SMEDA Auto Repair & Service Workshop

Pre-Feasibility Study

AUTO REPAIR & SERVICE WORKSHOP

Pre-Feasibility Pre-Feasibil ity Study

Auto Repair & Service Workshop

DISCLAIMER The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his/her own due diligence and gather any information he/she considers necessary for making an informed decision.

The content of the information memorandum does not bind SMEDA in any legal or other form.



DISCLAIMER The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his/her own due diligence and gather any information he/she considers necessary for making an informed decision.

The content of the information memorandum does not bind SMEDA in any legal or other form.


1


PROJECT PROFILE

1.1

Purpose of t f the Documents

This document is developed to provide the entrepreneur with potential investment opportunity in setting up and operating a Auto Repair & Service Workshop offering various services. This pre-feasibility gives insight into various aspects of a Workshop setup including both technical and general information for each particular service offered. The document is designed to provide all relevant details to facilitate the entrepreneur in making the correct decision providing various technological as well as business alternatives. The document also allows flexibility in change of various parameters to suit the customized needs of the entrepreneur. 1.2

Project Brief

The Auto Repair market has a lot of competition, almost all offer repair and service features. Very few have fully stocked parts owing to the problem of t ied up capital in case of non-utilization of these parts. However, quick availability of parts supports the service and repair departments by allowing them to turnaround jobs at a faster rate than the competition. Wheel alignment and balancing facilities are also provided by many large scale workshops along with their primary services. The proposed pre-feasibility addresses the unmet need of having a quality auto repair workshop that provides: (i) (ii) (iii) (iv)

Quick and quality quality repair repair & maintenance maintenance services; Wheel Alignment and Balancing Balancing Facilities Facilities High Pressure Pressure Cleaning Cleaning Services; Services; and Easy access access to new and used retail retail parts to meet the demands demands of the customer. customer.



1

51.4% during July 02 to April 03 signifying an increasing demand for cars which is expected to continue in the future (albeit at a lesser rate). Furthermore, increasing competition between leasing companies have caused the lease rates to decline considerably which have made car an affordable commodity for a majority of the middle-income class which constitutes a considerable segment of the population of Pakistan. These factors coupled together reflect on the growing need for quality repair and service facilities. Unlike many countries, the Pakistani car industry is unique in the sense that once the car comes on the road it is expected to run for an indefinite period requiring major repair and maintenance services throughout its operational life. Moreover there is a considerable demand for wheel alignment and wheel balancing services, which is required by almost every car, whether new or old. The roughness of the roads and continuous friction causes a continuous disruption to the alignment and balancing of the wheels which require adjusting at least once every two weeks for proper upkeep and maintenance. Conclusively it can be said that there exists an ample demand for quality repair and service workshops in Pakistan and also that the existing scenario provides conducive opportunities for entry into this business venture. 1.4

Key Success Factors/ Practical Tips f or Success

The three main critical success factors that affect the decision to invest in the proposed business setup are: i) Hands on Experience



iii) Technical Skill

The third critical factor relates mostly to technical skills required especially for operating computerized Wheel Alignment & Balancing machines and high pressure cleaning equipment. The machine operators should be properly trained in order to completely inspect steering and suspension systems, take computer measurements, make factory adjustments to restore alignment specifications. In case of unskilled workers handling these equipment, there will be loss of time, equipment and most important of all unsatisfactory service leading to customer dissatisfaction. 1.5

Proposed Business Legal Status

Although the legal status of business tends to play an important role in any setup, the proposed Auto Repair & Service Workshop is assumed to operate on a sole proprietorship basis which may extend to partnership in case of addition of new services that might add significant business to the existing setup. 1.6

Project Investment

This section will provide the total cost of the project. ITEM

COST (RS.)

Construction – Office / Store

675,000

Construction – Service Stations

850,000

Masonry Work

120,000



ITEM

COST (RS.)

