BUSINESS DEVELOPMENT PLAN

ON
HIMALAYAN AUTO PARTS

Submitted by:
Ayush Giri
Symbol No 18220304

Submitted to:
Mr. Kishor Dhungana
Course Instructor of Business Development Plan
Apex College
Pokhara University

In the partial fulfillment of the requirement for the degree of

Masters in Business Administration

December, 2019
 DECLARATION

I, student of MBA, hereby declare that the project titled “BUSINESS DEVELOPMENT
PLAN OF HIMALAYAN AUTO PARTS.,” for the subject BUSINESS
DEVELOPMENT PLAN submitted by me for 4th trimester of the academic year 2019, is
based on the actual work carried out by me under the guidance. I further state that this
work is original and not submitted anywhere else for any examination.

Signature

Ayush Giri

Date: 03/12/2019

i
 ACKNOWLEDGEMENT

First of all, I would like to extend my heartfelt gratitude to Mr. Kishore Dhungana from
whom I got immense inspiration to do this Business Development Plan. With the active
participation I have completed this Business Development Plan and have tried to do my
best in providing the relevant information. I am highly obliged to all those who have
helped me in preparing this plan.

I would like to express my deep and sincere gratitude to Apex College for providing me
an opportunity that has given me practical exposures and the real time experience to
various activities in practical setting which will be fruitful and beneficial for my
upcoming future.

Last but not the least; I would like to utter my heartfelt appreciation to all directly and
indirectly support providers or facilitators in this study.

………………..

Sincerely,

Ayush Giri

IRYA

ii
Table of Contents
DECLARATION.............................................................................................................................I
ACKNOWLEDGEMENT................................................................................................................II
EXECUTIVE SUMMARY...............................................................................................................V
CHAPTER: ONE...........................................................................................................................1
INTRODUCTION.........................................................................................................................1
1.1 BACKGROUND...........................................................................................................................1
1.2 LOCATION AND PREMISES...........................................................................................................2
1.3 APPROVAL AND LICENSING REQUIREMENT......................................................................................2
1.4 LEGAL FIRM AND OWNERSHIP......................................................................................................3
1.5 MISSION, VISION, OBJECTIVE.......................................................................................................3
CHAPTER II.................................................................................................................................4
ORGANIZATION AND MANAGEMENT TEAM..............................................................................4
2.1 MANAGEMENT TEAM.................................................................................................................4
2.2 IMPLEMENTATION PLAN..............................................................................................................5
2.3 ORGANIZATIONAL STRUCTURE......................................................................................................5
2.4 EMPLOYMENT RECRUITMENT AND DEVELOPMENT...........................................................................6
CHAPTER III................................................................................................................................7
PRODUCT AND SERVICES...........................................................................................................7
3.1 PRODUCT.................................................................................................................................7
3.2 SERVICES..................................................................................................................................7
CHAPTER IV................................................................................................................................8
MARKET AND COMPETITION.....................................................................................................8
4.1 MARKET ANALYSIS.....................................................................................................................8
4.2 MARKET SEGMENTATION, TARGETING AND POSITIONING..................................................................8
4.2.1 Market Segment............................................................................................................8
4.2.2 Target Market...............................................................................................................9
4.2.3 Positioning Statement...................................................................................................9
4.3 COMPETITORS...........................................................................................................................9
4.4 SWOT ANALYSIS.......................................................................................................................9
CHAPTER V...............................................................................................................................11
MARKETING AND SALES PLAN.................................................................................................11
5.1 MARKETING STRATEGY.............................................................................................................11
5.2 PRODUCT STRATEGY................................................................................................................11
5.3 PRICING STRATEGY..................................................................................................................11

iii
 5.4 DISTRIBUTION STRATEGY...........................................................................................................12
5.5 PEOPLE..................................................................................................................................12
5.6 PROCESS...............................................................................................................................12
5.7 PROMOTION...........................................................................................................................13
5.8 PHYSICAL EVIDENCE..................................................................................................................13
5.9 SALES STRATEGY......................................................................................................................13
CHAPTER VI..............................................................................................................................14
LEGAL FRAMEWORK, ENVIRONMENT AND SOCIAL FACTOR....................................................14
6.1 APPROVAL AND LICENSING........................................................................................................14
6.2 LEGAL FRAMEWORK.................................................................................................................14
6.3 SOCIAL COMPLIANCE ISSUE........................................................................................................15
6.4 EXTERNAL ENVIRONMENT ANALYSIS.............................................................................................15
6.5 PEST ANALYSIS.......................................................................................................................15
6.5.1 Political environment..................................................................................................15
6.5.2 Economic environment...............................................................................................15
6.5.3 Socio cultural environment........................................................................................16
6.5.4 Technological environment........................................................................................16
CHAPTER VII.............................................................................................................................17
FINANCIAL PLAN......................................................................................................................17
7.1 ASSUMPTIONS........................................................................................................................17
7.2 FINANCIAL DETAILS OF STARTUP EXPENSES...................................................................................17
7.3 SALES FORECAST AND COST OF GOODS SOLD....................................................................18
7.4 BUDGETED LOAN REPAYMENT SCHEDULE..........................................................................18
7.5 PROJECTED INCOME STATEMENT.......................................................................................18
7.6 PROJECTED BALANCE SHEET...............................................................................................18
7.7 PROJECTED CASH FLOW......................................................................................................18
7.8 FINANCIAL RATIOS..............................................................................................................19
CHAPTER VIII............................................................................................................................23
FUTURE PLAN AND EXIT STRATEGY..........................................................................................23
8.1 FUTURE PLAN.........................................................................................................................23
8.2 EXIT PLAN..............................................................................................................................23
APPENDICES.............................................................................................................................24

iv
 EXECUTIVE SUMMARY

The Online selling of spare parts has come a long way and is still evolving with loads of
online suppliers are bringing in creativity in terms of quality and competitive pricing into
industry. Himalayan auto parts will be a private limited company which will be located at
Teku, kathmandu. The company will provide different genuine spare part for bikes
through online order and it has its own outlet where customers can visit and buy the
product.. This Company is owned by Mr Abinash Giri and Ayush Giri.

