PAFC Project Report

7/31/2019 PAFC Project Report

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Project Appraisal andfinancial Estimation 0f

@ Exotica

A multi Cuisine Restaurant

Submitted by: Group 5(Sec A)

Abhay Thakur(111),Pankaj Kalia(81),Mehak Bhatia(13),AnkishaAggarwal(47),Sakshi Shethi(53),Sahil Pandey(117)


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ACKNOWLEDGEMENT

We express our profound indebtedness and sincere thank to our facultyProf Ram Adhar Chopra for giving us the opportunity of carrying out this projectand also for the continuous help and support we received from him during theproject.We would also like to thank all the persons who cooperated with us and providedus with the necessary details and information without which the completion of the project wouldnt have been possible.


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Project background

@ Exotica Multi -cuisine restaurant is an independent restaurant to be opened,considering the huge potential of food service sector in India.These shall be a premium segment restaurants catering to SEC B, SEC C and SEC Dcategory.

The socioeconomic classification (SEC) groups urban Indian households on thebasis of education and occupation of the chief wage earner (CWE: the person whocontributes the most to the household expenses) of the household into fivesegments (SEC A, SEC B, SEC C, SEC D and SEC E households in that order). This

classification is more stable than one based on income alone and being reflectiveof lifestyle is more relevant to the examination of consumption behavior.

Analysts say food is a major driving force in the retail sector, with a growth rate of 30%. And contrary to belief that fashion is the largest segment in organized retail,the food and beverages segment is worth Rs 8.97 lakh crore..


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INDUSTRY ANALYSIS

Food service industry in India has a huge potential and is expected to grow to $8billion in 2012, with an increase of 26.2% from 2007. Cafes and restaurantssegment contributes 21.9% to the food service industry annually (2007) andcontributed 7.6% to GDP of India in 2007.

Considering the opportunities in the food service market we would like tocapitalize on it to strengthen its position in the hospitality segment.

SEGMENT ANALYISWith more and more diners yearning for a break from the urban bustle, theme-restaurants with out-of-the box offering in terms of ambience, cuisine and dcorare gaining acceptance.

"Eating out is no longer just about food but involves the entire experience of enjoying it. While Youth and Middle Class families are now these days very

frequent to multi cuisine restaurants, slowly a new breed of consumers hasstarted developing a liking for Exotic food restaurants. A number of restaurantsdifferentiated on basis of themes and nature of cuisines are getting more popular.In the suburbs too, Exotic cuisine restaurants are becoming more and morepopular. As suburban life gets more hectic, consumers are looking for more than just the pure vanilla experience at restaurants. This explains the gradual increasein the number of Exotic cuisine.

Samir Chhabria, business head of Tetsuma, a Japanese joint says, Industrialists

like Ness Wadia and Anju Taraporewalla are regulars with the frequency of visitbeing as high as five to six times a month. However, a new segment of people hasstarted spending time at our joint. They also like to spend a lot of money andflaunt their act of visiting our joint. On an average, each customer of this newsegment gives a billing of Rs 2500 to Rs 3000 per visit. A sixty -seater joint atColaba, Tetsuma is a Japanese restaurant at Colaba.


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Another example is Barcode, an international sports bar chain based out of Australia. Himani Modi owns its franchise in India and runs a franchise outlet inDelhi. Speaking to Hindustan Times, she says, We have five floors in all, withgood sports dcor a nd graphics on walls and mirrors. Modi says that on anaverage, the daily billing is as high as Rs 75000 to Rs 1 lakh, which definitely goesup on weekends. Corporate clients like Siemens, National Geographic etc also usethe venue for throwing corporate parties. Modi also says that foreign clients alsocontribute to as much as 30 per cent of the annual turnover. The fact that allcricket matches are shown on LCD screens also is an added attraction for thevisitors.In the suburbs too, theme restaurants are becoming more and more popular. Assuburban life gets more hectic, consumers are looking for more than just the pure

vanilla experience at restaurants. This explains the gradual increase in the numberof theme restaurants like Village, Machan and Rudey s Forest Caf.

Amar Jog, Director, Marketing and Business Development, Kambala HospitalityPvt Ltd, which runs the Village theme restaurant tells HT, We started withVillage on 15th August last year in Kandivli and from then till date, we have seenthree more Village restaurants at Ghatkopar, Thane and Vashi. He adds thatwith items like puppet shows for children, mehendi artists for women folk andsing-and-dance opportunities, this makes for a wholesome experience.

