Inception Report

Technical, Financial and Commercial Feasibility Study to Start-

Up ‘Display and Sales Center’ at Shyamoli Bhaban of PKSF

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Table of Content

1. Background......................................................................................................................................... 4
2. Objectives of the Assignment.............................................................................................................. 4
3. Key Tasks and Work Plan................................................................................................................... 4
3.1 Product selection............................................................................................................................... 4
3.2 Floor allocation........................................................................................................................... 5
3.3 Readiness assessment of the POs................................................................................................... 5
3.4 Business model................................................................................................................................. 5
3.5 Retail market trends analysis............................................................................................................ 5
3.6 E-commerce portal............................................................................................................................ 5
3.7 Institutional and individual arrangements; legal conditions................................................................6
3.8 Marketing and promotional plans...................................................................................................... 6
3.9 Quality assurance plan...................................................................................................................... 6
3.10 Financial and commercial feasibility assessment............................................................................6
4. Work Plan........................................................................................................................................... 8

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1. Background
Palli Karma-Shahayak Foundation (PKSF), an apex development organization was established by the
Government of Bangladesh in 1990. The not-for-profit organization works for sustainable poverty
reduction, employment generation for the poor and enhancing quality of their lives. It has become an
important funding source for small and medium-sized micro finance institutions of the country. The
organization is constructing a 13 storied commercial building in Shyamoli, Mohammadpur, Dhaka. The
building will be named as PKSF Display and Sales Center. Of the 13 floors, 9 floors (from 2 nd floor to 12th
floor) will be allocated for launching a project to display and sale various types of products and goods
produced by members of the Partner Organizations (POs) of PKSF. Total floor area of the building is
about 83,000 sft including 03 basements and 01 semi-basement. Around 50,000 sft of the total floor area
is planned for use for the display and sales center. This consultancy will provide strategic directions for
the management of the display and sales center to make it commercially viable while ensuring that the
benefits accrue to the producers in the rural areas in the form of increased access to markets, better
quality and profitability for their products. This inception report explains the activities the consultant will
undertake to meet the objectives and the deliverables of the assignment.

2. Objectives of the Assignment

The core objective is to support PKSF to develop an institutional. Arrangement for developing and
strengthening direct retail channels through which small producers and micro-enterprises will have easy
and direct access to domestic and international markets with minimum or no involvement of market
intermediaries. It will also assist the business cluster from different parts of the country to scale-up and
grow with adequate quality control, branding, packaging and marketing.

3. Key Tasks and Work Plan

3.1 Product selection

The sales and display center will have to have a strong value proposition that will make it different and
unique to the customers. In other words, the sales and display center should be able to offer something
unique which the customers will otherwise have difficulty to access to. In recognition to the core objective
of ensuring rural enterprises to have direct market access to customers in the national market, the
consultant proposes the value proposition ‘the largest collection of authentic village products’ for the
display and sales center. As per this value proposition only those products will be displayed which are
traditionally connected to the rural households but have a strong demand in the urban market as these
are taken as cultural or heritage products. To achieve this aspiration or vision, the consultant proposes
that one of the floors will be dedicated to seasonal products with strong traditional heritage for
Bangladesh. The seasonal market will change every two months and new vendors or existing vendors
will come to trade. These products will be identified in consultation with experts who have knowledge on
such seasonal products which would include vegetable, home-made food, street food, clothes, household
utensils. From the first review of the products produced and market by the POs it can be observed that all
the POs are engaged in production and marketing of vegetable, fish, chicken and meat products. The
consultant thus proposes to use the first floor of the sales and display center as a supermarket shop. The
location of the display and sales center is attractive for such super-shop as it will draw customers from the
Mohammadpur and Dhanmondi area. It is expected that these customers will make a visit to the other
floors and thus there will be a constant flow of traffic for the sales and display center.

For the rest of the floors some of the short-listed product includes- furniture and furnishing items (For
example, bamboo and cane furniture, curtains and drapes, bed sheets, cushions etc.), ladies’ fashion
(jewelry, saree, kameez, shoes and sandals), gents and kids’ fashion (shirt, Panjabi, lungi, caps, kurti,
shoes and sandals etc.), jute diversified products. The consultant proposes to have one floor dedicated as

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an edutainment center which can be used to play a 20 minutes documentary video that will show the
heritage and cultural roots of the products in the display center, the engagement of women and men and
how these products help solve the poverty challenges in rural Bangladesh. Also, there will be live shows
demonstrating the production system. Such live display centers are seen in the tourism centers across
the world and these attract hundreds of thousands of tourists annually. It is expected that similar impact
can be achieved by the display center in Shyamoli.

