National Institute of Industrial

Engineering (NITIE)
Mumbai

AVARTAN-2022
LAKSHWIZ-D Street
National Level Finance Case Competition
 Yorkshire Spinners Limited

Mr. AK Mehta General Manger (Finance) of Yorkshire Spinners Ltd is getting ready for a
meeting with his main banker to discuss on working capital facilities for the newly promoted
wool textiles manufacturing company (Exhibit-1). A few weeks back the company has
organised a road show at a premier hotel which was attended by bankers, investors, and other
interested parties. Thereafter, Mr. Mehta has made a rough estimate of finance requirements
for this project, briefed up other developments and invited State bank of Liverpool as main
banker of the company (Exhibit -2).

The Project
Yorkshire Spinners Ltd (YSL) has been promoted by Apex Group controlled by two non-
resident Indians (Shri S.P. Mehta and his nephew Shri P.K. Mehta) and assisted by their sons
with an intention to set up a new 100% export oriented weaving unit and a separate fabric
finishing unit for manufacture of all woolen/worsted and silk blended fabrics. The factory will
be located at Raipur in Madhya Pradesh and the installed capacity will be 54 Sulzer Looms
with production and processing facilities of 40 Lakhs meters per annum. The cost of the project
has been estimated at Rs.9360Lakhs, which will be financed by equity share capital of Rs. 3580
Lakhs, partly convertible debentures of Rs. 3450 Lakhs, Rupee term loan of Rs. 2300 Lakhs
and state subsidy of Rs. 30 Lakhs. Rupee term loan of Rs. 2000 Lakhs (at the rate of 13% p.a)
has since been sanctioned by the LFI a leading financial institution, the company proposes to
open the public issue in 2023-24 for Rs. 1050 Lakhs. The term loan is for a period of eight
years and the repayment starts from third year onwards. Remaining Rs. 2400 Lakhs of the total
proposed capital will be contributed by the promoters. The company had discussions with
MechMania Inc. who are agreed to supply the machinery and the cost of machinery in Indian
rupees would be Rs.50Crore. The depreciation on this is estimated as Rs.1500 Lakhs per year.

The company has placed orders for the machinery and same are expected to arrive in the last
week of December 2021. As the necessary infrastructure is in existence, the installation will
be completed by January 2022 and trial production, or commercial production is expected to
commence by February 2022. The plant is estimated to work at 60% capacity in the first year,
90% capacity in the second year and at 95% capacity from third year onwards.

The proposed site for weaving unit is at a distance of about 12 kilometers from Raipur town
(Sal Growth Centre, an industrial area), which is well connected both by road and rail and is
on the Bombay-Nagpur and Calcutta highway. YSL has acquired 10.6 acres of land, of which
7.4 acres has been acquired from private parties and the balance from Madhya Pradesh
Audyogik Kendra Vikas Nigam Ltd. (MPAKVN). The soil at the site is of black cotton type
(up to depth of 1.5 meters) and soft murrum (clay shade) below 1.5 meters level and having a
load bearing capacity of about 15 tones per sq. meter.
The finishing unit will be located within a vicinity of about 8 kilometers from the weaving
unit. Considering the fact that the finishing unit will generate effluents which will be discharged
after necessary treatment, the unit is proposed to be located at a separate location having the
required facility for effluent disposal. YSL will install an ‘effluent treatment plant’ to treat the
process-house discharge. The company is in the process of acquiring necessary approvals from
State Pollution Control Board in regard to the adequacy of the effluent treatment and disposal
arrangements. Weaving unit will not generate any harmful effluents.

The fabrics will be woven on Sulzer Projectile Single Width Looms and will be processed on
the State-of-the-Art imported processing/finishing equipments. The selection of the plant and
machinery has been made in consultation with BY Engineers & Consultants Private Ltd.,
Ahmedabad, who has been appointed as consultants by YSL for the proposed project. Shri D.
Rathore, chief of BY and a diploma holder in woolen and worsted cloth manufacturing from
U.K. with earlier experience in Walspun Worsted Spinning Plant and Varmaan Woolen Mills,
will be assisting in the implementation and commissioning of the YSL’s project till
establishment of the optimum quality standards acceptable to the international market.