Advance Rent & Deposit

900,000

Working Capital

552,000

Pre Operating Costs

50,000

Office Furniture & Equipment

80,000

Total Cost

6,047,000

Proposed Product Mix

1.7

A typical Auto Repair Workshop is assumed to provide the following four major services: (i) (ii) (iii) (iv)

Mechanical, and Denting & Painting Wheel Alignment & Balancing High Pressure Cleaning

The following table presents an overview of the proposed main services to be offered under the first two major categories identified above: MECHANICAL

DENTING & PAINTING



Maintenance Services



Cosmetic Repair



Major Repairs



Accidental Repair



overhaul (3 weeks), gearbox repair & replacement, steering box repair & replacement, suspension replacement (3 – 5 days) etc. 1.7 .2

Denting & Painting Services

The main denting and painting services provided to the customers would be as follows: (i)

Cosmetic Repairs which are also known as ‘touching services’ where minor body defacements (like scratches, dents, paint shrouding etc.) are repaired.

(ii)

Accidental Repairs which constitute chassis, mudguard, bumper, bonnet repairs / replacement services etc. Most of the cars coming for denting & painting services come under this category.

(iii)

Body Restoration Services which include complete restoration of vehicle body for example restoration of decayed body, completely destroyed accidental body restoration etc.

1.7 .3

W heel Al ignment & Bal ancing

(i)

Wheel Alignment which consists of adjusting the angles of the wheels so that they are perpendicular to the ground and parallel to each other. The purpose of these adjustments is to maximize tires’ life and ensure a vehicle that tracks straight and true when driving along a straight and level road.

(ii)

Wheel Balancing refers to the proper distribution of weight around a revolving tire and wheel assembly. Poor wheel balance can have a marked impact on both


1.7 .5


Subl et Services

Sublet services are those ancillary services that are outsourced to other specialized workshops / personnel that are not a part of the service mix offered by the Auto Repair workshop. These sublet services include items like Air Conditioner Repair & Coolant Replenishment, Machine Shop Items, Radiator Repairs, Silencer Repairs, Road Spring Repairs, Upholstery Items (seats, bumpers, plastic repairs etc.), Wheel Alignment / Balancing, Axle End / Tire Rod Repair & replacement etc. These sublet services usually form a part of the total job order of the Auto Repair Workshop and are usually a portion of the lump sum amount charged to the customer by the Auto Repair Workshop. 1.8

Recommended Project Parameters

Capacity

867 Cars / Month

Human Resource 5 (Management) 20 (Technical Staff)

Equipment Local / Eurpoean / Chinese

Location High Income Locality

Financial Summary Project Cost

IRR

NPV

Payback Period

6,047,000

33%

Rs. 4,099,801

3 Years & 5 months

1.9

Cost of Capital (WACC) 17.5%

Proposed Location

The Auto Workshop business is very much dependent on the location of its setup. Auto







Accessibility of Sublet Services As discussed earlier, most of the workshops do not offer all the services hence some services are outsourced to other specialized workshops / personnel. Quick and easy accessibility to these services would minimize job turnaround time thus the location needs to be in close proximity to these service providers. Existing Competition

Concentration of similar types of workshops can give difficult competition, which increases if the competitors are well established and famous for their service. Therefore it is advisable to choose such locations only when the owner is expected to have considerable amount contacts and referrals. 

Quick Accessibility to Parts Market

Maintaining a spare parts inventory is crucial for reducing the job turnaround time. However many auto workshops prefer to be located within close proximity to the spare parts markets to ensure ready availability of desired spare parts. Therefore less money is tied up in maintaining an adequate spare parts inventory. 1.10

Key Success Factors/ Practical Tips f or Success

The main objective for an Auto Repair Workshop is to offer a hassle free quality repair and service operations that eliminate waiting on part of the customer and help to offer value added services to the customer who need their cars fixed right away. The following factors need a continuous focus for making the proposed setup a successful business venture:



customer loyalty by providing quick and quality services. Otherwise, the customer would not take time to move to other workshops. 

Skilled & Experienced Manpower

The knowledge and experience of the entrepreneur is not sufficient to run the business smoothly. Provision of quality repair and service facilities solicits skilled and experienced workmen which are an integral component of this business. It is important that the manpower hired should have the required technical capability and customer relationship management skills. Unless the entrepreneur is not skilled and does not possess the required know-how he would not be able to properly hire and manage the manpower. 

Auto Parts Inventory

An adequate auto parts inventory based on prior experience and business volume needs to be maintained in order to give quick service and prevent any inconvenience caused to the customer. Moreover, quick accessibility to used / new auto parts is another important factor that enables to provide hassle-free service to the customers. However, the entrepreneur needs to carefully manage the auto parts inventory to ensure that minimal working capital is tied up. Some workshops usually keep auto parts for the most common car brands while parts of less common / unpopular brand are usually made available on call basis. 

