`Business model and project`Viability` for a Technical textile project based on 2 no Nonwoven plant Lines`

1. `Business model and project`Viability` for a Technical textile project based on 2 no Nonwoven plant Lines` A PRESENTATION BY SNR.TECH-TEX CONSULTANT ,MUNISH TYAGI, Email: munish.t@rediffmail.com , phone: 098 1125 3332 ASSOCHAM Symposium 19 March,2010

2. Overview of Techical Textiles vis a vis India • Worldwide,Tech. Textiles are the fastest growing segment of Textile sector.In the developed countries, the share of such textile products has now reached 60% of all textiles.The Key demand drivers are the growth in GDP and the growth in infrastructure and overall quality of living. However,despite a strong Fiber base, India has remained a laggard and slow mover in the field of non woven and technical textiles,s reflected in poor per capita consumption of only 0.2 Kg versus 3 Kg for the developed countries.Two key grey areas have been the doubts on the types of technology to adopt and for what saleable products;and overall unerstanding of right business model. • Future stars on the horizon of Tech textiles are countries like China and India,esp.over the present decade when GDP is est. to average 9-10%p.a. In India, the present market size for Tech Tex is aprox Rs 45000 crore. Due to the GDP factor, it is certainly expected to clock 65000 to 70000 Cr,by 2015.As per a Study by ICRA,the Tech tex sector in India will experience a growth of 11-12% pa. for 2010-2020 decade vis a vis growth of only 6-7% in the developed countries. • With the above positive drivers,and projectors for growth and adequate support provided by the Govt. in terms of TUF scheme and capital subsidy benefits to Tech Tex projects, it is the high time for the industry to leverage upon these benefits alongwith advantages of adequate Fiber base. 2

3. Drivers for Market demand for Tech. textiles MARKET DIRECTIONS Going by the past trends for growth in nonwovens and tech - textiles in developed countries like USA,Europe, Japan [ and presently for China],the Key drivers for Tech. Tex demand are/will be: • GDP growth rate of the country .[as per an empirical formula, the growth in tech textile can be approx. to 1.25 times the projected GDP . • Disposable income of the Middle class,and esp. The young working couples. This will esp. Drive the demand for the Disposable type non woven products like wipes,pads,hygiene and healthcare products. • Investment in large infrastructure projects for construction of railways, highways, airports, ports and dams and for coastal works and ,new type ` green` buildings. • Support and facilitation by the Govt, by way of ongoing schemes to spur Investment. Overall, it is estimated that the Disposable type nonwovens and geo textile products will be the market preferred technical textiles in India over the present 2010-2020 Decade.Before,any meaningful and fast track investments are made into Tech.tex sector; it will be critical to understand `what is the right technology for what saleable products` In this Presentation, I have tried to address the major area of doubt w.r.t Viability of investment considering that Tech tex projects are high technology and high capex projects.In further slides,I would like to guide the worthy audience thru`a profitable business model of a Rs100 crore Tech tex project,based on 2 non woven lines,for disposable and geo tex products,for upto 45 Metric ton/day.

4. Techical textiles- major Types It is most essential to understand the basic process of manufacturing before undertaking the project investment in Tech tex domain. The production of non woven products can be placed into 3 Core methods,as below: • WEB FORMATION FROM FIBER TO FABRIC,using Carding or Airlaid or Wet laid processes, • WEB FORMATION FROM POLYMER TO FABRIC, via Spun laid or Melt blown processes which deploy 100% synth. Fibers ;PP or PES as polymer • DIFFERENT BONDING METHODS, create final nonwoven fabric via Thermal bonding,Chemical bonding,hydro entangling and,Needle punching. • Non woven production allows the mix and matching of diff. Types of processes to create diverse Techtex products of diff. GSM,strength &end uses.