Offering a variety of cuisine like Kashmiri, Himachali and Punjabi specialties, inaddition to Sarson Ka Sag, as well as Dama Oluv, all provided by traditionally cladstaff in an environment thats given the look and feel of a village.
http://www.vahrehvah.com/Dama+Oluv:2429http://www.vahrehvah.com/Dama+Oluv:2429


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MARKET AND DEMAND ANALYSIS

Instead of building a business around a preconceived concept, we conductedbasic research and built a concept around people. Our analysis identified thefollowing key drivers as areas of opportunity to service @ Exotica customers:

Theme Selection:Nearly 95% of people endorsed having a choice of different themes within arestaurant. @ Exotica Restaurant concept is built to offer different-themes withina restaurant. Our customers want the option to choose what satisfies theirdesires. The introductory restaurant would be an epitome of the name of the unit

@ Exotica. The restaurant will have three segments with the themes of Himachal, Punjab, and Kashmir.

Menu Variety:Ethnic restaurants are increasing in the NCR region. The proliferation of Regionalcookbooks, food magazines and TV cooking shows offers ample evidence thatIndia, as a whole, is currently on an national tasting spree. Our research results donot identify any single ethnic style of restaurant as desired, but rather suggestthat incorporating strong multi-ethnic influences in the menu selection will be

popular. Again, variety is the underlying element for this concept.

The Dining Experience:Customer satisfaction with food and service has been and continues to be of utmost importance, but our findings indicate that the dcor, lighting, bar, andother options to improve the dining experience are also factors in customerdecisions. We have taken all these factors in consideration for the design of thistheme restaurant.

Reasonable Prices:This was no surprise given the economic tide. Although the restaurant industry asa whole has seen growth in 2010/2011, customers are demanding value for theirdining rupee. Our menu is priced at a mid-tier level. In addition we would have anextended Appetizer selection priced between Rs. 200 Rs. 1,000, allowing budgetdining in a full-service restaurant.


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The first step involved in the project analysis is to estimate the potential size of the market for the proposed project. In this case we are planning to construct atheme restaurant in the NCR region. So we did the analysis in various stages:

Firstly we find out whether there was any requirement of the theme restaurant.As Delhi is a Cosmopolitan City with people from varied backgrounds havingdifferent lifestyle, a theme restaurant would be a ideal hangout place for peopleto de-stress themselves from their everyday routine. We proposed themerestaurant would be a complete experience in itself, as people would be free tochoose from any theme according to their requirements. Good cuisine is a mustand if blended with a good theme, a well-researched decor and overall ambiencethat enhances the eating experience, there is little reason for these players not to

hope to see a full table,

For market analysis of the resorts and hotels, we tried to find out the answers tovarious questions like:

a) Who will be the main customers?

b) What will be the total current demand of the Exotic food restaurant?

c) What facilities would be required by the customers?

d) What are the prices they will be ready to pay?

e) What is the current strategy followed by other restaurant owners?


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Market Segmentation

Our Restaurant intends to cater to a wide customer base. We want everyone tofeel welcome and entertained. It has defined the following groups as targetedsegments that contribute to our growth projections:

The Business Person

Downtown Working Couples

The Middle class families

Youth

Tourists

These particular market segments are 25-50 years old, have disposable income,and are seeking upscale, trendy, and comfortable restaurant options. These arethe types of people who frequently visit other restaurants and bars in the area.They are likely to spend more on experiences they perceive as unique,cosmopolitan, and sophisticated. They are also the most open to trying somethingnew, food wise, and will embrace our national fusion cuisine.


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Target Market Segment Strategy

The Business Person:They work hard all day and often stay overnight in a strange city. They need acompetent establishment that helps impress clients and prospects. Afterward,they want to relax and use the money they are making (or is expensed by theircompany). They spend the most on drinks, food and tips. Our cosmopolitan flairand comfortable atmosphere will be perfect for sophisticated business people,whether they live in and around NCR or are here for work.

Downtown Working Couples:

The restaurant will have an intimate, romantic, enticing adult atmosphere thatsuggests "date. In most cases they are budgeting to eat out on a regular basis, asthey don't have the time to prepare food nightly.