Specialized Skills

Some Auto Workshops become famous due to their expertise in particular area /


2


PROCESS FLOW

The Auto Workshop that provides mechanical and denting & painting services follows a basic process flow as follows: 2.1

Mechanical Services:

CAR

JOB ORDER

TIME / COST ESTIMATE

DELIVERY TO CUSTOMER

REPAIR / REPLACEMENT

TEST TRIAL

The above diagram illustrates the basic process flow for mechanical repairs. The customer comes in with the mechanical problem wherein a job card is prepared based on the problems faced by the customer. The foreman then checks the car to check for any additional problems. The customer is then provided with time and cost estimates depending on the whether the parts need to be repaired or replaced. On agreement of the customer the job is allocated by the foreman. It is necessary to test run the car before it is finally delivered to the client. 2.2

Denting & Painting:



waxing is done to ensure proper shine. In case of accidents, irreparable parts are replaced before making the final delivery to the customer. However subletting activities can also take place during this process on need basis. 2.3

Wheel Alignment Procedure

With the development of computerized alignment machines the wheel alignment process has been very much simplified. However there are two types of wheel alignments that are widely practiced: 

Two Wheel Alignment: The term Two Wheel Alignment is a process where both front wheels are aligned to provide the best Toe in, Caster and Camber settings to provide the best all around handling and tire wear under normal driving conditions.



Four Wheel Alignment: The term Four Wheel Alignment is a process where both front and rear wheels are aligned. In a typical Four Wheel Alignment, the rear wheels are checked for toe and tracking.

In a typical situation the Rear wheel "Toe" is adjusted by adding or removing small shims between the rear wheel hub and the rear axle. Tracking is checked with the computerized software and the rear axle is checked to make sure that it "tracks" properly behind the front wheels. On a Four Wheel Alignment, the adjustments are first made to true up the rear alignment, then the front is adjusted. Therefore a full Four Wheel Alignment will cost



Stage 1: The first stage involves the following steps: 1. Placement of the car accurately on the alignment frame ensuring that Toe, Camber and Casters are in a proper visible position. 2. Angle readings are measured at all four wheels as indicated on the screen 3. The steering wheel is centered. 4. Front wheels are referenced to rear thrust line and set to specifications. 5. A continuous series of alignment iteration would be required unless the computer shows zero angle deviation. At the end this would result in all four wheels being parallel when the steering would be centered. This is illustrated as follows:

Rear

Front

Stage Two: The second stage involves the following steps: 1. Angle readings

easured at all four wheels.


2.3.2


Benef its of 4 f 4 W heel Al ignment

Most of the customers shy away from getting rear wheels aligned because of the cost and / or their lack of knowledge of the workshops offering such services. The following are some of the benefits of a four wheel alignment the importance of which should be communicated to the customer by the Workshop employees: 

Reduced Tire Wear

Improper alignment is a major cause of premature tire wear. Over the years, a properly aligned vehicle can add thousands of miles to tire life. 

Better Mileage

Mileage increases as rolling resistance decreases. Total alignment sets all four wheel parallel which, along with proper inflation, minimizes rolling resistance. 

Improved Handling

Most of the time the cars pull to one side and the steering wheel vibrates. The driver has to constantly move the steering wheel to keep the car traveling straight ahead. Many handling problems can be corrected by total 4 wheel alignment. With all the system components aligned properly, road shock is more efficiently absorbed for a smoother ride. 

Safer Driving



1. The radial or static plane. Imbalance on the static plane can be described as wheel "bounce" or wheel hopping, up and down. 2. The lateral or dynamic plane. Imbalance on the dynamic plane can be described as side to side shake of the tire and wheel assembly, "shimmy" or "wobble".