The vision of our company is to be the most reliable distributor of spare parts for vehicles
in Nepal. As a dedicated team, our goal is to provide best care for our customer's vehicles
and provide the satisfaction needed for the customer while using our genuine spare parts.
And other objective is to generate net profits from the very first year, to establish the
strong brand name of the company in the market and to make customer happy.
We will be selling varieties of spare parts of different company with a commitment to
serve with genuine quality, price, and customer satisfaction that will make customers
happy and will encourage them to visit our online store regularly. The price for the spare
parts will be provided best price that the customer is looking for. There will be variation
in the price of spare parts with the use of different company spare parts.

The company is established with the initial capital of Rs. 15,74,094. The company will be
financed by 70% ( Rs.9,69,500) of long term loan and 30% (415,500) of equity. 50% of
working capital will be financed by short term loan while remaining 50% will be
contributed by the owners.

The sales revenue of the company for the first year is Rs. 96,00,000 which will increase
by 10% per year and will become Rs. 140,55,360 at the end of the 5 th year. The net profit
for the first year will be Rs 459,221 which will be increased gradually and will become
Rs. 998,675 at the end of fifth year. The gross profit margin will be 40% throughout the
period. The net profit margin is 4.78% at the first year and will become 7.11% at the end
of the fifth year. The return on asset is 23.67% at the beginning year and will increase to

v
48.67% at the end of the fifth year. The return on equity is 55.87% at the beginning year
and will become to 52.83%% at the end of the fifth year.

The company earns profit from the first year of operation. Projected cash flow statement,
Projected Income statement, and Projected Balance Sheet shows positive inflow of cash
from the year of inception. The company has IRR of 104%, MIRR of 54%. The initial
investment will be paid back in 1.02 years i.e. within 2 years of inception.

Dividend is paid from the first year of operation. The retention ratio has increased as the
year of operation increases. The short term loan is cleared in second year while long term
loan is cleared through installments paid in a period of 5 years.

vi
1
 CHAPTER I

INTRODUCTION

1.1 Background
The auto parts store industry includes stores, shops, online shop that retail new and used
automotive parts and accessories, repair automobiles and install automotive accessories.
Players in this industry can choose to operate a single store in just one location. As a
matter of fact, auto stores can be found in all parts of the world as long as there are
automobiles there.

The auto parts store industry is expected to grow slowly over the years. The per capita
disposable income and corporate profit boosted the demand for auto parts. Favorable
vehicle usage trends have led to growth in demand for industry products in the long run.
And the increase in using vehicle there will be need of the spare parts also so this
industry will be increasing day by day.

Nepali Automotive market growth hit more than 50 percent this year. Last year, we
observed only a 25-30 percent growth. New brands are entering and distributors are
getting good opportunities to bring more new vehicles in the market. Meanwhile,
customers are getting a lot of fresh choices.

The main focus will be on Kathmandu because the market share is about 55 percent for
passenger vehicles in Kathmandu Valley and 45 percent in the rest of the country. There
are around 1.9 million vehicles in the country among which one million are in the capital
valley. Kathmandu used to account for about 60-70 percent of the country’s automotive
market. Now the growth of the market in other parts of the country is equal to
Kathmandu. Due to increasing road connectivity and rapid urbanization happening in
places like Pokhara, Butwal and other areas, the automotive industry growth rate is high
outside the valley. Five years back, the vehicle growth rate was not more than 10 percent
annually. 20 years ago, the population was only around one million in the Kathmandu

1
valley. Now the population has surged by eight times and vehicle ownership has
increased accordingly.

So due to increasing number of vehicle in country there is chance of damage of the parts
vehicle. And we will have the opportunity to supply the genuine parts with low and
affordable price to the customer. Automotive spare parts business is fast gaining ground
around in Asia. The reason is due to popularity of commercial Motor bike in many
countries. In a country like Nepal also most of the people are using their motorbike for
their daily use. Almost in every house there is 3-4 motorbikes in their home, so anyone
who chose an automotive spare parts business in any part of the world is sure going to be
good return on his or her investment as long as they are doing the right thing when it
comes to setting up a business and effectively running the business.

Amid growing consumer base and fierce competition, has made marketers to indulge in
promotional campaigns for cashing in on the opportunity. The increasing income of the
consumers along with a rise in awareness among them has helped open new markets. The
Automotive industry has been growing at a steady 25-30 percent each year and the
growth of enterprise is in accordance with that.

1.2 Location and Premises

Himalayan Auto parts will be located at Teku, Kathmandu. The location is based on the
economic factors of the area and its market opportunities. Though we are not opening the
shop but the location we have chosen will be feasible for everyone to deliver the product
to the customer. We are going to sell our product online so Teku area will be best for us
to open the office.

