Project Appraisal and financial Estimation 0f

@ Exotica
A multi Cuisine Restaurant

Submitted by: Group 5(Sec A)

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

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

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 D category. The socioeconomic classification (SEC) groups urban Indian households on the basis of education and occupation of the chief wage earner (CWE: the person who contributes the most to the household expenses) of the household into five segments (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 reflective of 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..

INDUSTRY ANALYSIS
Food service industry in India has a huge potential and is expected to grow to $8 billion in 2012, with an increase of 26.2% from 2007. Cafes and restaurants segment contributes 21.9% to the food service industry annually (2007) and contributed 7.6% to GDP of India in 2007. Considering the opportunities in the food service market we would like to capitalize on it to strengthen its position in the hospitality segment.

SEGMENT ANALYIS
With more and more diners yearning for a break from the urban bustle, themerestaurants with out-of-the box offering in terms of ambience, cuisine and dcor are 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 has started developing a liking for Exotic food restaurants. A number of restaurants differentiated on basis of themes and nature of cuisines are getting more popular. In the suburbs too, Exotic cuisine restaurants are becoming more and more popular. As suburban life gets more hectic, consumers are looking for more than just the pure vanilla experience at restaurants. This explains the gradual increase in 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 visit being as high as five to six times a month. However, a new segment of people has started spending time at our joint. They also like to spend a lot of money and flaunt their act of visiting our joint. On an average, each customer of this new segment gives a billing of Rs 2500 to Rs 3000 per visit. A sixty-seater joint at Colaba, Tetsuma is a Japanese restaurant at Colaba.

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 in Delhi. Speaking to Hindustan Times, she says, We have five floors in all, with good sports dcor and graphics on walls and mirrors. Modi says that on an average, the daily billing is as high as Rs 75000 to Rs 1 lakh, which definitely goes up on weekends. Corporate clients like Siemens, National Geographic etc also use the venue for throwing corporate parties. Modi also says that foreign clients also contribute to as much as 30 per cent of the annual turnover. The fact that all cricket matches are shown on LCD screens also is an added attraction for the visitors. In the suburbs too, theme restaurants are becoming more and more popular. As suburban life gets more hectic, consumers are looking for more than just the pure vanilla experience at restaurants. This explains the gradual increase in the number of theme restaurants like Village, Machan and Rudeys Forest Caf. Amar Jog, Director, Marketing and Business Development, Kambala Hospitality Pvt Ltd, which runs the Village theme restaurant tells HT, We started with Village on 15th August last year in Kandivli and from then till date, we have seen three more Village restaurants at Ghatkopar, Thane and Vashi. He adds that with items like puppet shows for children, mehendi artists for women folk and sing-and-dance opportunities, this makes for a wholesome experience. Offering a variety of cuisine like Kashmiri, Himachali and Punjabi specialties, in addition to Sarson Ka Sag, as well as Dama Oluv, all provided by traditionally clad staff in an environment thats given the look and feel of a village.

MARKET AND DEMAND ANALYSIS

Instead of building a business around a preconceived concept, we conducted basic research and built a concept around people. Our analysis identified the following key drivers as areas of opportunity to service @ Exotica customers: Theme Selection: Nearly 95% of people endorsed having a choice of different themes within a restaurant. @ Exotica Restaurant concept is built to offer different-themes within a restaurant. Our customers want the option to choose what satisfies their desires. 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 Regional cookbooks, food magazines and TV cooking shows offers ample evidence that India, as a whole, is currently on an national tasting spree. Our research results do not identify any single ethnic style of restaurant as desired, but rather suggest that 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, and other options to improve the dining experience are also factors in customer decisions. We have taken all these factors in consideration for the design of this theme restaurant. Reasonable Prices: This was no surprise given the economic tide. Although the restaurant industry as a whole has seen growth in 2010/2011, customers are demanding value for their dining rupee. Our menu is priced at a mid-tier level. In addition we would have an extended Appetizer selection priced between Rs. 200 Rs. 1,000, allowing budget dining in a full-service restaurant.

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 a theme 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 having different lifestyle, a theme restaurant would be a ideal hangout place for people to de-stress themselves from their everyday routine. We proposed theme restaurant would be a complete experience in itself, as people would be free to choose from any theme according to their requirements. Good cuisine is a must and if blended with a good theme, a well-researched decor and overall ambience that 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 to various 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?