Radial or Static Plane (Bounce)

Lateral or Dynamic Plane (Wobble)

The radial and lateral balancing wheel procedure is very simple wherein the wheel are removed from the car and mounted onto the balancing machine one at a time. The computer screen shows the angular deviations between the rim and the wheel (rubber) and with the help of the machine the operator tries to balance the wheel horizontally and vertically at best. 2.4.1

Symptoms of a f a C ar Requiring W heel B l Bal ancing



High Pressure Cleaning & service mainly involves the cleaning of the outer body of the car through a diesel driven pressure pump machine which ejects water at a very high pressure from the hoses. The car is parked on a ramp after which it is lifted into the air by a Pressure Piston Pump. The water slightly mixed with detergents for proper cleaning is sprayed from the spray guns after which dry air is also used to remove any water drops left on the body. Some Service stations also spray dry air slightly mixed with wax to give a shiny finish which increases the life of the body paint. However most of the service stations manually remove the water droplets with cleaning clothes. 2.6

Equipment Requirement

The equipment required for running an Auto Workshop would relate to the activities that the workshop tends to undertake. In this case, the equipment required would be as follows: MECHANICAL REPAIRS & MAINTENANCE Equipment

Number

Estimated Cost (Rs.)

Complete Mechanical Toolbox

2

26,000

Work Bench

2

5,000

Vice

2

9,000

Tool Box Cupboard

1

5,000

Voltmeter / Ammeter

2

5,000

Timing Light

2

12,000

B tt

1

7 000

Ch



Denting Toolbox

2

20,000

Mechanical Toolbox

1

13,000

Pressure Jack (Large)

1

30,000

Gas Cylinder

1

6,000

Carbide Tank

1

3,000

Welding Kits

2

6,000

Drill Machine (Hand)

2

3,000

Puller Jack

1

4,000

Others

-

15,000

Total

100,000 PAINTING Equipment

Number


Painting Compressor (2 hp; 1k lbs)

1

15,000

Spray Gun (Small)

1

3,000

Spray Gun (Large)

1

4,000

Pipe

1

1,000

h


Complete Computerized Alignment Equipment (Including Heads, Disc plates etc.) – A Class Computerized Wheel Balancing Machine Total

2.7


1

1,000,000

1

650,000

-

1,650,000

Spare Parts & Lubricants Inventory

As is practiced widely, the proposed workshop would maintain an estimated inventory of Rs. 125,000 for spare parts & lubricants. 2.7 .1

Spare Parts & C onsumabl es

This would mainly include items for general repairs like bush, break shoes, filter, points, clutch plates, spark plugs, nuts / bolts etc. for about 8 to 10 models of most common car brands like Suzuki, Toyota and Honda. These purchases would also include daily consumables items like carbide, sand papers etc. that are required for denting & painting services. It is estimated that initial purchases for spare parts & consumables would amount to Rs. 125,000 which would subsequently average to purchases of Rs. 3,200 on a daily basis (Rs. 80,000 for 25 day month) after commencing of operations. 2.7 .2

Lubricants

The workshop would also be required to keep a minimum inventory of lubricants to


3.1


Wheel Alignment Machine

The procedure of wheel alignment was traditionally carried out based on manual iterations which was largely dependent on the skill of the worker. The system was totally manual where the angles and the alignment deviations were brought into conformity through ‘guesswork.’ Through the subsequent introduction of technology, alignment machines were introduced which later developed in totally computerized and automated alignment packages in which the alignment can now be done by sitting on a computer. Majority of the wheel alignment machinery in the market is computer operated with software based operating system. Some machines have electronic panels that only show the deviations while the newer ones have a computer interface having more features. While buying the alignment equipment, its important features need to be considered like o

o

o

User friendly interface of the software. Nowadays most machines are based on XP based alignment software offering a very easy interface for the worker. The features of the software is also another important factor wherein the depth and extent of alignment procedures and aspects are considered The features of the machine / alignment equipment need to be considered especially the alignment time. Most of the newly automated machines require only 5 minutes for complete alignment while the others which are possessed by a majority of the alignment shops usually take 20 – 30 minutes for complete alignment.