1.3 Approval and licensing requirement

In order to register under the name of “Himalayan auto Parts Pvt. Ltd.”, an application
form should be submitted along with prescribed documents. Once registered, next step is
to register for VAT from “In land revenue Department”. The government’s fees for the
registration are based on Authorized Capital.

2
Following document are required to register the firm:

 The location of business

 The objectives of the company including the short description of the nature of the
goods or services
 The full name, surname and permanent address of the owners, with photos and
photocopies of citizenship,
 Types and Form of business
 The matter of restriction imposed on the power of a partner, if any,

1.4 Legal firm and ownership

Himalayan Auto parts is a private limited company registered under the company act
2063. The company will have two shareholders that is Mr Ayush Giri and Mr Abinash
Giri.

1.5 Mission, Vision, Objective

1.5.1 Mission:

The mission of our company is to provide a wide range of spare parts and accessories for
vehicles in our region.

1.5.2 Vision:
The vision of our company is to be the most reliable distributor of spare parts for vehicles
in Nepal.

1.5.3 Objective:
As a dedicated team, our goal is to provide best care for our customer's vehicles and
provide the satisfaction needed for the customer while using our spare parts.

3
 CHAPTER II

ORGANIZATION AND MANAGEMENT TEAM

2.1 Management Team

Himalayan auto Parts Pvt. Ltd. will be managed by 6 people:

 Manager:
Manager will be responsible for making all the decision regarding business
activities. He/she will be responsible for managing the staffs and get the things
done by necessary means.
 IT Officer:
It officer will be responsible for making the app and take the online order which
came to our business and check the internal networking.
 Accountant:
Accountant will be responsible for all the record of sales, purchase, debtors,
creditors etc.
 Delivery man:
Delivery man will be responsible for delivery the purchase of our product to the
customer.

4
 2.2 Implementation plan

Activities Weeks in a month

1st 2nd 3rd 4th
Space renting  
Registration    
Decoration  
Fixed assets
acquiring  
Lightening
and
connections  
Spare parts
Acquiring  
other items
acquiring  
Human
resource
acquiring  
Marketing        

2.3 Organizational Structure

Himalayan auto part is a privately owned business. The company is planning to proceed
with 6 people in the inception. The managing director will also look after the company’s
and the manager will be supporting the other staff of the company whereas 4 other staff
Lowwill be working in the company as delivery man and one for the billing and accounts.

5
 Manager

Customer service
IT officer Accountant Delivery man
representative

2.4 Employment Recruitment and Development

Some of the ways to recruit employee for our business and their development are:

 Find out what the going rate is for the position and match it.
 Offer and employee benefit program.
 Check the qualification and appoint employee.
 Offering employees some ways to move upward.
 What type of experience he/she have on that field and appoint them.

Employee training

Once the employees are hired, employees will be trained by manager regarding
company’s services. The training session will be not more than two weeks. Further, they
will also be given orientation regarding the company’s policies, objectives and values.

Compensation and incentives

Salary will be as per the rate specified by the organization. Overtime salary will be paid
to ones who work for late night. An increment will be considered as per the profitability
of the business. Employee will be rewarded on the basis of their performance, incentives
would be bonuses and recognition.

6
 Chapter III

PRODUCT AND SERVICES

3.1 Product
Some of the few products list we are going to sell are:
 Wheels
 Tires
 Brakes
 Engine
 Suspension
 Front Fork
 Chain Lubricant
 Speedometer
 Helmet

3.2 Services
The service that we are going to provide is we are going to deliver the auto parts with
certain charge inside the Kathmandu Valley if the customer’s order online. Customer can
visit the store too. If the customer does not like the product we will exchange the product
with no charge. We will give discount to the loyal customer of our business.

7
 CHAPTER IV

MARKET AND COMPETITION

4.1 Market analysis
The main focus will be on Kathmandu because the market share is about 55 percent for
passenger vehicles in Kathmandu Valley and 45 percent in the rest of the country. There
are around 1.9 million vehicles in the country among which one million are in the capital
valley. Kathmandu used to account for about 60-70 percent of the country’s automotive
market. Now the growth of the market in other parts of the country is equal to
Kathmandu. Due to increasing road connectivity and rapid urbanization happening in
places like pokhara, butwal and other areas, the automotive industry growth rate is high
outside the valley. Five years back, the vehicle growth rate was not more than 10 percent
annually. 20 years ago, the population was only around one million in the Kathmandu
valley. Now the population has surged by eight times and vehicle ownership has
increased accordingly.

So due to increasing number of vehicle in country there is chance of damage of the parts
vehicle. And we will have the opportunity to supply the genuine parts with low and
affordable price to the customer.

4.2 Market segmentation, Targeting and positioning

4.2.1 Market Segment

The market is segmented on the basis of three important factors:

 Income level
 Segment ecommerce store visitors on the fly
 Based on their purchase behavior

8
4.2.2 Target Market
Our target market includes:

 Motorcycle Owners
 Auto repair servicing garages company

4.2.3 Positioning Statement

Tagline “Quality is in our parts”.

Himalayan auto Parts wants to position as spare parts provider and give the best quality
product to the customer so they have no complain. It will be committed toward providing
its customers with a feeling of self confidence with a genuine part.

4.3 Competitors
As Teku area has the high competition in these businesses, so the Himalayan Auto parts
will also face intense competition from various competitors such as:

 Star motorcycle spare parts

 Jai sachidanand auto parts
 Mahavir auto parts
 Bike mart Nepal
 Bridge Bearing and joint traders

4.4 SWOT analysis

SWOT analysis is an appropriate tool to identify the internal and external factors that can
affect the company’s future performance. It assists in identifying strength, weakness,
opportunity and threats to match strength with opportunity and overcome the weakness
and threats. So, we have conducted the SWOT analysis of our business.

