee - - 11,100,000
Product Sales 5,840,000 66,022,000 195,608,600
Capital Raised 20,000,000 - -
Total CashReceived 53,590,000 162,592,000 398,988,600
Expenditure
Fixed Assets 2,520,000 - -
Rent Deposit 1,080,000 - -
Product Cost 4,964,000 56,118,700 166,267,310
Management Staff Salaries 7,164,000 16,285,500 17,099,775
Rent 2,565,000 5,400,000 5,400,000
Telephone 648,000 1,392,000 1,392,000
Electricity 262,500 570,000 570,000
Office expenses 285,000 600,000 600,000
Travelling Expenses 1,875,000 3,600,000 3,600,000
Advertising & Promotion 27,200,000 50,000,000 72,500,000
Termloan principle repayment (@ 13%) 2,148,903 3,209,394 3,652,395
Termloan interest repayment (@ 13%) 883,553 833,879 390,880
Contingency 671,550 1,156,200 1,156,200
Tax payment 1,698,015 17,170,236 51,761,204
Total Cash spent 53,965,521 156,335,909 324,389,764
Net Cash Flow (375,521) 6,256,091 74,598,836
*Additional amount invested in the business during Phase II.
Cash Balance 9,260,479 15,516,570 90,115,406

53
Projected Balance Sheet

As shown in the balance sheet, we expect a healthy growth in net

worth.

Pro Forma Balance sheet (All figuresinINR)

FY2008-09 FY2009-10 FY2010-11
Sourcesof Funds
1 Share Capital 20,000,000 20,000,000 20,000,000
2 ReservesandSurplus 3,297,616 36,642,932 137,165,353
(a) Retained earnings - 3,297,616 36,642,932
(b) Earnings 3,297,616 33,345,316 100,522,421
2 LoanFunds 7,851,097 4,641,703 989,308
(a) Secured loans 7,851,097 4,641,703 989,308

3 Total 31,148,713 61,284,635 158,154,661

Applicationof Funds
1 FixedAssets(Net) 2,578,900 2,192,065 1,863,255
(a) Gross Block 2,788,000 2,578,900 2,192,065
Less: Depreciation 209,100 386,835 328,810
2 AdvertisingExpenses 18,133,333 42,400,000 65,000,000
3 Current Assets, loansandadvances 10,436,479 16,692,570 91,291,406
(a) Cash & Bank balances 9,260,479 15,516,570 90,115,406
(b) Inventories 96,000 96,000 96,000
(c) Rent Deposit 1,080,000 1,080,000 1,080,000
Less: Current Liabilities and provisions - - -
Net Current Assets 10,436,479 16,692,570 91,291,406
4 Miscellaneousexpenditure andlosses - - -
5 Total 31,148,713 61,284,635 158,154,661
54
Calculation of Internal Rate of Return (IRR)

Computationof Net CashFlows for theProject (All figuresinINR)

FY2008-09 FY2009-10 FY2010-11

1 Initial Investment* (30000000)
2 Profit before interest andtax(PBIT) 5879183 51349432152674505
3 TaxesonPBIT 1998334 17453672 51894064
4 Profit after tax: (2) - (3) 3880849 33895760100780441
5 Depreciation 209100 386835 328810
6 ChangeinNet WorkingCapital (704479) (6256091)
(74598836)
7 Cashflowfromoperations(4+ 5+6) 3385470 28026504 26510415
8 Terminal Value 450265338
9 Netcainvested
* Rs2cr shflows(1+ 7 +8)
three months after (3the
00000project
00) 3385470 28026504 is 476775753
commencement
taken as it is without discounting

Internal Rate of Return (IRR)

CashFlow/Time t=0 t=1 t=2 t=3
Project (Rs) (30,000,000) 3,385,470 28,026,504 476,775,753
IRR 167.79%

55
 Weighted Average Cost of Capital (WACC)
Source of Finance Amount Proportion(%) Cost (%) Weightedcost
(Rs.) (%)
Share Capital 20000000 66.67 15 10.0
Debt 10000000 33.33 13 4.33
30000000 100 WACC 14.33
Note: Assuming average market return as 15% and hence cost of share
capital will be 15%

Conclusion: Since the IRR is greater than WACC we can go ahead with
the project.

Ratio Analysis
Business ratios for the years of this plan are shown below.