The prices of wheel alignment machines are based on two factors (i) Condition and (ii)



For the purpose of this study we have assumed procurement of a new European branded machinery costing around Rs. 1,000,000 having the latest features and easy to operate facilities. 3.2

Wheel Balancing Machines

The Wheel balancing Machinery is available on similar brands and makes as those of alignment machines. However the price variation of these electronically operated machines is greater where used machines cost around Rs. 200,000 while new ones cost around Rs. 1,200,000. For the purpose of this study we have assumed purchase of a wheel balancing machinery containing good features and costing around Rs. 650,000. The wheel balancing equipment similar to alignment equipment has a very long life but requires more maintenance as compared to alignment machinery. 3.3

High Pressure Cleaning Equipment

High pressure cleaning equipment is relatively delicate machinery which has a lot of deprecation such that it needs to be replaced after every 3 years. Usually the water tank and the pressure valves and hoses loose their durability within this time period and need to be completely replaced. For some service stations the replacement time period ranges around 2 years depending on the continuous use of the product. High pressure cleaning equipment is available in local markets ranging from Rs. 750,000 to 800,000 of various European Brands like ITM ITALIA, EUROCLEAN, KRENZELEY


4


LAND & BUILDING REQUIREMENT

4.1

Land Requirement

The proposed Auto Workshop setup is assumed to operate in 1,000 sq. yards that allows ample space for Denting & Painting and Mechanical services and also for general parking services for walk-in customers. 4.2

Covered Area Requirement

The workshop is assumed to be totally covered with around 95% of the total area catering to technical works and the remaining 5% for General Office and Stores. It is recommended that minimum space be utilized for office and store setup to allow maximum number of cars within the workshop vicinity. The covered area for workshop operations would be divided between the proposed services and would assume the following break up (including parking for standby / waiting customers):    

4.3

Mechanical Works – 350 Sq. Yards Denting & Painting – 300 Sq. Yards Wheel Balancing & Alignment – 150 Sq. Yards High Pressure Cleaning – 150 Sq. Yards Recommended Mode

The proposed land will be acquired on a rental basis with 3 month deposit and 3 months advance rent after which rent will be payable on a monthly basis.



Sofa Set for Customers

1

15,000

Curtains / Interior Décor

-

10,000

Total

80,000

The Office Furniture & Equipment will be depreciated at the rate of 10% per annum according to the diminishing balance method for the projected period. 4.5

Suitable Location

The proposed location for an Auto Workshop considering the factors mentioned earlier would be in a medium – high income locality area where almost all of the nearby residents are expected to have at least one car.

5

HUMAN RESOURCE REQUIREMENT

The Auto Workshop is a labor intensive industry where the labor cost constitutes a considerable portion of the cost of sales. The following table gives a breakup of the total administrative manpower required to operate the proposed setup.

GENERAL MANAGEMENT Designation / Type

Owner

Number

Monthly Salary (Rs.)

1

-



all activities related to spare-parts store keeping. A security guard would be required for ensuring safe custody of customer cars during the night. The following table gives the details for the proposed technical labor that forms the integral part of the cost of sales: JOB / DUTY ALLOCATION Designation / Type

Foreman

Number


1

8,500

MECHANICAL REPAIRS & MAINTENANCE Designation / Type

Number


Mechanics (Ustad)

2

12,000

Assistant Mechanics

2

8,000

Helpers

2

3,000

DENTING Designation / Type

Number


Head Denter (Ustad)

1

8,000

Denters

2

12,000

Assistant Denter

1

4,000

Helper

1

2 000



the foreman would then allocate the job and ensure its timely completion. The foreman would also be required to check the cars (trial run) before delivering them to the customers. WHEEL ALIGNMENT & BALANCING Designation / Type

Number


Operator (Incharge)

1

8,000

Assistant Operator

1

4,000

HIGH PRESSURE CLEANING Designation / Type

Number


Cleaner (Incharge)

1

8,000

Assistant Cleaner

1

4,000

Total

4

24,000

The total monthly salary of the technical staff would amount to Rs. 146,500 and is assumed to increase by 10% per annum.

6

FINANCIAL ANALYSIS & KEY ASSUMPTIONS

The project cost estimates for the proposed Auto Workshop have been formulated on the basis of discussions with relevant stakeholders and experts. The cost projections cover the cost of land, building, inventory, equipment including office furniture etc. The specific assumptions relating to individual cost components are given as under:


  


SERVICE

GROSS MARGIN

Cosmetic Touchups Accidental Repairs Full Body Restoration

14 % 29 % 30 %

Mechanical Repairs & Maintenance

29 %

Maintenance Services Major Repairs

33 % 14 %

 