9
 Strength Weakness

 Best location to attract customers  Inexperience management

 Good personal relationship  Low initial promotion and
 Genuine spare parts advertisement

Opportunities Threats

 Increasing number of motor bike  Intense competition

users
 Increasing number of internet users

10
 CHAPTER V

MARKETING AND SALES PLAN

5.1 Marketing strategy

Marketing strategy for Himalayan Auto parts will be designed in a very subtle way.
Being a different business in the industry, our aim is to create awareness in our customers
regarding our services.

So, marketing at the initial phase would be done in very aggressive manner. This would
lead to awareness in our target group. At the same time, consumer also should know how
they can be benefited from the service provided.

5.2 Product Strategy

Himalayan auto Parts Pvt. Ltd is a service oriented business. It provides genuine quality
product to the costumer. Our main focus will be providing quality product with low price
than that of the competitors and will have no complain. Our company provides spare part
of different company like Honda, Yamaha, Apache etc.

5.3 Pricing Strategy

Aside from quality, pricing is one of the key factors that gives leverage to auto parts
online stores, it is normal for consumers to go to different online stores (auto parts online
outlets) where they can get auto parts and accessories at cheaper prices which is why big
player in the auto parts stores industry like Bajaj suppliers, Yamaha suppliers etc.

We will ensure that the prices and quality of all the auto parts and accessories that are
available in our store are competitive with what is obtainable amongst auto parts stores
within our level and will have no complain from the customer.

11
5.4 Distribution Strategy
Our company will be located at Teku, Kathmandu. The product will be distributed when
customer make online order. Some charge is made while delivering the product. If the
customer is loyal then we will not charge any money for delivering.

Despite the fact that our auto parts store is well located, we will still go ahead to intensify
publicity for the business. We are going to explore all available means to promote our
auto parts online store. We will ensure that we have a wide range of auto parts and
accessories from different brands at all times. We will use social media like Facebook,
Instagram, LinkedIn as place for promotion of our online site. Also engage in direct
marketing and sales to promote our business. Also encourage the use of word of mouth
marketing. Create a loyalty plan that will enable us reward our regular customers. As a
matter of fact, our publicity and advertising strategy is not solely for winning customers
over but to effectively communicate our brand. 

5.5 People
We strongly believe that the company operates on collective efforts and therefore human
relations are given priority. The interaction between clients and staff greatly influence the
client’s perception and selection decisions. And we are in automotive industry we focus
on providing the best customer satisfaction to the customers who buy the product from
our store.

5.6 Process
The process of the organization needs to be easier and transparent to the customers. We
consider both of these things in our mind. We keep simplicity in our process and let our
customers know them easily. Since our business is both online and offline the process of
providing the service to the customers is different compared to the rest of the
competitors. The Process of business operation is as follows:

 The auto parts will be imported from India and China and placed in our store.
 Offline customers will visit the store and purchase from the store.
 The online customers will order from their location and we will deliver the
product with the help of delivery person with a certain minimal delivery charge.
12
  In case of defective products, the products will be exchanged effectively.

5.7 Promotion
To promote our business, we will be focusing mainly three promotional strategies:

 Word of mouth
 Public relation
 Advertisement through radio and print ads
 Social media

5.8 Physical evidence

The physical evidence is environment in which the service is delivered and where the
firm and the customer interact. It includes the service cape, a term used to describe the
physical facility where service is produced and delivered. So the customer visits the store
or order online, their order of the product and the payment makes the operation complete.
So the location we have decided is perfect for doing the business.

5.9 Sales strategy

Our sales plan is to established and maintain good relation with our loyal customers. The
strategy to increase our sale is by providing different scheme in different occasions in our
different products such as:

 10% off for loyal and regular customers

 Discount on heavy purchase
 Offer during the time of stock clearance
 Different offers for online orders

The expected sales revenue of the company will be Rs. 9600000 in 1st year. The sales
revenue of the company is increased by 10% in every year.

13
 CHAPTER VI

LEGAL FRAMEWORK, ENVIRONMENT AND SOCIAL

FACTOR

6.1 Approval and licensing

Nepal has institutional and legal framework required for registration of company, private
firm and partnership firm. Public companies, private companies and company established
with an objective of not distributing profits/dividends are registered according to
Company Act 2063 by office Registrar. Additionally, partnership and private firms need
to register either in Department of Industry or in Department of Commerce under
Ministry of Commerce and Supplies, based on the nature of their business. We will
register under Office of the Company Registrar. We need to register the company on
Automobile Industry Division.

The requirement for the company registration is:

 Full name of the firm

 Location of the firm
 Nature of the business
 Full name and permanent address of the promoters with photocopy of citizen.

6.2 Legal framework

As there is no restriction from government to start this business, the major problem will
arise for its expansion due to high custom charges which has been increased by 75% in
the latest budget. Beside the custom charge levied by the government on the import of the
auto part’s the inflexible taxes charged by the government directly affect consumers as
well as it has an ultimate impact on the pricing. Different regulatory requirements are sets
by the law in terms of quality, production process etc. and the companies who fail to meet

14
these standards are fined. The changing marketplace dynamic and evolving regulation
that follows has added the need for the business to implement a strong internal risk
framework.