The Middle Class Families:NCR is a very 'sectioned' city, and consumers often look only in their ownneighborhoods for restaurant options. We will break these habits, usingmarketing to draw customers from outside the main city limits.

Youth:We will attract them with our electic atmosphere and layout. Our diversed menu,striking decor, entertainment and events, excellent service and engaging clientelewill confirm the feeling of being in "the in place" in NCR. These are the individualsthat pride themselves on socializing and dining at the premier locations - TheImage Seekers.

Tourists:New Delhi being the capital of India attracts many vacationers during the

summer months of May through September. We will be a destination dininglocale, with its attractive atmosphere, international menu, and lounge. A largepercentage of the tourist population is vacationing singles, here to socialize andbe entertained. This is especially true for the tourist population that visits forsporting and social events - they are not interested in family establishments.


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The Next step involved in the project analysisis to decide the Marketing Strategy for theproposed project

Strategy and Implementation:Our intend to succeed by giving people a combination of excellent and interestingfood in an environment that appeals to a wide and varied group of successfuladults.

It will focus on establishing a strong identity in our community with a grand

opening. Its main focus in marketing thereafter will be to increase customerawareness in the surrounding communities. It will direct all of its tactics andprograms toward the goal of explaining who it is and what it does. It will keep itsstandards high and execute the concept flawlessly, so that word-of-mouth will beits main marketing force.

We will create an appealing and entertaining environment with unbeatablequality at an exceptional price. As an exciting and eclectic restaurant, it will be thetalk of the town. Therefore, the execution of the concept is the most criticalelement of its plan.

All menu items are competitively priced for the area. While it is not striving to bethe lowest-priced restaurant, it is aiming to offer exceptional food at reasonableprices for the premium restaurant diner.

Competitive EdgeOur competitive edges are:

1. The owners' thorough understandings of opening and running a restaurant

2. An extraordinary contemporary restaurant design

3. International menu with featured menu changes every 4 months

4. Unique, 3-Tiered spatial layout


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5. Chef Co-op program to allow new entrants, trainee and featured chef

6. Chef/Management Stock Incentive Program.

7. Employee Training, Incentive and Retention program


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Marketing Strategy Our Marketing strategy will be to promote our electric food, superior service, and

exciting concepts to draw in the local repeat customers. Marketing initiatives willconcentrate on the following:

Promotional Campaign:The best way to reach our potential customers is to develop an intenseadvertising campaign promoting our concept .In addition to standard advertisingpractices; we will gain considerable recognition through newspapers, newslettersand public announcements.

Publicity Strategy:We will focus on the following publicity strategies:

Develop a sustained public relations effort, with ongoing contact betweenkey editors and top-level personnel at local dining publications.

Develop a regular and consistent package update program for the majortarget media, keeping key editors abreast of all new promotions, and menuintroductions.

Establish contact with editorial staff for the purpose of being included inentertainment "round-ups"--product comparisons in dining publicationsand the local papers.

Produce a complete Restaurant history and menu offering piece to be usedas the primary public relations tool for all target media editorial contact.This will also be effective for inclusion in press kits.


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Press Release/Grand Opening: Our Restaurant will release a series of pressreleases on the Grand opening.Editorial Visitation: Leading up to the Grand Opening, and over the first 6 monthsof operations, we will invite the most influential reporters and editors from alllocal publications to STR Restaurant in order to evaluate our menu, service, andatmosphere.

Community: We will look for key opportunities to pair with local communitydevelopment organizations and radio stations to interface with our customers.We will continually look for local community programs in which we canparticipate, in order to better our community, and give something back.

Marketing ProgramIn line with our Marketing strategy, we will employ three different marketingtactics to increase customer awareness: In-Restaurant Marketing, Public RelationsMarketing, and Media Marketing. Our most important tactic will be word-of-mouth/in-restaurant marketing. This will be by far the cheapest and mosteffective of our marketing programs.

Word-of-mouth/In-Restaurant Marketing

Restaurant Night: Every first Monday of the quarter, we will have a specialevening for restaurant people. A perfect night for the local area'srestaurant owners, chefs and staff to get together to discuss the marketand food trends.

Monthly Dating Connection: With the increasing appeal of Internet andspeed dating, the restaurant will offer a monthly dating night. In addition tofood and beverages, customers can choose from an array of dating

packages up for auction.