Wheel Alignment & Balancing  

6 .1.2

Alignment Balancing

90 % 91 % 89 %

High Pressure Cleaning

76 %

Overall

56 %

M argins on Parts / Lubricants / Services

The Auto Workshop being a service oriented setup charges a margin on each of the products it uses and services it provides. The following table presents the breakdown of the margin:

SERVICE

MARGIN


6.3


Construction Cost

The Auto Workshop involves construction cost which translates into three main components as follows: 



Office / Store Construction which involves a two storey building in which the ground floor would accommodate the owner’s office and administration while the first storey would serve as a store for spare parts and other items. The office and store construction cost is taken to be as Rs. 750 per square feet which comes to a total of Rs. 675,000 for the two storey structure (450 sq. ft. x 2). This cost is inclusive of all accessories and fittings except for AC and Office Furniture. Masonry work would be required in the area allocated for Denting & Painting and Mechanical Works. It is assumed that the proposed workshop would be able to accommodate 6 cars for mechanical repairs and around 8 cars for denting & painting at one time. This would require a total of 14 bay areas to be constructed with underground ducts and ramps in 6 of the bay areas for mechanical repairs. The cost for masonry will be as follows: MASONRY WORK FOR BAY AREAS Item

Bay Areas


Mechanical Work (Duct & Ramp)

6

60,000

Denting

4

30,000

Painting

4

30,000

Total

14

120 000



CONSTRUCTION COST FOR WHEEL ALIGNMENT / BALANCING & PRESSURE CLEANING Item


Wheel Alignment & Balancing

400,000

Ramp for Alignment

50,000

High Pressure Cleaning

400,000

Total

850,000

(Note: For wheel alignment there should be at least a minimum space of 5 feet from the front & back end of the car and a space of 2 feet at the sides for flexibility in operating the machine) 6.4

Utilities Requirement

The following table presents the assumed breakup of utilities on a monthly basis: UTILITY

MONTHLY CHARGES (RS.)

Electricity

12,000

Water

10,000

Telephone

2,500

Entertainment

1,000


6.6


Labor Allocation Costs

The technical labor costs form an integral part of the cost of sales for the proposed Auto Workshop. This makes it difficult to trace the labor costs specifically to the services offered since a person can work on more than one function at one time. For the purpose of this study the following breakup of labor costs are considered according to the workload based on the number of cars for a particular type of service: Labor Cost per Car (Rs.) Denting & Painting

Mechanical Repairs

Monthly pay

Cosmetic

Accident

Restoration

Minor

Major

Mechanical Denting Painting Foreman

46,000 38,000 30,000 8,500

18,000 1,700

28,500 4,500 1,700

9,500 7,500 1,700

23,000 1,700

23,000 1,700

Total

122,500

19,700

34,700

18,700

24,700

24,700

6

7

2

100

2

3,283

4,957

9,350

247

12,350

Cars (Estimated) Labor Costs

6.7

Working Capital & Pre Operating Costs

It is estimated that an additional amount of approximately Rs. 516,000 will be required as cash in hand to meet the working capital requirements / contingency cash for the initial


6.8


Account Receivables

A collection period of 45 days is assumed for sales. Further provision for bad debts has been assumed equivalent to 10% of Gross receivables. 6.9

Traveling & Miscellaneous Of f fi ce Expenses

A monthly figure of Rs. 5,000 (200 per day) is assumed to be incurred for traveling expenses and office purchases which are expected to increase at the rate of 10% per annum for the projected period. 6.10

Financial Charges

It is assumed that long-term financing for 5 years will be obtained in order to finance the Auto Workshop setup which would mainly include Construction of Building, Masonry work, Purchase of Equipment etc. This facility would be required at a rate of 15% (including 1% insurance premium) per annum with 60 monthly installments over a period of five years. The installments are assumed to be paid at the end of every month. 6.11

Taxation

The tax rate applicable to sole proprietorship is the same as that of the salaried individual. Therefore, we are assuming that the tax rate would be the same for the proposed photo lab setup. 6.12

Cost of C f Capital

The cost of capital is explained in the following table:


6.14


Key Assumptions

Item

Assumption(s)

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


6.15.a


Revenue & Cost MONTHLY REVENUE / COST SCHEDULE

Item

Revenue / Fee Charged (Rs.) Fee Charged (Rs.)