6.3 Social compliance issue

All the social compliances issues will be consider while providing the product and
services. It will try to increase the positive externalities and reduce the negative
externalities. It will stay in society by following all the traditions and rules of the society.

6.4 External environment analysis

Business entity is a part of the society and activities conducted in the environment largely
influence its performance. Therefore, before entering into the business, environmental
analysis is very essential.

6.5 PEST analysis

PEST analysis contains political, economic, socio-cultural and technological
environment. PEST analysis helps to anticipate the trend in the environment. The
organization cannot change it but can make strategy as per the situation.

6.5.1 Political environment

Political environment in Nepal is improving gradually. In Nepal, they are more than 30
parties with their own principle. The most influential political parties are Nepali congress,
UCPN Moist, UML, Madhesi Forum and Nation Democratic Party. Despite of large
number parties, no party is against the automotive system, which is good for us. Also
government has been very supportive to enhance the automobile sector which has been
increasing day by day.

6.5.2 Economic environment

Analyzing the economic environment of Nepal, the nation has adopted a mix economy
and directing towards privatization. Main attributes of Nepalese economy are agriculture
and remittance based economy .Regarding purchasing power of household, it is
increasing due to migrant workers and remittance flow to Nepal.

15
6.5.3 Socio cultural environment
Going into the socio-culture environment, the organization can find that Nepal is being
open from its rigid culture too. In our society there is increasing trend of purchasing bikes
by their parents to their children in the special occasions such as passing SLC or plus 2
examination. Also the trend of our society is that people are becoming more familiar with
ecommerce and they are coo-ping with the trend of online shopping which will be
beneficial for our online business.

6.5.4 Technological environment

Nepal has achieved remarkable growth in technology particularly in communication. As
the number of internet and smart phone users are increasing day by day, they are
becoming more familiar with e-commerce and they are developing the trend of
purchasing product through online. So for these reason as our business is also an online
business, so these factor plays an important and beneficial role for our business.

16
 CHAPTER VII

FINANCIAL PLAN
7.1 Assumptions
The financial plan of the company is based on some of the basic assumptions. The
assumptions that are adopted are given below;

 Total capital is comprised of 70% loan and 30% equity.

 Tax rate is 25%.
 Sales will be increased by 10% every year.
 Cost of Good sold will be 60% of the sales amount.
 Salary of the employees will be increased by 10% each year.
 Interest of the loan is assumed to be 12% per year.
 Utilities expenses will be increased by 10% per year.
 Loan will be fully amortized over the period of 5 years.
 Preliminary expenses will be amortized over the period of 5 years.
 Rent will be increased by 10% every year.
 Depreciation will be calculated under straight line method.

7.2 Financial Details of Startup Expenses

Himalayan auto parts Private Limited Company will be started with an initial investment
of Rs. 15,74,094 out of which Rs. 969,500 will be financed by loan and the remaining Rs.
415,500 will be financed by equity. The equity capital will be contributed by the two
owners. This financing can be further break down to funding of total long term asset
which is 70% on loan and 30% on equity and working capital which is 50% loan and

17
50% equity. The start-up cost will consists of different types of expenses like purchase of
furniture, registration fees, advance rent, and the initial marketing expenses. The detail of
the start up expenses is shown in Annex 1.

7.3 SALES FORECAST AND COST OF GOODS SOLD

The sales revenue is based on the basis of no. of auto parts sold .The assumption is made
that sales revenue of Rs.800,000 will be achieved per month and the sales per year will be
increased by 10%. The COGS is also expected to be 60% of the total sales. The details of
sales revenue is shown in Annex 2.

7.4 BUDGETED LOAN REPAYMENT SCHEDULE

The start-up long term loan is taken at 12% annual interest rate from a bank. This loan
will be taken from the bank by keeping the collateral. The annual payment of this loan is
supposed to be paid by preparing loan amortization schedule with quarterly discounting.
It will be fully reimbursed within the loan period of 5 years. The detail of annual interest
payment with principal amount repayment is shown in Annex 3.

7.5 PROJECTED INCOME STATEMENT

Pro forma income statements are an important tool for planning future business
operations. If the projections predict a downturn in profitability, we can make operational
changes such as increasing prices or decreasing costs to have profitability in business.
The pro forma income statement of Himalayan Auto Parts shows appropriate profit for
the periods of projection, and the pro forma income statement show the increasing profit.
The detail of pro forma statement of this store is shown in Annex 4.

7.6 PROJECTED BALANCE SHEET

A pro forma balance sheet discloses a business’s assets, liabilities, and equity at a specific
point in time. The opening balance sheet of Himalayan auto parts shows R.s. 15,74,094
of total assets with same level of liabilities and equity and the total balance at the end of
year 5 is Rs. 20,51,995. The overall pro forma balance sheet of Himalayan auto parts for
five years is disclosed in Annex 5.

18
7.7 PROJECTED CASH FLOW
A pro forma cash flow statement shows the total net cash inflow or outflow at a specific
point of time. It shows the cash generated from operating, investing and financing
activities. The opening cash flow of Himalayan auto parts shows the net cash balance of
Rs. 647,429 at the beginning year and balance of Rs.14,23,269 at the end of year 5. The
pro forma cash flow statement of Himalayan auto parts is disclosed in Annex 6.

7.8 FINANCIAL RATIOS

Financial Ratios are related to liquidity like current ratio, profitability ratio and solvency
ratio. The ratios calculation is shown in annex 7

PROFITABILITY RATIOS

Profitability ratios measure the company's use of its assets and control of its expenses to
generate an acceptable rate of return. The details are shown in Annex 7

 Gross Profit Margin:

Himalayan auto parts maintained its gross profit margin above 40% throughout the
years of operation. The margin is consistent during the five years period.