3.2 Floor allocation

The consultant will review the global standards, consultant with key informants and undertake an online
survey to determine the appropriate location for the products once an agreement is reached with PKSF
on the type of products that can be retailed in the sales and display center.

3.3 Readiness assessment of the POs (Partner Organization, basically MFIs who take loans from PKSF)
Primary interviews will be undertaken with the managers of the POs to assess their capacity and
readiness of their products. The product samples will be collected and reviewed by a pool of expert
identified by the consultant. Also, the consultant will organize three FGDs with potential customers to
assess the consumer’s response on the product quality and attractiveness for local and export market. To
assess readiness, the POs will be asked to provide information on their product development, quality
assurance, procurement, storage and payment systems to the households. The assessment will provide
details to define the degree to which the POs are able to supply products that would conform to the value
proposition ‘authentic village products.’

3.4 Business model

The consultant is currently reviewing the feasibility of four business models – (i) a third party is contracted
to manage the display center and the e-commerce outlet (ii) each floor is outsourced to a third party (iii)
each product category is outsourced to a third party (iv) fully owned and managed by PKSF. For the
display center to achieve its goal, it is imperative that the model that is selected ensures that (i) the brand
identity is secured (ii) the proposed value proposition of ‘authentic village products is achieved (iii) the
branding, marketing, operations and financial management, inventory management, product sourcing
activities are managed efficiently and cost effectively (iv) the e-commerce portal is well managed (v)
product development and quality assurance measures are well implemented. The proposed business
models will be assessed against these criteria based on interviews with (i) PKSF project managers (ii)
directors of the POs (iii) industry experts (iv) review of secondary literature. A spider web analysis will be
provided to explain the comparative scenarios of the different proposed models.

3.5 Retail market trends analysis

The consultant will undertake a review of the retail market trends in Bangladesh by taking into account
both primary and secondary data. Primary data will be collected through interview of managers/ owners of
similar outlets in Dhaka.

3.6 E-commerce portal

The consultant will provide a guideline for the design, development and management of e-commerce
portal. It is essential that there is a seamless connection between physical outlet sales and e-commerce
sales to ensure smooth management of inventory. This is also highly relevant for the decision on the
business model that would be more effective for the management of the sales and display center. For
example, if the e-commerce outlet is managed by one party and each product is managed by different
parties then the management of inventory, marketing, sales and delivery functions might get broken. The
consultant will assess these issues to recommend the best possible solution for PKSF. The consultant will

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also assess and recommend the viability of a mobile phone app for the display center. The consultant will
explain the conditions for effective management of the e-commerce portal and lay the direction for design,
development, launch and performance measurement measures for the e-commerce portal.

3.7 Institutional and individual arrangements; legal conditions

The legal conditions of the sales and display center will depend on the business model selected for the
management of the center. As such this exercise will start once the business model is agreed upon in
consultation with the management of PKSF. The consultant will solicit support from legal experts to define
the legal terms and conditions for the inception of the project. The future course of actions for the legal
management, conflict resolution, contracting and contract enforcement will also be explained. The
consultant will explain relevant compliance and regulatory issues of the government in connection to
financial transactions, production, procurement and supply of the products.

3.8 Marketing and promotional plans

The final assessment report will have a detailed marketing and promotional plan for launch and for the
first year of the display and sales center. The consultant will provide directions on future course of actions
PKSF should take for marketing and promotion of the sales and display center. The marketing plan will
include channels for communications (digital, print, broadcast etc), timeline, the strategic guideline for
hiring of potential service provider.

3.9 Quality assurance plan

The quality assurance plan will explain the measures that should be taken to ensure production, supply,
retail and delivery of products that conform to the proposed value proposition of ‘authentic village
products.’ The consultant will explain the different control measures for quality assurance. It will also
involve training and capacity development measures that should be taken for quality assurance.

3.10 Financial and commercial feasibility assessment

The Methodologies for exploring (both financial and commercial) feasibilities along with break-even
analysis and financial forecast for PKSF Display Center are stated below:

Basis of estimates/forecast: The indicative financial and commercial feasibilities along with other
forecasted analysis regarding PKSF Display Centre Project would be prepared on the basis
of information provided by the clients. We would exert our efforts to have the fair value of any
items used in this exercise along with estimated value for asset, liability, revenue and expense.