Wait Area Marketing: Wait staff will service appetizers to customerswaiting to be seated or on the wait list.


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Live Entertainment parties

Special Events

Valentine's Day

Wine tasting weekends

New Year's Eve party


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Media Marketing Newspaper campaign: A much targeted media campaign to obtain featured

articles about the restaurant in their Living, Entertainment and Diningsegments. Notices of all live entertainment segments and special featureswill be posted to local newspapers' calendar announcements.

Restaurant and Special Events Website: We have contracted with localdesign teams to deliver a high-quality, navigable, constantly updatedwebsite.

Media Relations: Several media relations teams will be utilized to marketthe Restaurant. HT City food guide & India Today are two media companieswe will utilize for media relations. Both companies have an insightfulpresence and connection with our target market.

Billboard Advertisement: One month prior to the opening, distinctbillboard ads will advertise the launch of the


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Sales Strategy

Our strategy is simple: we intend to succeed by giving our customers acombination of delicious and interesting food in an appealing environment, withexcellent customer service, whether on their first visit or their hundredth.

Our marketing strategies are designed to get critics and initial customers into ourdoors. Our sales strategies must take the next step and encourage customers tobecome repeat customers, and to tell all their friends and acquaintances aboutthe great experiences they just had at @ Exotica.

New restaurants often make one of two mistakes: they are unprepared orunderprepared for opening, and initial poor service, speed, or quality discouragescustomers from returning, or they spend all of their efforts at opening, and areunable to maintain the initial quality customers expect on return visits, decreasingword of mouth advertising and leading to poor revenues.

Our sales strategy requires consistently high quality food, service, speed, andatmosphere.

They can accomplish this by:

Hiring employees who genuinely enjoy their jobs and appreciate @Eroticas unique offerings

continually assessing the quality of all aspects mentioned above, andimmediately addressing any problems

Interacting with our customers personally, so they know that their feedbackgoes directly to the owners

Evaluating food choices for popularity, and keeping favorites on the menuas we rotate seasonal foods and specials.


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Sales ForecastWe are looking at forecasting sales for restaurant. Our new restaurant @ Exoticaas discussed earlier would have three Cuisine decided that it would be able toseat fifteen tables of four people each as a starting point. Then they did somesimple math: fifteen tables of four means at capacity they would be serving 64meals. Meals take about an hour at lunch, and about one and a half hours atdinner.We figured they would have one servicing of lunch and two of dinner, roughlycalculating the 2-5:30 crowds as the first serving, and the 5:30-11:00 crowd as thesecond serving. So an absolutely full lunch service in a day would be 120 lunches.An absolutely full dinner service in a day would be 180 dinners on weekday.An average lunch and Dinner would be Rs.400 person

Calculation will be like following:


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Technical Analysis

Location:The location for the themed restaurant has been finalized as on GurgaonFaridabad road, sector 54. This is one of the busiest roads of India and more thanfive lakhs vehicles pass through this road on a single day. The location can behighlighted as under:

The themed restaurants will cater to the upper segment of the society.Gurgaon being a hub of restaurants, clubs, hotels, nightlife centers, malls,spas & salons is a prime location for such lifestyle options

There are many sports clubs like basketball club, badminton club, footballclub squash club and many more. The clubbing culture in sector 52 inparticular and Gurgaon at large helped us secure this location.

There are over two dozen restaurants in the vicinity of the area that sellfood at similar prices. Although this presents an obvious challenge in termsof market share, it also indicates the presence of a large, strong potential.And moreover it is the only themed restaurant in Delhi/NCR Region

Companies like TCS, HCL, GE Capital, Unitech limited and many more havetheir units in Gurgaon. We are expected a good number of corporate clients

Gurgaon is connected to all major cities by air, rail and road.

Easy availability of land, parking facilities, low traffic congestion.


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MAN POWER

The total man power requirement of the restaurant will be 22 persons who willget direct employment. Their detailed salaries and wages pattern is given below:

Our total monthly expenses on men power is 1.8 lakh for the first year.


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COST OF THE PROJECT

It is the first step in conducting financial analysis and it is very important as it

decides the initial investment that the project needs to be carried on. On the basisof this, the means of Financing is decided.