 Net Profit Margin:

Initially, the profit margin is 4.787%. It is increasing and reached to 7.11% at the end
of 5 years.

 Return on Asset:

The return on asset is 23.67% in the first year. The ROA increased and reached up to
48.67 % at the end of 5th year.

 Return on Equity:

The return on equity is 55.87% in the beginning and has increased to 56.30% in the
next year. After that it is decreases gradually and at the end of the fifth year it
becomes 52.83%.

19
  Dividend Pay-Out:

The dividend is distributed on the basis of the capital and the income earned. At first
52.66% dividend is declared and the next 3 years year dividend is increased to
69.47% at the end of 4th year. In fifth year the dividend has been decreased to 66.59%.

LIQUIDITY RATIOS

Liquidity ratios show the position of cash and cash equivalents in the organization. The
details of liquidity ratios are shown in Annex 7.

 Current Ratio:

The current ratio started with 2.86 in the first year and increased to 10.7 within 5
years. The ratio is quite favorable with no sharp increase showing Himalayan auto
parts has used its cash effectively as having too much cash is also not favorable.

 Quick Ratio:

The quick ratio of the company is quite similar to current ratio as there is minimal
inventory of the firm. The Quick ratio at the beginning year is 2.34 and expected to
grow up to 9.28.This is one of the benefits of the firm as it requires low inventory for
its operation.

ASSET MANAGEMENT RATIOS

Efficiency ratios show if the company is able to effectively manage its assets and
liabilities to gain maximum revenue. The details of efficiency ratios are shown in Annex
7.

 Inventory turnover Ratio:

The inventory turnover ratio is 17.38 times every year as the cogs is increased on the
basis of sales as well as the inventory is also increased as sales revenue is increased.

 Account Receivable Turnover Ratio:

20
 The account receivable turnover ratio is 2 times in every year the receivables is based
on sales and sales increased in same portion every year.

 Fixed Assets Turnover Ratio:

The total assets turnover ratio is 11.40 times at first and has increased to 43.83. It
shows that the total asset has increased in the next 5 years but sales increases in much
more amount so the ratio has increased in the coming years.

 Total Assets Turnover Ratio:

The fixed assets turnover ratio is 4.95 times in first year and has fluctuated during
other year and at the end of 5th year it will become 6.85 times.

DEBT MANAGEMENT RATIOS

Solvency ratios depict whether firm is solvent i.e. whether it is able to pay the liabilities
with the revenue generated and also the position of debt and equity in an organization.
The details of solvency ratios are shown in Annex 7.

 Debt Equity Ratio:

The debt equity ratio is 1.23 in the first year and has decreased in the next 5 years as
the debt has decreased in the next 5 years and equity has not changed in next 5 years
as well.

 Total asset to equity ratio:

The total asset to equity ratio is 2.36 times at the beginning and has decreased to 1.09
times in the next 5 years. This shows a good balance between assets and equity as the
assets are just higher than equity.

 Interest coverage ratio:

21
 The interest coverage ratio is 6.58 times in the first year. It has increased to73.23
times in the next 5 years due to decrease in interest and increase in income for the
next 5 years.

 Debt service coverage ratio:

The debt service coverage ratio is 2.41 times in the beginning and has increased to
4.13 times in the next 5 years. It is due to decrease in debt in the next 5 years and
increase in revenue in the next 5 years.

NPV AND IRR

NPV can be described as the “difference amount” between the sums of discounted: cash
inflows and cash outflows. It compares the present value of money today to the present
value of money in the future, taking inflation and returns into account. IRR is the
discount rate at which the present value of all future cash flow is equal to the initial
investment or in other words the rate at which an investment breaks even. The projected
NPV shows the total value of Rs.14,93,361 and IRR of 47%. The calculation is shown in
Annex 8.

PAYBACK PERIOD

The pay-back period of Himalayan auto parts is 2.07 years. It means that the initial
investment will be recovered in the 2nd year of operation. The calculation of these
periods is shown in the Annex 8.

22
 CHAPTER VIII

FUTURE PLAN AND EXIT STRATEGY

8.1 Future Plan
The future plan of Himalaya Auto Parts are as follows:

 More focus will be provided for marketing so that higher no. of customer will be
attracted
 Business will be expanded to various other cities of Nepal if it got a remarkable
success
 No. of employees and scale of the business will also be increased

8.2 Exit Plan

Exit strategy is of essence because it shows how a company plans to exit the market if
things go out of order and the company cannot manage it. In case of Himalayan auto
parts, we plan to go for liquidation in case we cannot handle unexpected changes. The
liquidation will be carried out as per the concerned Act. Other alternatives for exit
strategy will be either diversification or merger & acquisition.