Market Segmentation
Our Restaurant intends to cater to a wide customer base. We want everyone to feel welcome and entertained. It has defined the following groups as targeted segments 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 are the 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 something new, food wise, and will embrace our national fusion cuisine.

Target Market Segment Strategy

The Business Person: They work hard all day and often stay overnight in a strange city. They need a competent establishment that helps impress clients and prospects. Afterward, they want to relax and use the money they are making (or is expensed by their company). They spend the most on drinks, food and tips. Our cosmopolitan flair and 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 that suggests "date. In most cases they are budgeting to eat out on a regular basis, as they 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 own neighborhoods for restaurant options. We will break these habits, using marketing 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 clientele will confirm the feeling of being in "the in place" in NCR. These are the individuals that pride themselves on socializing and dining at the premier locations - The Image 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 dining locale, with its attractive atmosphere, international menu, and lounge. A large percentage of the tourist population is vacationing singles, here to socialize and be entertained. This is especially true for the tourist population that visits for sporting and social events - they are not interested in family establishments.

The Next step involved in the project analysis is to decide the Marketing Strategy for the proposed project
Strategy and Implementation: Our intend to succeed by giving people a combination of excellent and interesting food in an environment that appeals to a wide and varied group of successful adults. 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 customer awareness in the surrounding communities. It will direct all of its tactics and programs toward the goal of explaining who it is and what it does. It will keep its standards high and execute the concept flawlessly, so that word-of-mouth will be its main marketing force. We will create an appealing and entertaining environment with unbeatable quality at an exceptional price. As an exciting and eclectic restaurant, it will be the talk of the town. Therefore, the execution of the concept is the most critical element of its plan. All menu items are competitively priced for the area. While it is not striving to be the lowest-priced restaurant, it is aiming to offer exceptional food at reasonable prices for the premium restaurant diner. Competitive Edge Our 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

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

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 will concentrate on the following: Promotional Campaign: The best way to reach our potential customers is to develop an intense advertising campaign promoting our concept .In addition to standard advertising practices; we will gain considerable recognition through newspapers, newsletters and public announcements. Publicity Strategy: We will focus on the following publicity strategies: Develop a sustained public relations effort, with ongoing contact between key editors and top-level personnel at local dining publications. Develop a regular and consistent package update program for the major target media, keeping key editors abreast of all new promotions, and menu introductions. Establish contact with editorial staff for the purpose of being included in entertainment "round-ups"--product comparisons in dining publications and the local papers. Produce a complete Restaurant history and menu offering piece to be used as the primary public relations tool for all target media editorial contact. This will also be effective for inclusion in press kits.

Press Release/Grand Opening: Our Restaurant will release a series of press releases on the Grand opening. Editorial Visitation: Leading up to the Grand Opening, and over the first 6 months of operations, we will invite the most influential reporters and editors from all local publications to STR Restaurant in order to evaluate our menu, service, and atmosphere. Community: We will look for key opportunities to pair with local community development organizations and radio stations to interface with our customers. We will continually look for local community programs in which we can participate, in order to better our community, and give something back. Marketing Program In line with our Marketing strategy, we will employ three different marketing tactics to increase customer awareness: In-Restaurant Marketing, Public Relations Marketing, and Media Marketing. Our most important tactic will be word-ofmouth/in-restaurant marketing. This will be by far the cheapest and most effective of our marketing programs. Word-of-mouth/In-Restaurant Marketing Restaurant Night: Every first Monday of the quarter, we will have a special evening for restaurant people. A perfect night for the local area's restaurant owners, chefs and staff to get together to discuss the market and food trends. Monthly Dating Connection: With the increasing appeal of Internet and speed dating, the restaurant will offer a monthly dating night. In addition to food and beverages, customers can choose from an array of dating packages up for auction. Wait Area Marketing: Wait staff will service appetizers to customers waiting to be seated or on the wait list.