The preoperative expenses incurred up to the point of time the equipment andother assets are ready for use are capitalized by apportioning them to depreciablefixed assets in proportion to their book values.


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Over and above the escalation under various items of cost on the basis of latestavailable rate of inflation, contingency provision is made on the basis of projectimplementation schedule.

Escalation may arise due to minor changes in the specifications of the buildings,plant and machinery which result in the increase of costs.

Thus the total provision of the contingencies would be Rs 8.83lacs(excludingmargin money for working capital and interest during construction period).


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Below we have mentioned the building renovation expenditure. As the building ison ten year lease we are renovating it as per our needs

We can see that the total renovation cost is 10lakhs.


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ENVIRONMENTAL ANALYSIS

Environmental repairs and maintenance is a tedious job which was needed to beconducted on a large scale so as to practice the principles of conservation i.e., tocreate a safe, harmonious and ecologically balanced environment for our hotelguests and employees.

ENVIRONMENTAL REQUIREMENTS for our venture are listed below:

1. Requirement Under Air Pollution Control Ordinance

There shall be no visible fume emission from the kitchen exhaust and no Odournuisance to the nearby sensitive receptors.

2. Requirement Under Noise Control Ordinance

There shall be no Excessive levels of noise, from ventilating systems &refrigeration Units.

3. Requirement Under Waste and Water pollution Control Ordinance

Public sewers of sufficient capacity are available to collect the effluent dischargesfrom the restaurant and adequate space and facilities for waste storage and pickup available.

SALIENT FEATURES SO AS TO COMPLY WITH ENVIRONMENTAL REQUIREMENTS :

1. Health

i. Premise is laid on with mains water supply.

ii. Premises are provided with a proper drainage system.

iii. Premises are provided with proper flushed toilets.


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iv. No manholes are located in the proposed kitchen, food preparation room andscullery.

v. Premises are capable of providing an independent and separate

ventilating system to the kitchen, toilets and seating accommodation.

2. Sustainable Site

i. Artificial Rain Water Management : Rain Water Harvesting System is used so asto ensure zero discharge into municipal drainage.

ii. Heat Island Effect : More than 75% of the terrace will be insulated and coatedwith the reflective high albedo roof paint. High albedo paint deflects heat backinto the atmosphere. Given that the roofs and side walls of a building account for47 per cent of heat gain in a building, the heat-deflecting paint means that the air-conditioning can run at a comparatively higher temperature .

iii. Light Pollution Reduction : Minimum exterior lighting will be used to limit nightsky pollution.

3. Water Efficiency

i. Innovative Waste Water Technologies like Fluidized Aerobic Bioreactors (FAB)sewage treatment plant will be used so as to save on the loss of water.


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4. Energy & Atmosphere

1. Use of solar photo voltaic for emergency lighting would be done so as to saveon generators.

2. Use of green material would be done to reduce heat gain from rooftop /building envelope with high performance glazing and proper insulation material.

3. A solar hot water system and solar concentrator would be installed for kitchen.

4. Cooking stoves in restaurant kitchens are designed in such a way that no

excessive air pollutant emissions are generated when in use.

5. Indoor Environmental Quality

1. Environment Tobacco Smoke Control : Designated smoking area will beprovided at convenient locations with separate exhausts. Designated area isprovided so as other customers do not get affected by the smoke.2. CO2 Monitoring : Sensors at various locations are planned to monitor CO2levels.

6. Low Emitting Materials : Low VOC levels of adhesives / sealants would be usedfor carpets /composite woods / paints.

7. Food Quality

All the requirements of Food Safety Act are adhered to for ensuring that food issafe for human consumption, and no sale of food that is contaminated or

otherwise unfit for human consumption will be fulfilled.

8. Educating Employees

Educating employees about the environmental actions the property takes, whythose actions are important, why the staff needs to support the program, as well


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as encouraging staff to take their own green actions would be promoted and anyideas towards the green movement would be supported by us.


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MEANS OF FINANCING

Here the project is proposed to be funded through owners contribution (45%)and term loan from banks (65%). Here rate of interest on the loan is 13.5 % fromSBI.

Means Of Financing55% Term loan @ 13.5%(SBI) 60lakhs45% Owners equity 48 lakhs

We have chosen SBI because it was providing loan at least interest rates among

other banks.Owners equity of 48 lakhs will be shared between the five promoters equally.