“Fair Value” would be commonly derived by applying one or more of the following methodologies:
(i) discounted cash flow (ii) capitalised earnings. We set out below brief commentary on the three
methodologies.

Discounted Cash Flow Methodology: Forecast is future oriented and accordingly the theoretically
correct manner to assess forecasted value is to consider the future earnings potential of a
business. Under a discounted cash flow (“DCF”) approach, forecasted cash flows are discounted
back to the present date, generating a net present value of the cash flow of the business.  A
terminal value at the end of the explicit forecast period is then determined and that value is also
discounted back to the valuation date to give an overall value for the business

In a DCF analysis, the forecast period needs to be of such a length to enable the business to
achieve a stabilised level of earnings, or to be reflective of an entire operation cycle for more
cyclical industries. The rate at which the future cash flows are discounted (“the discount rate”)
needs to reflect not only the time value of money, but also the risk associated with the

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 business’ future operations. The discount rate most generally employed is the Weighted Average
Cost of Capital (“WACC”), reflecting an optimal as opposed to actual financing structure, which is
applied to unlevered cash flows and results in an Enterprise Value for the business.

In calculating the terminal value the business’ potential for further growth beyond the explicit
forecast period is considered. The “constant growth model”, applies an expected constant level of
growth to the cash flow forecast in the last year of the forecast period and assumes such growth
is achieved in perpetuity.  These results are cross-checked for reasonableness to implied exit
multiples.

As the discount rate reflects not only the time value of the cash flows but also the risk associated
with the business’ future operations, this means that in order for a DCF to produce a sensible
valuation figure, the importance of the quality of the underlying cash flow forecasts is
fundamental. In a DCF method, valuation adjustments need to be made for the likely
crystallisation of contingent liabilities, for any off-balance items affecting value and non-operating
assets which do not contribute to the cash flow under consideration.

Capitalised Earnings Methodology: An earnings-based approach estimates a sustainable level of

future earnings for a business (“maintainable earnings”) and applies an appropriate multiple to
those earnings, capitalising them into a value for the business. In considering the maintainable
earnings of the business being valued, factors taken into account include whether the historical
performance of the business reflects the expected level of future operating performance,
particularly in cases of development, or when significant changes occur in the operating
environment, or the underlying business is cyclical.

Information Requirement Analysis of commercial and financial feasibilities along with feasibilities
along with break-even analysis and financial forecast for PKSF Display Center:

Requirement Analysis (inputs required for financial analysis):

(i) Estimated total cost of the project and to determine the estimated total cost, the following
cost estimations are required: (a) land & land development, (b) building & other civil
construction, (c) machinery & equipment, (d) other assets like furniture, fixture, fitting,
vehicle and support transports, utility equipment including elevators/lift, generator, air-
conditioning and others; (e) all other costs relating to capital expenditure in nature; (f)
capitalized interest expense during construction;
(ii) Financing Scheme against the estimate total project cost like the admix ratio of long-term
loan (if there is any) and equity investment along with working capital requirement;
(iii) Assumption underlying the earning forecast regarding the project: (a) capacity utilization
– first year xx%; 2nd year xx%, 3rd year xx%.......... and so on…..
(iv) Estimated revenue per unit of space;
(v) Rate of Depreciation of all the assets stated above including salvage value of each;
(vi) Administrative and general overhead expenses;
(vii) Cost of capital – both debt and equity;
(viii) Estimated life of the project;
(ix) Tax rate;

Desired outputs from the aforesaid inputs:

(i) Debt-service coverage ratio (DSCR);
(ii) Profitability and asset utilization ratio;
(iii) Cross-over/break-even;
(iv) Payback period;
(v) Internal rate of return (IRR);
(vi) Weighted average cost of capital (WACC);

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 (vii) Net present value (NPV) and modified internal rate of return (MIRR)

Economic aspects of the project ((i) employment generation; (ii) contribution to GDP
Probable annexures: (i) Summary of financial evaluation; (ii) capital requirement and financial plan;
(iii) earning forecast; (iv)revenue forecast; (v) cost of service forecast; (vi) detailed asset schedule
with relevant deprecation schedule; (vii) Detailed information/schedule regarding administrative and
general expenses; (viii) information regarding working capital requirement; (ix) repayment schedule of
loan; (x) projected financial statements; (xi) key ratios

