Proposal for Venture Capital in Hosiery Segment
About the Management• Citizen International Ltd has been formed in Nov 2011.• The Management is headed by Jaideep Banerjee , Chairman , who is an IIM Calcutta Alumni and an Associate of Indian Insurance Institute.. He has served LIC of India for 14 years and Aditya Birla Financial Services for 7 years, lastly as Regional Manager of BSLI. He has also been a member of Insurance sub committee of Bengal Chamber of commerce.• Mr Nasib Jha , who has worked in Standard Chartered Bank , Met Life Insurance co ltd and Birla Sun Life Ins Co Ltd , is the Managing Director of the company
Company OfficePremiseThe company has it’sregistered office at 4/1/1M B Road, 1st Floor, NearBirati Crossing , Opp toKolkata Airport having atotal area of around 2400square ft, wholly owned bythe company. It plans toopen it’s first of the chainrestaurant in the front ofthe said office premise
Flagship product –Men’s innerwearThe company is intomanufacturing anddistribution of hosieryproducts including men’sinnerwear ( vest and brief).The company will soonenter into women’sinnerwear ( Lingerie )industry. Company is alsocoming up with it’s Jeansand T Shirt in a month’stime
Why Hosiery Industry• The Management decided to take up a very low risk industry as flagship project. Hosiery industry is a very low risk industry as :• a) The yearly sale in the industry is more or less uniform, unlike the rest of the garment industry here in India where the sale highly fluctuates with festival period.• b) Style does not get obsolete• c) Month of package does not bear that much of importance.• d) Demand of product exceeds supply• e) Absence of multinational.. Few players are there, but they operate only in ultra premium segment , where we do not target to penetrate initially• f) The industry offers a good scope to export. We have existing contacts at Dubai and Singapore• d) We already have a distribution network for selling hosiery products
Present Asset Size of the company• Land and Building : 93 lacs• Furniture and fittings / computer / software – 12 lacs• Hosiery Rawmaterials and stocks – 27.50 lacs• Franchisee product ( Reebok ) – 15 lacs• Company formation etc – 2.5 lacs• Total 1.50 Cr
Where the company stands now• 1) Company formed and started operation from it’s wholly owned Office premises..• 2) HO furnished and both backoffice and distribution team recruited..• 3) Has tied up with Reebok to sell it’s Garment and apparels• 4) Has been into manufacturing of grey cloths required for manufacturing hosiery items through time sharing concept. Has it’s own designer , cutter and master for stitching..• 5) Has already done it’s designing and packaging ready.• 6) Two varieties of vest including one premium designer variety have hit the market . Two varieties of brief ( double coloured ) in five colours have also hit the market in attractive packaging. Total 10000 boxes have already hit the market• 7) We are negotiating with the departmental stores for selling our products.• 8) We are on the verge of giving advertisement for appointment of distributors.• 9) We have made our team ready to open 25 Branches immediately to do retail selling and distribution of the products.• 10) We are coming up with Jeans and T Shirts very shortly• 11) We will foray into women’s garments from April 2012.
Company’s immediate Fund Requirement• Company has already produced stock of 10000 box ( vest n brief ) worth 2 m7.5 lacs ( raw material cost , sale price 40lacs ), which has hit the market• Company has a demand of 20000 boxes in Jan 2012, which involves a total cost of 50 lacs ( breakup given later )• Three months working capital of 1.50 Cr is the immediate requirement. With 25 stockpoints of 1 lac investment , it requires another 25 lacs infusion. Out of 1.75 Cr, 50% of the stock , is 75 lacs will come from advance from the distributors.• The remaining 1 Cr is proposed to be obtained from VC route.
Fund required for producing 20000 boxes of vest n brief• Cotton / Daga : 12 000 kg ( 12 ton ) – 24.00 lacs• Knitting machine rental with labour - 1.8 lac• Bleaching and dyeing - 6 lacs• Cutting and steaching - 10 lacs• Elastic and stickers etc - 3 lacs.• Packaging - 5.2 lacs• Total 50 lacs
Why opt for Venture Capital• 1) Promoter’s capital : Promoters have already put in a capital of around 1.5 Cr . Infusing further capital immediately is not possible ..• 2) Floating equity shares : Company will not do as the same will dilute promoters’ stake.• 3) Bank Finance : Company has pledged the office premises to get some bank loan. Company is not in a position to provide any further collateral required for project loan.• 4) IPO : The company has made this the objective of the company. The books of accounts are being maintained accordingly. Company plans to achieve this feat in 3 years time.• 5) Preference share / debenture through market : A very costly proposition .. is the last option..• 6) Venture capital : Here the company goes into profit sharing mode. The company also gets the management expertise of the investing company also, which watches the utilisation of fund. That serves as a watchdog also. The company may get the benefit of the entire distribution chain of the investing company also to distribute it’s product.
Why should a venture capitalist invest• 1) Any industrial having surplus fund, looking to come into a new industry has three options :• a) Starting a new venture afresh :• 1) Here it will take all the time to do the ground work, which has already been done in case of VC.• 2) Here the company has to recruit suitable people to run the show. That will involve fixed cost.• 3) Here also the higher management needs to control the functioning of the people running the business, the highest management of the big company hardly finds time to look into the functioning.• 4) In case the parent company faces any problem , this venture is also likely to face problem..•• 2) Purchasing existing company doing the business:• 1) Usually the cost of acquisition of these companies is very high• 2) It is very unlikely that the company purchased will be a good one
Proposed Profit for the venture capitalist• Breakeven is achieved by selling 10000 box. Thus profit on first 10000 box : NIL• Share of profit for Sale of more than 10000 box ... 50% of the profit.• Expected sale from the next month : 20000 box to start with , which should have a 20% growth every month.• Thus , the expected sale in the year end 60000 box by the yearend ( very conservative ) .• Thus average sale during the first year : 40000 box per month• Profit to be shared @ 50% for 30000 box pm from 1st year• Profit from 30000 box ie 3 lacs piece is 18 lacs...50% of which comes to 9 lacs per month...• Thus, yearly profit 9 lacs x 12 = 1.08 cr => 1 Cr approx.• Thus , the proposed profit is 100% pa
Control in the Hand of the Venture Capitalist• The venture capitalist may put a director in the company for every 1 Cr they invest in the company.• The directors have full right to see the usage of the fund deployed ..• The VC fund can be deployed only for production of hosiery ie raw material , packaging and opening of stock points• NO FUND WILL BE USED FOR THE PURPOSE OF RUNNING OFFICE , SALARY OF DIRECTORS OF STAFF OR ANY OTHER HEAD NOT ASSOCIATED WITH THE PRODUCTION OF HOSIERY
Exit Route• The capital invested through VC will be most invested in the inventory ie working capital for 3 months of the company, which is basically current asset of the company.. Hence the capital invested is fairly liquid.• We foresee a minimum gestation period is one year for which the capital needs to be in the business. However , the capital may be kept in the business as long as the venture capitalist wants. ..• The terms and condition of the VC will be decided by a MOU , jointly executed by both the companies and will be governed by the terms and conditions laid down by ROC for raising venture capital