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ESTIMATION OF REVENUE EXPENSESAND PROFITS

As already mentioned in the Demand Analysis, the estimated sales are:

Our projected sales for 1st

year : Rs. 9452857 with footfall of 60-80Our projected sales for 1 st year : Rs. 12342857 with footfall of 80-100Our projected sales for 1 st year : Rs. 18102857 with footfall of 100-120

Sales will increase with gradual increase in footfall throughout the year.


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Expenses

We have mentioned the expenses estimation for 10 years. There is increase inexpenses throughout the years as sales are also changing.

Salary of the employees has been raise by 10% each year.In case of raw materialwe have taken inflation into account and have gradually increased the prices.In2nd and third year there will be a increase in demand due to the marketing andthe promotion activities done in the first year.

The Raw Materials have been calculated by taking into account its twocomponents:

Perishable items

Non perishable items


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Below we have calculated the perishable and non perishable per day expense forthe first year.

Price per kg or per bottle Consumption

Perishable

Milk 30 18 540

Vegetables 65 20 1300

Red meat 300 5 1500

White meat 160 9 1440

Cheese 200 4 800

Cream 300 4 1200

misc 220

Daily Expense 7000

Non Perishable Price per kg or per bottle Consumption Cost

Rice 60 5 300

Oil 100 3 300

Flour 40 5 200

Eggs 4 40 160

Others 2200

Total Total 3160


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PROVISION FOR DEPRECIATION

We have taken straight line method into consideration Preoperative expensesduring the construction period and contingencies are allocated to the fixed assetsin proportion to their values before providing depreciation..

For wood items the depreciation time is 10 years i.e. 10%

For Kitchen equipments the depreciation time is 10 years i.e. 10%For fabric items the depreciation time is 2 years i.e. 50%Fabric items will be replaced after every 2 years.


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INTEREST SCHEDULEInterest has to be paid at the rate of 13.5% for the next ten years. Below is therepayment schedule.

As we start paying the loan installments the interest starts decreasing and we willbe able to pay the loan with the interest in ten years.


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Income StatementOur sales will increase by around 30% in the first three years.Due to the marketing

and promotion activities performed in the first year.After third year we areexpecting an annual growth rate of 10% .We will like to expand our project after10 years.

From the first year we will start earning profit and here Tax rate is : 30%


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Financial appraisal

Project appraisal is a generic term that refers to the process of assessing, in astructured way, the case for proceeding with a project or proposal. It ofteninvolves comparing various options, using economic appraisal or some otherdecision analysis technique.

The technique used to financially appraise the project is called capital budgeting.Capital budgeting is a required managerial tool. One duty of a financial manager isto choose investments with satisfactory cash flows and rates of return. Therefore,a financial manager must be able to decide whether an investment is worth

undertaking and be able to choose intelligently between two or morealternatives. To do this, a sound procedure to evaluate, compare, and selectprojects is needed. This procedure is called capital budgeting.

UNDERLYING ASSUMPTIONS FOR THE APPRAISAL

Return on equity required is 25% approximately Term loan are charged at 13.5% P.A. for 10 years

Market rate of interest as per:

IDBI: 14% p.a.

SBI : 13.5% p.a. payable semiannually

ICICI : 14% p.a. payable at equal interest installments

Hence cheapest source is SBI at 13.5 % P.A., so we have chosen SBI for theloan.

Tax rate applicable is as follows:

Tax rate @ 30%

Surcharge @10%


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Depreciation rates are based on the market prevailing rates

For the purpose of calculation of cost of land prevailing market rate fromproperty from Indiaproperty.com has been used.

The seating at each restaurant shall be 64 seater with tables for two eachwhich could be conveniently joined and disjoined as per the requirement.

Restaurant shall have enough vacant space to accommodate 150 people incase of large gatherings required.

Reinvestment rate is same as the discounting rate.

TECHNIQUES USED:

Payback period discounted

Payback period in business and economics refers to the period of time requiredfor the return on an investment to "repay" the sum of the original investment. For

example, a $1000 investment which returned $500 per year would have a twoyear payback period. It intuitively measures how long something takes to "pay foritself." Shorter payback periods are obviously preferable to longer paybackperiods (all else being equal).