5. Technical textiles- Key assumptions for business model PRODUCTS AND CAPACITY PLAN: The project under ref. is for setting up a New greenfield Unit having 1 Line for Disposable nonwoven products from Airlay line and,1 Line for heavier Geotextiles from geotex/Needle punching line. The key assumptions for planning a practical and Viable project for above ,are: • The unit is based on Imported plant from Europe,under 5% concessional import duty. • The Unit will be working for 360 days x 3shifts per year.However, the % capacity utilisation will be 65% in 1st year and, at 75% Optimum from 3 rd year onwards. • The project would be financed with Debt-Equity ratio of 3 to 1,as per TUF guidelines;and will be eligible for Interest rebate of 5% under TUF scheme.As such the Net effective term loan interest rate would be bank PLR less 5%. • Also,the Unit will be eligible for 10% capital subsidy on Plant & mcy for tech tex processes. This will help bring down promoters own capital. • The project will be based on prime input and raw material,of 100% Polyester fiber. • The project would have Power consumption of abt 2.5MW,sourced from SEB grid. • PRODUCT AND CAPACITY PLAN, PORPOSED FOR THE INTEGRATED UNIT IS AS: • A] GEO TEXTILE PRODUCTS,Needle punched 22 Ton/day • B] AIRLAY WEB PRODUCTS, 24 “ “ • TOTAL OUTPUT AT 100% CAPACITY, IS 360X 46 TON/YEAR, WHICH EQUALS.46 “ ‘ • Ex-Mill SALE PRICES ASSUMED ARE Rs 110/Kg for Type A,and at Rs 150/kg for Type B,which leads to an Yearly Sale turnover of Rs 160 crore, at Optimum 75% capacity for the new greenfield Unit. • UNLIKE NORMAL TEXTILE UNIT A TECHTEX PROJECT HAS BETTER T/OVER TO CAPEX RATIO,1.5 to 1

6. BREAK UP OF TOTAL PROJECT COST BASIS:INSTALLED CAPACITY OF 46 TON/DAY,BASED ON 2 NO. NONWOVEN LINES. Components i.e. the different project cost heads are proposed as below: • Infrastructure inputs- Land , 5 acres plot, costing Rs 1.25 crore. Buildings- 80,000 sq Ft, construction Rs 4.50 “ • Plant and machinery- Imported Nonwoven lines+5%Duty, Rs 60.0 “ Indeg. Plant and Misc. Assets,like Utility equipments, Rs 10.5 “ • Duties,taxes,Engg. ,and Knowhow cost. Rs 2.85 “ • Pre operative expenses,incl. Interest during project. Rs 7.0” • Provision for contingencies and escalation during project. Rs 5.0 “ • Margin for Working capital] for Year 2 at 70% capacity] Rs 10.5 “ • TOTAL PROJECT COST: Rs 101 crore • The overall Investment for the new Techtex project works out to a cost effective Rs 2.2 Cr/TPD,based on state of the art technology,and Imported plant being 60% of Total.

7. MEANS OF FINANCING -proposed It is proposed to finance the project, under the favourable Debt-Equity ratio of 3 to 1,under the ongoing TUF scheme. For Technical textile projects, there is also provision for special Capital subsidy of 10% on the value of tech tex plant & machinery. The break up of project financing is , therefore, proposed as below:: • DEBT, by way of bank term loan, at Rs 75 crore. A rebate of 5% on the bank Term loan will be available under the TUF scheme. • EQUITY PART, AT 25% OF PROJECT COST, WORKS OUT TO Rs 26 crore. • However, with capital Subsidy of abt Rs 5 cr.,the promoter share to be Rs 21 cr. • When the interest rebate of 5% ,under the TUF scheme, is applied the cash profit of the project further improves. Also, the project is able to deliver a pay back of 1+ 5 years; and a healthy Return on equity at 40% on the new profit.