The objective of this engagement, particularly for the portion stated above is to explore the financial and
commercial feasibilities alongside financial forecast and break-even analysis. The scope does not cover
any aspect of due diligence like the title of any assets and others along with identification of contingent
liabilities, rather the responsibilities of these rest with the management of the client. Besides, the
aforesaid analysis will be prepared based on the information provided by the client. We will not conduct
any audit before we get started with our analysis. The procedures we will perform will not constitute any
assurance, examination or review in accordance with established assurance procedures and we will not
verify the information would be provided to us by the client. Besides, we will have no obligation to update
our report or to revise the information contained herein to reflect events, information and transactions
occurring subsequent to the expiry of the assignment period. Because of its special nature, this report is
not suited for any purpose other than to assist the clients for their intended purposes. We don’t provide
any investment advice in this report and nothing said in this report would be construed as investment
advice. Besides, the calculations, estimates and other information presented in this report are of utmost
confidential, hence they would be used for the intended purposes and the consultants would not be held
responsible if this report is used otherwise.

Requirement Analysis for Financial and Commercial Feasibility Study

Data Needed Reason for Requirement Feasibility Calculation to be

Performed
Land and Land Development Financial Feasibility  Profitability and asset
Cost utilization ratio
 Internal rate of return
(IRR)
 Payback period
 Net present value
(NPV)
 Modified internal rate of
return (MIRR)

Building & other civil Financial Feasibility  Profitability and asset

construction utilization ratio
 Internal rate of return
(IRR)
 Payback period
 Net present value
(NPV)
 Modified internal rate of
return (MIRR)

Machinery & Equipment Financial Feasibility  Profitability and asset

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Furniture, fixture, fitting, vehicle
and support transports, utility
equipment including
elevators/lift, generator, air-
conditioning and others
All other costs relating to capital
expenditure in nature and
Capitalized interest expense
during construction
Financing Scheme; Long term
liability, Equity, and Cost of Debt
and Equity
Working Capital Requirement
Yearly Capacity utilization
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utilization ratio
 Internal rate of return
(IRR)
 Payback period
 Net present value
(NPV)
 Modified internal rate of
return (MIRR)
Financial Feasibility  Profitability and asset
utilization ratio
 Internal rate of return
(IRR)
 Payback period
 Net present value
(NPV)
 Modified internal rate of
return (MIRR)
Financial Feasibility  Profitability and asset
utilization ratio
 Internal rate of return
(IRR)
 Payback period
 Net present value
(NPV)
 Modified internal rate of
return (MIRR)
Financial Feasibility  Weighted average cost
of capital (WACC)
 Debt-service coverage
ratio (DSCR)
 Ideal level of Gearing
Financial Feasibility  Profitability and asset
utilization ratio
 Internal rate of return
(IRR)
 Payback period
 Net present value
(NPV)
 Modified internal rate of
return (MIRR)
Financial and Commercial  Profitability and asset
 Feasibility utilization ratio
 Internal rate of return
(IRR)
 Payback period
 Net present value
(NPV)
 Modified internal rate of
return (MIRR)
 Break Even Analysis
 Key Profitability Ratios

Estimated Revenue per unit of Commercial feasibility  Asset Turnover Ratio

space  Comparison with WACC
of the project

Rate of Depreciation and Commercial feasibility  Key Profitability Ratios

Salvage Values of Non-Current  Asset Turnover Ratio
Assets  Debt Service Ratios

Administrative and General Commercial Feasibility  Key Profitability Ratios

Overhead Expenses  Break Even Analysis
 Debt Service Ratios

Tax Rate Financial Feasibility  Ideal Gearing

 Key Profitability Ratios
 Internal rate of return
(IRR)
 Payback period
 Net present value
(NPV)
 Modified internal rate of
return (MIRR)

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4. Work Plan
The assignment will be completed by March 24, 2021. The draft report will be submitted by February 24,
2021. The following work plan explains the milestones of the critical activities of this assignment:

Activity December January February March

2020 2021 2021 2021
Inception report submitted
Product selection exercise
- Agreement of the value proposition
with PKSF management
- Agreement with PKSF on floor plan
for selected products
- Collection of physical samples from
the POs
- Review of the products in line with
the value proposition
- Selection of the products in line with
readiness of the POs and market
trends analysis

Architectural layout review and

submission of recommendation paper on
architectural layout
Readiness assessment of the POs
- Interviews with the POs
- Collection and review of data
provided by the POs

Finalization of the business model

Retail market trends analysis
E-commerce portal plan
Decision on legal structure; institutional
arrangements
Development of marketing and
promotion plans
Quality assurance plan
Financial and commercial feasibility
assessment
Submission of draft report
Final report

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