Estimated Cars

Denting & Painting

Revenue

Gross Margin (%)

Cost of Sales (Rs.)

Material

Labor

Spare Parts

Lubricants

Subletting

181,000

Total Cost

132,271

27%

Cosmetic Touchup (3 Piece Patching & Paint)

5,000

6

30,000

1,000

3283

-

-

-

25,698

14%

Accidental Repairs

13,000

7

91,000

3,000

4,957

591

116

520

64,285

29%

Full Body Restoration

30,000

2

60,000

6,000

9,350

2,727

667

2,400

42,288

30%

135,556

29%

Mechnical Repairs

190,000

General Repairs

1,500

100

150,000

-

247

614

67

84

101,130

33%

Major Repairs

20,000

2

40,000

-

12,350

3,636

427

800

34,426

14%

267,827

28%

TOTAL

PREF-4/September, 2004/Rev1

371,000



ASSUMPTIONS

Full Body Restoration

ASSUMPTIONS

% age of Revenue

Spare Parts Subletting Lubricant

10% 10% 2.5%

ASSUMPTIONS

Accidental Repairs


% age of Revenue

Sublet Parts Lubricant

7% 45% 5%

ASSUMPTIONS

% age of Revenue

Spare Parts Subletting Lubricant

General Repairs

5% 5% 1%

Major Repairs Parts Lubricant Subletting

% age of Revenue 20% 2.5% 5.0%


6.15.b


Revenue & Cost MONTHLY REVENUE / COST SCHEDULE

Item

Revenue / Fee Charged (Rs.) Fee Charged (Rs.)

Estimated Cars

Wheel Alignment / Balancing

Revenue

Gross Margin (%)

Cost of Sales (Rs.)

Material

Labor

Spare Parts

Lubricants

Subletting

125,000

Total Cost 12,000

90%

Wheel Alignment

350

250

87,500

-

32

-

-

-

8,000

91%

Wheel Balancing

150

250

37,500

-

16

-

-

-

4,000

89%

17,000

73%

17,000

73%

29,000

85%

High Pressure Cleaning High Pressure Cleaning TOTAL


62,500 250

250

62,500 187,500

20

48

-

-

-


6.16


Projected Income Statement AUTO WORKSHOP

Projected Income Statement (Rs.)

Year1

Year2

Year3

Year4

Year5

Year6

Year7

Year8

Year9

Year10

6,702,000 2,172,000 2,280,000 1,500,000 750,000 6,618,225 3,561,930 3,140,070 46%

7,506,240 2,432,640 2,553,600 1,680,000 840,000 7,412,412 3,918,123 3,588,117 47%

8,406,989 2,724,557 2,860,032 1,881,600 940,800 8,301,901 4,309,935 4,097,054 48%

9,415,827 3,051,504 3,203,236 2,107,392 1,053,696 9,298,130 4,740,929 4,674,899 49%

10,545,727 3,417,684 3,587,624 2,360,279 1,180,140 10,413,905 5,215,022 5,330,705 50%

11,811,214 3,827,806 4,018,139 2,643,513 1,321,756 11,663,574 5,736,524 6,074,690 51%

13,228,560 4,287,143 4,500,316 2,960,734 1,480,367 13,063,203 6,310,176 6,918,383 52%

14,815,987 4,801,600 5,040,354 3,316,022 1,658,011 14,630,787 6,941,194 7,874,793 53%

16,593,905 5,377,792 5,645,196 3,713,945 1,856,972 16,386,481 7,635,313 8 ,958,592 53%

18,585,174 6,023,127 6,322,620 4,159,618 2,079,809 18,352,859 8,398,844 10,186,329 54%

144,000 306,000 900,000 60,000 10,000 91,667 567,833

158,400 336,600 990,000 66,000 10,000 45,833 529,383

174,240 370,260 1,089,000 72,600 10,000 494,778

191,664 407,286 1,197,900 79,860 10,000 100,833 481,967

210,830 448,015 1,317,690 87,846 10,000 50,417 453,937

231,913 492,816 1,449,459 96,631 428,710

2,079,500 1,060,570

2,136,217 1,451,900

2,210,878 1,886,175

2,469,511 2,205,388

2,578,735 2,751,970

2,699,529 3 ,375,1 61

255,105 542,098 1,594,405 106,294 110,917 426,172 3,034,990 3,883,393

280,615 596,307 1,753,845 116,923 55,458 405,738 3,208,888 4,665,905

308,677 655,938 1,929,230 128,615 387,348 3,409,808 5,548,784

Financial Charges(15%PerAnnum)