56
RatioAnalysis
Description FY2008-09 FY2009-10 FY2010-11
RevenueGrowth 100.00% 384.05% 145.39%

PercentofTotal Assets
Cash&BankBalances 29.73% 25.32% 56.98%
Total Current Assets 33.51% 27.24% 57.72%
Long-termAssets 8.28% 3.58% 1.18%

Current Liabilities 0.00% 0.00% 0.00%

Loanfunds 25.21% 7.57% 0.63%
Net Worth 74.79% 92.43% 99.37%

ProfitabilityRatios
GrossProfit Margin 85.22% 65.48% 58.33%
Net Profit Margin 9.82% 20.51% 25.19%
OperatingExpenses 67.72% 33.90% 20.06%
AdvertisingExpenses 26.99% 15.83% 12.51%
Profit BeforeInterest andTaxes 17.50% 31.58% 38.27%
ReturnonAssets 10.59% 72.15% 91.62%
EarningPower 18.87% 111.11% 139.15%
ReturnonCapital Employed 12.46% 73.34% 91.85%
ReturnonEquity 14.15% 83.43% 94.03%

LiquidityRatios
Current n.a n.a n.a
AcidTest n.a n.a n.a

LeverageRatio
Debt- EquityRatio 0.337 0.082 0.006
Debt- Sharecapital Ratio 0.393 0.232 0.049
Total Debt toTotal Assets 0.252 0.076 0.006
Interest CoverageRatio 6.891 62.043 391.433
Current LiabToLongtermLiab 0 0 0

ActivityRatios
Total Asset Turnover 1.078 3.518 3.636
FixedAsset turnover 13.025 68.159 196.773
InventoryTurnover 51.708333 584.56979 1731.95

Additional Ratios
AssetstoSales 0.927 0.284 0.275
Current Debt/Total Assets 0% 0% 0%
Sales/Net Worth 1.442 2.870 2.539
Valuation of the Firm

57
Discounted cash flow method was used to arrive at the value of the
firm. The explicit forecast period is taken as three years, i.e. from
FY2008-09 to FY2010-11. Growth rate after the explicit forecast period
is taken as 10% p.a.

Discounted Cash FlowApproach

FreeCash FlowForecast (All figuresinINR)

Sl.No FY2008-09 FY2009-10 FY2010-11
1 Profit before tax 4,995,630 50,515,553 152,283,625
2 Interest expense 883,553 833,879 390,880
A Profit before interest and tax(PBIT): (1)+(2) 5,879,183 51,349,432 152,674,505
3 Taxprovisiononincome statement 1,698,015 17,170,236 51,761,204
4 Taxshield on interest expense 300,320 283,435 132,860
B TaxesonPBIT: (3) +(4) 1,998,334 17,453,672 51,894,064
C NOPLAT: (A)- (B) 3,880,849 33,895,760 100,780,441
D Net Investment 3,015,379 5,869,256 74,270,026
E Free cashflow (FCF): ©- (D) 865,470 28,026,504 26,510,415

Continuingvalueof theFirm
FCF for FY2011-12 29,161,456
Growth rate 10%
Weighted average cost of capital (WACC) 14.33%
Continuingvalue (CV) 672,956,686

FirmValue
X Present Value (FCF) 39,934,618

Y Present Value (CV) 450,265,338

Not
Z FirmValue: (X) +(Y) 490,199,956
e:
NOPLAT stands for net operating profit less adjusted taxes

Franchisee Appointment Plan

58
The project starts from 1st July 08 and appointment of the franchisee’s
starts from July 08 onwards. Refer to the table given below for the
details of franchisee appointment plan.
Chart: 5

Franchisee appointment schedule

Table: 30

Cumulative Cumulative Cumulative

Month/Noof FY2008-09 FY2009-10 FY2010-11
FY2008-09 FY2009-10 FY2010-11
Franchisee
April 0 22 133 36 480
May NA 0 22 155 36 516
June 0 23 178 37 553
Qtr1Total 0 0 67 178 109 553
July 4 4 26 204 43 596
August 4 8 26 230 43 639
September 4 12 26 256 43 682
Qtr2Total 12 12 78 256 129 682
October 12 24 29 285 49 731
November 12 36 30 315 50 781
December 13 49 30 345 50 831
Qtr3Total 37 49 89 345 149 831
January 20 69 33 378 56 887
February 21 90 33 411 56 943
March 21 111 33 444 57 1000
Qtr4Total 62 111 99 444 169 1000
Total 111 111 333 444 556 1000