8. Raw materials aspects & Costing Prime RM is, 100% Polyester fiber, assumed at Rs 72/Kg. R M/fiber consumption includes a 15% process loss from feeding to packed fabric. Main raw materials • For output of 46 Ton/day, the project would require 53 ton/day of Fiber • The Yearly value of raw material works out to Rs 103 crore;and which is abt 63% of the sales turnover at optimum capacity in 3rd Year. Indirect materials, i.e for Packing and consumable materials • Besides, PSF, the project would require Packing and finishing materials, Of approx. value 2.1% of the Sale. • The total cost of such Indirect material is est.at Rs 3.3 crore,at Opt. capacity. Total RM quantity and Cost; and RM to Sale ratio. • Total cost of all materials works out to 65% of sales,at Opt. capacity. • This leads to a healthy Gross margin[ or G P ] of 21% for the project. • G P to sale ratio is essentially called PBIDT ;and indicator of comparative Financial health of Units of same capacity and same product lines.

9. Summary of production and, manufacturing costs A Summary of all major manufacturing costs is provided ,as below, for the Optimum plant capacity at 75%. A reasonable RM to sale ratio of % leads to healthy Gross Profit to Sale ratio of 21%. A] Raw materials cost: Rs 106 crore, for diretc + indirect materials And Rs 3.5 crore for inward and outward freight costs. B] Utility cost Covers the power and fuel expenses at the Opt. capacity. 1. Power cost ,at Rs 6 crore p.a 2. Steam cost,at Rs 2 crore p.a C] Manpower cost,incl. Salaries : 1.Total Manpower requirement for production will be 140 no/day 2.The yearly manpower cost ,incl. admn. Staff and benfits, works out to Rs 2.10 crore D] Manufacturing overheads incl. repair,insurance etc • The cost of various Factory overheads is est.at rs 2 crore,including maintenance etc. E] TOTAL PRODUCTION COST [ i.e Cost before Sale], works out to Rs 125 crore,and which leads to the Gross Profit margin of 21% after allowing 3% sale expenses.

10. Summary of profit projections & viability over 5-years. Key financial and Viability indicators of the project,at Opt. 75%capacity inYear 3 are; Gross Profit, that is PBIDT. The project has a gross profit to sale ratio of 21%,and leads to 1. Cash Profit-PBDT-before Depreciation- of 15.5%, 2. Net Profit,after tax,of 7%. Selling cost, at 3 % of Sale Sale turnover,Rs 162 crore,in Opt. Year 3 KEY FINANCIAL RATIOS: PROJECT WILL HAVE PAYBACK PERIOD OF 1+5 YEARS,incl. 1 Year Gestation on Term Loan 1. For the Lenders, the project will service T-Loans,with healthy DSCR of 1.76 2. The break even Point, will be at 55-56%, in Optimum working Year 3. 3. The project will lead to IRR of 15%; and a Return on equity of 40% on net profit. > Under the prevailing cost of all inputs,and market value of output, the project is profitable and viable with healthy and robust financial ratios.However, like all textile units the Tech tex project is also v. sensitive to change sin raw materials and selling prices. >>It is,therefore, imperative to constantly monitor the RM and sale prices ,to retain GP profits.

11. Recommendations,road map -and Thanking you. • FOR PROJECT INVESTORS • Tech tex is still a nascent and emerging field,and Needs careful assessment of `most relevant` technology mix and saleable products with focus on industry to industry marketing strategy. • Project promoters need to clearly understand the grey areas in the marketing of tech textiles,as also the impact of cheaper imports form China in near future,esp. in Disposable nonwoven products. • Technical textile are `Functional` products for specific performance end use and,need to be engineered with right mix of technology, and Fibers to service the very specific end uses. • FOR POLICY MAKERS & FACILITATORS • With its performing GDP ,averaging 8-9% till 2015,the demand for Tech tex products is est. to clock 11-12 % p.a growth. Thus, it is essential for the Govt/ policy makers to provide the stimulus to this capital intensive sector by way of continuation of TUFs scheme beyond 2012 alongwith the special Subsidy of 10% to defray the initial high investment cost of Imported plant and controlled technology. • Growth of technical textile sector is also dependant on the investment in Infrastructure ;and where the Govt. has a role to play by constant capex into country`s infrastructure..