424,156

353,587

271,673

176,591

66,224

-

-

-

-

-

Earnings Before Taxes Tax Net Profit

636,414 101,603 534,810

1,098,314 256,910 841,404

1,614,502 437,576 1,176,927

2,028,797 582,579 1,446,218

2,685,746 812,511 1,873,235

3,375,1 61 1,053,806 2,321,355

3,883,393 1,231,688 2,651,706

4,665,905 1,505,567 3,160,338

5,548,784 1,814,574 3,734,210

6,346,635 2,093,822 4,252,813

Monthly Profit After Tax

44,568

70,117

98,077

120,518

156,103

193,446

220,975

263,362

311,184

354,401

Revenue Denting & Painting Genera l Repairs / Maintenance Wheel Alignment & Balancing High Pressure Cleaning Net Sales Cost of Sales Gross Profit Gross Profit Margin General Administrative & Selling Expenses Salaries Utilities Expense Rent Expense Office Misc ellaneous & Tr aveli ng Expenses Amortization of Preliminary Expenses Maintenance Expense Depreciation Expense Subtotal Operating Income


339,544 721,532 2,122,153 141,477 122,008 392,980 3,839,694 6 ,346,635


6.17


Projected Balance Sheet AUTO WORKSHOP

Projected Balance Sheet (Rs.)

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

552,000

826,879

1,371,554

2,032,376

2,146,430

3,100,595

4,960,684

6,328,771

8,595,775

11,162,954

13,266,437

0

83,775

93,828

105,087

117,698

131,822

147,640

165,357

185,200

207,424

232,315

Lubricants & Spare Parts Inventory

150,000

165,000

181,500

199,650

219,615

241,577

265,734

292,308

321,538

353,692

389,061

Prepaid Rent

900,000

900,000

900,000

900,000

900,000

900,000

900,000

900,000

900,000

900,000

900,000

1,602,000

1,975,654

2,546,882

3,237,113

3,383,743

4,373,993

6,274,058

7,686,436

10,002,513

12,624,070

14,787,813

Building & Workshop

1,645,000

1,480,500

1,332,450

1,199,205

1,079,285

971,356

874,220

786,798

708,119

637,307

573,576

Technical Equipment

220,000

198,000

178,200

160,380

144,342

129,908

116,917

105,225

94,703

85,233

76,709

Office Furniture

80,000

72,000

64,800

58,320

52,488

47,239

42,515

38,264

34,437

30,994

27,894

Machinery

2,200,000

1,851,667

1,519,833

1,202,850

1,485,898

1,175,975

876,878

1,232,857

932,104

639,244

1,063,353

Total Fixed Assets

4,145,000

3,602,167

3,095,283

2,620,755

2,762,013

2,324,478

1,910,530

2,163,144

1,769,363

1,392,777

1,741,532

50,000

40,000

30,000

20,000

10,000

0

0

0

0

0

0

Total Assets

5,797,000

5,617,820

5,672,165

5,877,868

6,155,756

6,698,471

8,184,588

9,849,580

11,771,876

14,016,847

16,529,345

Owner's Equity

3,023,500

3,258,310

3,799,714

4,576,640

5,522,859

6,846,094

8,317,448

9,969,154

11,879,492

14,113,702

16,616,515

Long Term Liability

3,023,500

2,584,510

2,074,951

1,483,478

796,922

0

0

0

0

0

0

T ot al E qui ty & L ia bi li tie s

6 ,0 47 ,0 00

5 ,8 42 ,8 20

5 ,8 74 ,6 65

6 ,0 60 ,1 18

6 ,3 19 ,7 81

6 ,8 46 ,0 94

8 ,3 17 ,4 48

9 ,9 69 ,1 54

1 1, 87 9, 49 2

1 4, 11 3, 70 2

1 6, 61 6, 51 5

Assets Current Assets Cash & Bank Balance Accounts Receivable (Net)

Total Current Assets Fixed Assets

Intangible Assets Pre Operating Costs


SMEDA Auto Repair & Service Workshop

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