 Live Entertainment parties Special Events Valentine's Day Wine tasting weekends New Year's Eve party

Media Marketing
Newspaper campaign: A much targeted media campaign to obtain featured articles about the restaurant in their Living, Entertainment and Dining segments. Notices of all live entertainment segments and special features will be posted to local newspapers' calendar announcements. Restaurant and Special Events Website: We have contracted with local design teams to deliver a high-quality, navigable, constantly updated website. Media Relations: Several media relations teams will be utilized to market the Restaurant. HT City food guide & India Today are two media companies we will utilize for media relations. Both companies have an insightful presence and connection with our target market. Billboard Advertisement: One month prior to the opening, distinct billboard ads will advertise the launch of the

Sales Strategy
Our strategy is simple: we intend to succeed by giving our customers a combination of delicious and interesting food in an appealing environment, with excellent customer service, whether on their first visit or their hundredth. Our marketing strategies are designed to get critics and initial customers into our doors. Our sales strategies must take the next step and encourage customers to become repeat customers, and to tell all their friends and acquaintances about the great experiences they just had at @ Exotica. New restaurants often make one of two mistakes: they are unprepared or underprepared for opening, and initial poor service, speed, or quality discourages customers from returning, or they spend all of their efforts at opening, and are unable to maintain the initial quality customers expect on return visits, decreasing word of mouth advertising and leading to poor revenues. Our sales strategy requires consistently high quality food, service, speed, and atmosphere. 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, and immediately addressing any problems Interacting with our customers personally, so they know that their feedback goes directly to the owners Evaluating food choices for popularity, and keeping favorites on the menu as we rotate seasonal foods and specials.

Sales Forecast
We are looking at forecasting sales for restaurant. Our new restaurant @ Exotica as discussed earlier would have three Cuisine decided that it would be able to seat fifteen tables of four people each as a starting point. Then they did some simple math: fifteen tables of four means at capacity they would be serving 64 meals. Meals take about an hour at lunch, and about one and a half hours at dinner. We figured they would have one servicing of lunch and two of dinner, roughly calculating the 2-5:30 crowds as the first serving, and the 5:30-11:00 crowd as the second 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:

Technical Analysis
Location:
The location for the themed restaurant has been finalized as on Gurgaon Faridabad road, sector 54. This is one of the busiest roads of India and more than five lakhs vehicles pass through this road on a single day. The location can be highlighted 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, football club squash club and many more. The clubbing culture in sector 52 in particular and Gurgaon at large helped us secure this location. There are over two dozen restaurants in the vicinity of the area that sell food at similar prices. Although this presents an obvious challenge in terms of 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 have their 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.

MAN POWER
The total man power requirement of the restaurant will be 22 persons who will get 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.

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 basis of this, the means of Financing is decided.

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

Over and above the escalation under various items of cost on the basis of latest available rate of inflation, contingency provision is made on the basis of project implementation 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(excluding margin money for working capital and interest during construction period).

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

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

ENVIRONMENTAL ANALYSIS
Environmental repairs and maintenance is a tedious job which was needed to be conducted on a large scale so as to practice the principles of conservation i.e., to create a safe, harmonious and ecologically balanced environment for our hotel guests 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 Odour nuisance 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 discharges from the restaurant and adequate space and facilities for waste storage and pick up 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.

iv. No manholes are located in the proposed kitchen, food preparation room and scullery. 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 as to ensure zero discharge into municipal drainage.

ii. Heat Island Effect: More than 75% of the terrace will be insulated and coated with the reflective high albedo roof paint. High albedo paint deflects heat back into the atmosphere. Given that the roofs and side walls of a building account for 47 per cent of heat gain in a building, the heat-deflecting paint means that the airconditioning can run at a comparatively higher temperature .

iii. Light Pollution Reduction: Minimum exterior lighting will be used to limit night sky 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.

4. Energy & Atmosphere

1. Use of solar photo voltaic for emergency lighting would be done so as to save on 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 be provided at convenient locations with separate exhausts. Designated area is provided so as other customers do not get affected by the smoke. 2. CO2 Monitoring: Sensors at various locations are planned to monitor CO2 levels. 6. Low Emitting Materials: Low VOC levels of adhesives / sealants would be used for carpets /composite woods / paints.

7. Food Quality All the requirements of Food Safety Act are adhered to for ensuring that food is safe 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, why those actions are important, why the staff needs to support the program, as well

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

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 % from SBI. 55% 45% Means Of Financing Term loan @ 13.5%(SBI) Owners equity 60lakhs 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.

ESTIMATION OF REVENUE EXPENSES AND PROFITS

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

Our projected sales for 1st year : Rs. 9452857 with footfall of 60-80 Our projected sales for 1st year : Rs. 12342857 with footfall of 80-100 Our projected sales for 1st year : Rs. 18102857 with footfall of 100-120 Sales will increase with gradual increase in footfall throughout the year.