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Appendix 1:

Total Infrastructure Investments

Sr. Item Amount
No. (Rs)
Fixed Assets-Corporate Office cum base city office
1 Computer + Printer Set (9 @ Rs10000) 90000
2 Phone (5) + Fax machine (1) 15000
3 Microwave 5000
4 Air Conditioner 15000
5 Fridge 5,000
6 Aquaguard 3,000
7 Chairs (X 15 @ 3000 ) 45000
8 Tables (X 8 @ 10000) 80000
9 Miscellaneous 10000
A Total 268000

Total Infrastructure Investments

Sr. Item Amount
No. (Rs)
Inventories- corporate cum base city
offices
1 Products 96000
2 Total 96000

Total Infrastructure Investments

Sr. Item Amount

60
No. (Rs)
Fixed Assets-Base city office (Type A-300 sqft)
1 Computer + Printer Set (5 @ Rs10000) 50000
2 Phone (5) + Fax machine (1) 15000
3 Microwave 5000
4 Air Conditioner 15000
5 Fridge 5,000
6 Aquaguard 3,000
7 Signage (Ext + Int) 25,000
8 Chairs (X 10 @ 3000 ) 30000
9 Tables (X 6 @ 10000) 60000
10 Flooring @ Rs.40 per sqft 12000
11 Walls 20,000
12 Carpentry (Wood and Glass) 35,000
13 Plumbing 15,000
14 Electrical Wiring 20,000
15 Lights and Switches 20,000
16 Civil Works 10000
17 Miscellaneous 10000
18 Total 350000
Total Fixed Asset of all type A base 1,400,00
B cities (@ 18 X 4 ) 0

Total Infrastructure Investments

Sr. Item Amount
No. (Rs)
Fixed Assets-Base city office (Type B-300 sqft)
1 Computer + Printer Set (3 @ Rs10000) 30000
2 Phone (3) + Fax machine (1) 10000
3 Microwave 5000
4 Air Conditioner 15000

61
5 Fridge 5,000
6 Aquaguard 3,000
7 Signage (Ext + Int) 25,000
8 Chairs (X 5 @ 3000 ) 15000
9 Tables (X 3 @ 10000) 30000
10 Flooring @ Rs.40 per sqft 12000
11 Walls 20,000
12 Carpentry (Wood and Glass) 35,000
13 Plumbing 15,000
14 Electrical Wiring 20,000
15 Lights and Switches 20,000
16 Civil Works 10000
17 Miscellaneous 10000
18 Total 280000
Total Fixed Asset of all type B 1,120,0
C base cities (@ 18 X 4 ) 00
Total Investment in Fixed Assets 2,788,0
D (A+B+C) 00

Appendix 2:

Total Infrastructure Investments: (All figures in INR)

Sr. Item Amount

No.
1 Fridge 5,000
2 Aquaguard 3,000
3 Computer + Printer Set 10,000
4 Air Conditioner 15,000
5 Styling Chair (4 @ Rs. 8000/-) 32,000
6 Shampoo Chair (1 @ Rs. 8000/-) 8,000

62
 7 Pedicure tub 2,000
8 Styling Station, Mirrors 30,000
9 Reception and waiting chairs 10,000
10 Trolley (2) 3,000
11 Shaving Kit 5,000
12 Steriliser 1,000
13 Clippers (3) 7,000
14 Hair dryers with holders (3) 3,500
15 Footrest (3) 1,500
16 Flooring @ Rs.40 per sqft 12,000
17 POP @ Rs. 40 per sqft 12,000
18 Walls 20,000
19 Carpentry (Wood and Glass) 35,000
20 Plumbing 15,000
21 Electrical Wiring 20,000
22 Lights and Switches 20,000
23 Signage (Ext + Int) 25,000
24 Civil Works 10,000
25 Consumables 10,000
26 Miscellaneous 10,000
Total 3,25,000

References

1. Pandey, I.M., Financial Management, Ninth Ed., Vikas Publishing

house Pvt Ltd, 2004
2. Chandra, Prasanna, Financial Management, Sixth Ed, Tata
McGraw Hill
3. Kotler , Philip, Marketing Management, Twelfth Ed

63
4. O’Donnel, Michael, Writing Business Plans that Get Results, Tata
McGraw Hill
5. www.statebankofindia.com
6. www.jawedhabib.co.in

64