Thus payback period calculated as per discounted values: 5 years with takingdiscounting into considerationThis implies that the restaurant shall break be able to recover initial investment atthe end of the 5 years. Without taking discounting into consideration the payback

period comes out to be around 4 years.

This is a fairly good indicator, as 5 years , considering an average payback periodapplicable in the industry is of 5-6 years .

"Elsewhere in the world, the cost of building a five-star hotel is very differentfrom that of building a three-star one, while in India these costs get leveled," said


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Marina Smirnova, the head of the Analytical Department at the University of Hotel, Travel and Restaurant Businesses association. "Profit margins vary fromhotel to hotel, but on the average a hotel operating in the high-end segment paysback in six to eight years, and a restaurant in four to five. This is why this segmentis so attractive for investors."

Internal Rate of return:

The discount rate often used in capital budgeting that makes the net presentvalue of all cash flows from a particular project equal to zero. Generally speaking,the higher a project's internal rate of return, the more desirable it is to undertakethe project. As such, IRR can be used to rank several prospective projects a firm isconsidering. Assuming all other factors are equal among the various projects, theproject with the highest IRR would probably be considered the best andundertaken first.

IRR = 39%


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IRR

-10000000398500.00

1948650.004934150.005837297.506836582.887942241.829165564.69

10519003.5312016289.88 IRR13672564.41 39%

Limitation of IRR in current project:

IRR gives how much return is the project generating, but since the projectundertaken does not have a definite time period, thus is not valid enough.

Cash flows used are for 10 years, however if only say 5 years cash flowswere to be used, then IRR would have surely been less than 39%.

Thus shorter the period, lower would have been the IRR.


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Profitability index

An index that attempts to identify the relationship between the costs and benefitsof a proposed project through the use of a ratio.

Profitability index of 2.13 is a very good indicator of the project.An index above 1 indicates that the project is profitable. Industry average forprofitability index varies according to different ventures. There is no standard assuch available.But to our understanding, a profitability index of 2.13 is a high index, indicatinghigh profitability associated with the project.


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PROJECTION OF FINANCIALSTATEMENTS

For projecting the financial condition of the project, forecasts of income, assetsand liabilities and cash flows are necessary. Based on the assumptions andestimates the following statements are prepared:

Projected Income Statement

Projected Cash Flow Statement

From the cash flow statement we see that we will have a positive closing balanceat the end 3 rd year


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Sensitivity Analysis:We have performed sensitivity analysis of our project taking into consideration thevariable nature of the industry.We have taken a margain of +-5% of sales for doing

the sensitivity analysis.

When Sales are 5% less:


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When we decrease our sales by 5% there is not much of change in payback period.But the IRR has decreased from 39 to 35% and PI has also decreased from2.1 to 1.75.But the overall profitability of the project is still good hence if our salesdecreases by 5% it will not impact much on our profitability.


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When sales are up by 5%


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When sales are up by 5 % the IRR is 43% i.e. 4 % above normal IRR. But the payback periodhas decreased by 1 year also the PI has increased.Hence all the factors have good impact on theproject.


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Debt service coverage ratio

Debt service coverage ratio with value above 1 is counted well.In our project it has improved drastically over the years and average DSCR is 7.56.We have low DSCR in the beginning due to the term loan and low profitability inthe initial few years.But with time as the sales grow and due to decrease in interestpayments the DSCR increases over the years.


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Conclusion

The restaurant business segment in food service industry is a highly profitableventure.Theme restaurants are the upcoming trend in the market and are here to stay forlong. Such restaurants have high potential demand in metropolitan and tier 1 and2 cities.Factors like

Increasing household income at disposal

Higher number of working couples

MNC culture

Change in lifestyles

The above mentioned factors account for increasing demand and highgrowth potential in this sector.

According to us the project is financially viable, as it has high profitability indexand the discounting payback period is shorter than the industry average.We will like expand our project in the coming years .And during the intitial yearswe will like to add some additional features like:-

Reinforcing the consciousness in quality. To strive for authentication of ISO 9002.

To actively develop new recipes and innovative settings and ambience inthe restaurant

To constantly master the market trend, especially in comprehending thecompetitive environment


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Reinforcing the consciousness in talent, that is of its chefs.

Reinforcing the consciousness in service, where every business effort is centered

around serving the customers better than the competitors

PAFC Project Report

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Transcript of PAFC Project Report