Expenses

We have mentioned the expenses estimation for 10 years. There is increase in expenses throughout the years as sales are also changing. Salary of the employees has been raise by 10% each year.In case of raw material we have taken inflation into account and have gradually increased the prices.In 2nd and third year there will be a increase in demand due to the marketing and the promotion activities done in the first year. The Raw Materials have been calculated by taking into account its two components: Perishable items Non perishable items

Below we have calculated the perishable and non perishable per day expense for the first year.
Price per kg or per bottle Perishable Milk Vegetables Red meat White meat Cheese Cream misc Daily Expense 30 65 300 160 200 300 18 20 5 9 4 4 540 1300 1500 1440 800 1200 220 7000 Consumption

Non Perishable Rice Oil Flour Eggs Others Total

Price per kg or per bottle 60 100 40 4

Consumption 5 3 5 40

Cost 300 300 200 160 2200

Total

3160

PROVISION FOR DEPRECIATION

We have taken straight line method into consideration Preoperative expenses during the construction period and contingencies are allocated to the fixed assets in 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.

INTEREST SCHEDULE
Interest has to be paid at the rate of 13.5% for the next ten years. Below is the repayment schedule.

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

Income Statement
Our 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 are expecting an annual growth rate of 10% .We will like to expand our project after 10 years.

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

Financial appraisal
Project appraisal is a generic term that refers to the process of assessing, in a structured way, the case for proceeding with a project or proposal. It often involves comparing various options, using economic appraisal or some other decision 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 is to 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 more alternatives. To do this, a sound procedure to evaluate, compare, and select projects 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 the loan. Tax rate applicable is as follows: Tax rate @ 30% Surcharge @10%

 Depreciation rates are based on the market prevailing rates

For the purpose of calculation of cost of land prevailing market rate from property from Indiaproperty.com has been used. The seating at each restaurant shall be 64 seater with tables for two each which could be conveniently joined and disjoined as per the requirement. Restaurant shall have enough vacant space to accommodate 150 people in case 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 required for 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 two year payback period. It intuitively measures how long something takes to "pay for itself." Shorter payback periods are obviously preferable to longer payback periods (all else being equal). Thus payback period calculated as per discounted values: 5 years with taking discounting into consideration This implies that the restaurant shall break be able to recover initial investment at the 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 period applicable in the industry is of 5-6 years . "Elsewhere in the world, the cost of building a five-star hotel is very different from that of building a three-star one, while in India these costs get leveled," said

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

Internal Rate of return: The discount rate often used in capital budgeting that makes the net present value 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 undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first. IRR = 39%

IRR -10000000 398500.00 1948650.00 4934150.00 5837297.50 6836582.88 7942241.82 9165564.69 10519003.53 12016289.88 IRR 13672564.41

39%

Limitation of IRR in current project: IRR gives how much return is the project generating, but since the project undertaken 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 flows were to be used, then IRR would have surely been less than 39%. Thus shorter the period, lower would have been the IRR.

Profitability index
An index that attempts to identify the relationship between the costs and benefits of 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 for profitability index varies according to different ventures. There is no standard as such available. But to our understanding, a profitability index of 2.13 is a high index, indicating high profitability associated with the project.

PROJECTION OF FINANCIAL STATEMENTS

For projecting the financial condition of the project, forecasts of income, assets and liabilities and cash flows are necessary. Based on the assumptions and estimates 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 balance at the end 3rd year

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

When Sales are 5% less:

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 from 2.1 to 1.75.But the overall profitability of the project is still good hence if our sales decreases by 5% it will not impact much on our profitability.

When sales are up by 5%

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

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 in the initial few years.But with time as the sales grow and due to decrease in interest payments the DSCR increases over the years.

Conclusion
The restaurant business segment in food service industry is a highly profitable venture. Theme restaurants are the upcoming trend in the market and are here to stay for long. Such restaurants have high potential demand in metropolitan and tier 1 and 2 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 high growth potential in this sector.

According to us the project is financially viable, as it has high profitability index and the discounting payback period is shorter than the industry average. We will like expand our project in the coming years .And during the intitial years we 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 in the restaurant To constantly master the market trend, especially in comprehending the competitive environment

 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