23
 APPENDICES

Annex 1: Start-up cost

.0
Year 1
Fixed Assets  

Furniture and fixture 215,000.00

Equipments 300,000.00

Vehicle 570,000.00

Total FA 1,085,000.00

Preliminary Expenses 300,000.00

Total Long Term Assets 13,85,000.00

Initial working capital 189,094.33

Total Projected Cost 1,574,094.33

Equities and Liabilities Long Short

Column1 Column2 Column3

  1,385,000.00 189,094.33

Equity 30% 415,500.00 189,094.33

Long term loan 70% 969,500.00  

Short Term Loan 189,094.33

Total Equity 604,594.33

Short Term Loan 189,094.33

24
 Long Term Loan 969,500.00

Annex 2: Sales forecast

Sales
Revenu
e
Forecas
t              
S.No. Company Parts Monthly Year 1 Year 2 Year 3 Year 4 Year 5
1 Honda 200000 2400000 2640000 2904000 3194400 3513840
2 Bajaj 200000 2400000 2640000 2904000 3194400 3513840
3 Yamaha 300000 3600000 3960000 4356000 4791600 5270760
4 Apache 100000 1200000 1320000 1452000 1597200 1756920
  Total 800000 9600000 10560000 11616000 12777600 14055360

25
Period Begining Principal Principal
s Balance PMT Interest paid Ending Quaterly Int paid
1 969500.00 65165.63 29085.00 36080.63 933419.37    
2 933419.37 65165.63 28002.58 37163.05 896256.32    
3 896256.32 65165.63 26887.69 38277.94 857978.39    
4 857978.39 65165.63 25739.35 39426.28 818552.11 109714.62 150947.89
5 818552.11 65165.63 24556.56 40609.07 777943.04    
6 777943.04 65165.63 23338.29 41827.34 736115.71    
7 736115.71 65165.63 22083.47 43082.16 693033.55    
8 693033.55 65165.63 20791.01 44374.62 648658.93 90769.33 169893.18
9 648658.93 65165.63 19459.77 45705.86 602953.07    
10 602953.07 65165.63 18088.59 47077.04 555876.03    
11 555876.03 65165.63 16676.28 48489.35 507386.68    
12 507386.68 65165.63 15221.60 49944.03 457442.65 69446.24 191216.27
13 457442.65 65165.63 13723.28 51442.35 406000.30    
14 406000.30 65165.63 12180.01 52985.62 353014.69    
15 353014.69 65165.63 10590.44 54575.19 298439.50    
16 298439.50 65165.63 8953.18 56212.44 242227.05 45446.91 215215.60
17 242227.05 65165.63 7266.81 57898.82 184328.24    
18 184328.24 65165.63 5529.85 59635.78 124692.46    
19 124692.46 65165.63 3740.77 61424.85 63267.60    
20 63267.60 65165.63 1898.03 63267.60 0.00 18435.46 242227.05
333812.5
7 969500.00
Annex 3: Loan Amortization schedule

Interest rate 12%

   
Amount borrowed 969500
Periods 20
Quarterly rate 0.03

PMT 65,165.63

26
Particulars Year 1 Year 2 Year 3 Year 4 Year 5

Sales revenue 9,600,000.00 10,560,000.00 11,616,000.00 12,777,600.00 14,055,360.00

Less: COGS
(60%) 5,760,000.00 6,336,000.00 6,969,600.00 7,666,560.00 8,433,216.00

Gross Profit 3,840,000.00 4,224,000.00 4,646,400.00 5,111,040.00 5,622,144.00

Less :
Operating
Expenses          

Utilities 353,240.00 388,564.00 427,420.00 470,162.00 517,178.00

Promotion 22,000.00 24,200.00 26,620.00 29,282.00 32,210.20

Salary 2,080,000.00 2,288,000.00 2,516,800.00 2,768,480.00 3,045,328.00

Rent 360,000.00 396,000.00 435,600.00 479,160.00 527,076.00

Depreciation 242,750.00 187,762.50 145,381.88 98,092.41 90,350.10

Preliminary
Expenses 60,000.00 60,000.00 60,000.00 60,000.00 60,000.00
Total operating
expenses 3,117,990.00 3,344,526.50 3,611,821.88 3,905,176.41 4,272,142.30

EBIT 722,010.00 879,473.50 1,034,578.13 1,205,863.59 1,350,001.70

Less: Interest
@12% 109,714.62 90,769.33 69,446.24 45,446.91 18,435.46

Total Interest 109,714.62 90,769.33 69,446.24 45,446.91 18,435.46

EBT 612,295.38 788,704.17 965,131.88 1,160,416.68 1,331,566.23

Less : Tax
(25%) 153,073.84 197,176.04 241,282.97 290,104.17 332,891.56

Net Income 459,221.53 591,528.13 723,848.91 870,312.51 998,674.68

Add: Beginning
R/E - 217,383.80 446,155.33 686,328.77 952,046.95

Less: Dividend 241,837.73 362,756.60 483,675.47 604,594.33 665,053.77

Ending R/E 217,383.80 446,155.33 686,328.77 952,046.95 1,285,667.86

27
 Annex 4: Pro-forma Income Statement

  Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Assets              

  A/R - 52,602.74 57,863.01 63,649.32 70,014.25 77,015.67

  Inventory - 157,808.22 173,589.04 190,947.95 210,042.74 231,047.01

  Cash 189,094.33 647,429.37 754,981.36 998,326.44 1,194,828.05 1,423,269.31

Total current 1,252,923.7

assets   189,094.33 857,840.33 986,433.41 0 1,474,885.04 1,731,331.99
Preliminary
  Expn 300,000.00 300,000.00 240,000.00 180,000.00 120,000.00 60,000.00
Less: written
  off - 60,000.00 60,000.00 60,000.00 60,000.00 60,000.00
Net priliminary
expenses   300,000.00 240,000.00 180,000.00 120,000.00 60,000.00 -
Fixed              

  Fixed asssets 1,085,000.00 1,085,000.00 842,250.00 654,487.50 509,105.63 411,013.22

