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Rewinding Business Case

Rewinding Services Feasibility Study

14 March 2013

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Rewinding Business Case

Executive Summary

This recommends to pursue the acquisition of Rewinding Equipment as an additional Services that Monark can offer to its customers given the following positive indicators:

• ROI 2.6 years assuming 5 years depreciation• GP 60% for revenue jobs and 35% for Interdept,

equivalent to an annual average of Php 4.2M in at least the next 5 years

• Continuous demand for the service given the healthy engine population of Monark in the market

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Cat Hydraulic Cylinder TesterCat Hydraulic Cylinder Washer

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Background

• Monark Rewinding job requirements grew by 38% and 72% in the past 3 years, in volume units and peso value terms respectively.

• Surge in Rewinding jobs may be attributed to:– Growth in engine sales from

2000 – 2002– Growth of Rental

Power Business

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Background

• Rental Power (51%) and Revenue(49%) are the 2 primary sales groups currently using the rewinding jobs.

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Background

• Presently, all Monark rewinding jobs are coursed through 3 subcontractors.– 2012 rewinding jobs per subcontractor

Powerasia Php 2,436,298.67 Direct Electrix Php 3,476,520.53 Megamaster Php 13,723,526.86

• Moisture and dirt accumulation triggers the need for rewinding.• It will usually takes about 10 years before an engine will need

rewinding; lesser years if it is located near bodies of water.• Space heaters may be installed on generator sets to prolong the

need for rewinding.

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Projected Opportunity

Year Estd # of units Estd Rev Estd GP(60%)for rewinding in Php in Php

2014 80 9,000,000.00 4,275,000.00

2015 80 9,000,000.00 4,275,000.00

2016 80 9,000,000.00 4,275,000.00

2017 80 9,000,000.00 4,275,000.00

2018 80 9,000,000.00 4,275,000.00

Volume Assumptions: based on capacity of manpower and equipment

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Proposed Selling PriceEquipment Min Max

Equipment Cost 9,605,000.00 11,728,000.00 Manpower

Foreman 260,000.00 260,000.00 Technician(5-7) 780,000.00 1,092,000.00 Manpower Cost 1,040,000.00 1,352,000.00

OthersUtilities Cost(Water and Electricity) 168,000.00 180,000.00 Rent(600-800sqm) 306,144.00 408,192.00 Materials Cost per job(Average) 60,000.00 70,000.00

Estimated Cost for Year 1(Equipment Dep 5yrs) 8,235,144.00 9,885,792.00 Estimated Cost for Year 2(Equipment Dep 5yrs) 8,235,144.00 9,885,792.00 Estimated Cost for Year 3(Equipment Dep 5yrs) 8,235,144.00 9,885,792.00 Estimated Cost for Year 4(Equipment Dep 5yrs) 8,235,144.00 9,885,792.00 Estimated Cost for Year 5(Equipment Dep 5yrs) 8,235,144.00 9,885,792.00

Estimated cost per job 102,939.30 123,572.40 Gross Profit(60%) 61,763.58 74,143.44 Total Selling Price 164,702.88 197,715.84 vsSubcontractors selling price + Monark GP 168,750.00 168,750.00 Variance 0.02 (0.17)

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ROI

• 40 units interdept at 40% GP

Equipment Average Price Php 12,000,000

Average Rewinding Selling Price Php 120,000 GP at 60% Php 72,000

Number of Rewindng jobs needed to break-even in units 166.67 Estimated Peso Value Php 12,000,000 Target units Forecast for Year 1 in units 80 Estimated Peso Value Php 4,560,000 ROI 2.63

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Appendix: Rewinding EquipmentMin Max

Surge Comparison Tester 1,000,000.00 1,300,000.00 Thermal Imaging Temperature Scanner 300,000.00 400,000.00 Multi Tester & clamp Meter 25,000.00 30,000.00 Digital Low Resistance Ohmeter 500,000.00 600,000.00 Digital Insulation Tester 300,000.00 400,000.00 Dynamic Balancing Equipment 800,000.00 900,000.00 Lathe Machine 4,000,000.00 5,000,000.00 Oven(4-6 Alternator) 200,000.00 300,000.00 Dipping tank for Varnishing 50,000.00 60,000.00 Overhead Crane for lifting 1,600,000.00 1,800,000.00 A Frame for manual lifting 25,000.00 30,000.00 Used Boom Truck(>=3 tons) 800,000.00 900,000.00 Safety Provision 5,000.00 8,000.00 Total 9,605,000.00 11,728,000.00

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Appendix: Engine PopulationYear

Machine Pop Year

Machine Pop

1965-1992 1664 2003 2771993 425 2004 2151994 139 2005 2911995 282 2006 1621996 246 2007 2351997 328 2008 4731998 189 2009 1851999 191 2010 2962000 86 2011 4452001 92 2012 2782002 295