Less:
  Depereciation - 242,750.00 187,762.50 145,381.88 98,092.41 90,350.10

1,085,000.0
Net Fixed assets   0 842,250.00 654,487.50 509,105.63 411,013.22 320,663.11
               

1,574,094.3 1,882,029.3
Total Assets   3 1,940,090.33 1,820,920.91 2 1,945,898.26 2,051,995.10
Liabilities and S/E              
Current Liabilities              
Accounts
  payables - 110,465.75 121,512.33 133,663.56 147,029.92 161,732.91
Short term
  loan   189,094.33        

Total current Liab   - 299,560.09 121,512.33 133,663.56 147,029.92 161,732.91

               
Long term
  loan 969,500.00 818,552.11 648,658.93 457,442.65 242,227.05  

Total Long liab   969,500.00 818,552.11 648,658.93 457,442.65 242,227.05  

Total Liab   969,500.00 1,118,112.19 770,171.26 591,106.22 389,256.97 161,732.91

Common
  equity 604,594.33 604,594.33 604,594.33 604,594.33 604,594.33 604,594.33

28
 Retained
  Earning   217,383.80 446,155.33 686,328.77 952,046.95 1,285,667.86

1,290,923.1
Total S/E   604,594.33 821,978.13 1,050,749.66 1 1,556,641.28 1,890,262.19

1,574,094.3 1,882,029.3
Total Liab and S/E   3 1,940,090.33 1,820,920.91 2 1,945,898.26 2,051,995.10

Annex 5: Projected Balance Sheet

Annex 6: Projected Cashflow Statement

Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

1. Cash flow from Opn activities            

Net profit   459,221.53 591,528.13 723,848.91 870,312.51 998,674.68

Add: Depn expn   242,750.00 187,762.50 145,381.88 98,092.41 90,350.10

: Preliminary expn written off   60,000.00 60,000.00 60,000.00 60,000.00 60,000.00

: (increase ) Decrease in A/R   (52,602.74) (5,260.27) (5,786.30) (6,364.93) (7,001.42)

: (Increase) Decrease in inventory   (157,808.22) (15,780.82) (17,358.90) (19,094.79) (21,004.27)

: Increase (Decrease) in Accounts payable   110,465.75 11,046.58 12,151.23 13,366.36 14,702.99

             
             

Cash flow from opn activities - 662,026.33 829,296.11 918,236.82 1,016,311.55 1,135,722.07
             
2. Cash flow from investing activities            

Add: (Increase) Decrease in fixe assets (1,085,000.00)          

: (Increase ) Decrease in Preliminary expn (300,000.00)          
             

Cash flow from investing activities (1,385,000.00) - - - - -

             
3. Cash flow from financing activities            

Add: Increase ( Decrease) in share capital 604,594.33          

: Increase (Decrease ) in LTD 969,500.00 (150,947.89) (169,893.18) (191,216.27) (215,215.60) (242,227.05)

:Increase or decrease in STE   189,094.33 (189,094.33)      

29
: Divident Paid   (241,837.73) (362,756.60) (483,675.47) (604,594.33) (665,053.77)
             

Cash flow from financing activities 1,574,094.33 (203,691.29) (721,744.11) (674,891.74) (819,809.93) (907,280.82)
             

Total cash and cash equivalent 189,094.33 458,335.04 107,551.99 243,345.08 196,501.61 228,441.25

Add: Opening cash - 189,094.33 647,429.37 754,981.36 998,326.44 1,194,828.05

Closing cash and cash equivalent 189,094.33 647,429.37 754,981.36 998,326.44 1,194,828.05 1,423,269.31

Annex 7: Ratio Analysis

Ratios Year 1 Year 2 Year 3 Year 4 Year 5

Liquidity          
Current Ratio 2.86 8.12 9.37 10.03 10.70
Quick Ratio 2.34 6.69 7.95 8.60 9.28
Efficiency Ratio          
Inventory Turnover (times) 17.38 17.38 17.38 17.38 36.50
Fixed Assets Turnover
11.40 16.13 22.82 31.09 43.83
(Times)
Days Sales Outstanding
2.00 2.00 2.00 2.00 2.00
(Days)
Total Assets Turnover
4.95 5.80 6.17 6.57 6.85
(Times)
Profitability Ratio          
Gross Profit Margin 40.00% 40.00% 40.00% 40.00% 40.00%
Net Profit Margin 4.78% 5.60% 6.23% 6.81% 7.11%
ROA 23.67% 32.49% 38.46% 44.73% 48.67%
Return on common stock 75.96% 97.84% 119.72% 143.95% 165.18%
ROE 55.87% 56.30% 56.07% 55.91% 52.83%
Dividend Payout Ratio 52.66% 61.33% 66.82% 69.47% 66.59%
Solvency Ratio        
Debt to equity 1.23 0.62 0.35 0.16 0.00
Times Interest Earned 6.58 9.69 14.90 26.53 73.23
Total assets to equity 2.36 1.73 1.46 1.25 1.09
Debt service coverage ratio 2.41 2.85 3.27 3.74 4.13

30
 Annex 8: Capital Budgeting

years Cashflows Cumulative Cashflows

0 -1574094 -1574094

1 761,971.53 (812,122.47)

2 839,290.63 27,168.16

3 929,230.79 956,398.95

4 1,028,404.92 1,984,803.86

5 1,149,024.78 3,133,828.64

TPV $3,067,454.80
NPV $1,493,360.80
IRR 47%
MIRR 32%

PBP 2.07

Required return 15%

Reinvestment
rate 16%

31