Worsted fabrics are made of worsted yarn and are mainly used for making dress materials both
for men and women. Worsted fabrics have the inherent properties of warmness,
maintainability, and luster. The worsted fabrics have a unique property of warmness and
therefore, there is no real threat from substitutes in its segment. The demand for the fabrics is
highly differentiated on the basis of consumer segments and their geographical location. Out
of the total world imports Hong Kong, Germany, Japan, USA, France, Canada, UK, and Italy
occupies more than 60%. The worsted suiting materials are normally made from pure worsted
yarn and are also blended with polyester, viscose, and silk according to the requirements. In
sub-tropical regions, the material is used in pure form. Majority of the world production is
consumed by the people of sub-tropical regions like Europe, America, and Australia. Being
an EOU the company is in the process of finalizing marketing tie-up with international buyers
for the entire production.
 Exhibit-1

State Bank of Liverpool 27 December 2021

Corporate Accounts Group
Nariman Point
Mumbai-400 021

Mr. AK Mehta
General Manager (Finance)
Yorkshire Spinners Ltd
Bandra-Kurla Complex
Mumbai

Dear Sri Mehta,

We are pleased to receive your invitation asking us to be the main bankers for your company. We are happy to
provide total financial solutions to your company. Based on the project details and your letter dated 10 December
2021 we have made a rough estimate of your working capital requirements. You are most welcome to visit our
office and meet the credit team to finalize the working capital requirements.

Thanking You,

Yours Sincerely,
DV Pal
Chief Manager
 Exhibit-2
Yorkshire Spinners Ltd
Damani House
Bandra-Kurla Complex
Mumbai

10 December 2021
AK Mehta
General Manager

The General Manager

Corporate Accounts Group
State Bank of Liverpool
Mumbai

Dear Sir,

We must thank you for your gracious presence on the occasion of our project presentation made on 10
November 2021 at Hotel Taj Mahal. Your interest in our project has been great encouragement for us and
we request you to act as main bankers for our project in extending various fund and non-fund-based
facilities. It would be our pleasure to see you as our consortium leader in providing the entire financial
solutions to this prospective project. For the past one month we have been working on operational
estimates of the project. We wish to share some improvements in this regard with you.
We propose to export 50% of its products in grey form and the balance will be exported in the finishing
form. The sale price per meter of Grey fabric is likely to be $16 per meter, whereas the finished form may
be salable at $18 per meter. On a conservative basis we assume that the exchange rate of one US dollar is
Rs.48.00 and we strongly subscribe to the view that the rupee is likely to depreciate by 6% per annum.
We are afraid of currency price volatility. Is there any financial mechanism to protect our cash flows?
We have entered a contract with ‘Key note’ a leading advertising agency to advertise and market the
product. This contract period is five years and the amount per annum is Rs. 70Lakhs. In addition to this
other variable selling expenses are estimated as Rs.22.00 per meter.
We propose to import the required woolen and blended yarn and we have well established channels for
procurement and hence do not anticipate any difficulty in procuring the required quantity of quality
worsted yarn for the proposed unit. We are seeking your help in financing these imports. Two types of
raw materials are required for these fabrics. It is estimated that, 0.32 meters of A48 quality of yarn and
0.26 meters of A72 quality yarn is required to manufacture one meter of fabric. Currently these raw
materials are available at AUD 31.35 and AUD 54.26 respectively. The exchange rate of one Australian
Dollar is assumed as Rs 27.25. We wish to import raw materials on sight L/C basis which may take 3
months period; the payments will be made on receipt of the relative bills, whereas the materials will reach
the factory around 15 days thereafter. We expect the bankers to factor this also in estimation of working
capital requirements. In addition to this indigenous raw material required is estimated as Rs.185.00 Lakhs
at 100% capacity. Lead time is approximately 55 days.
The other chemicals required are available in the domestic market at Rs. 4.00 per meter and the prices are
likely to grow at 8 per cent per annum. The other manufacturing expenses are estimated as Rs.300 Lakhs
at 100% capacity. The lead time here is two months.
The requirement of power (maximum demand) for the proposed weaving and finishing units has been
estimated at approximately 850 KVA and 400 KVA respectively. A proposal has been made to MP
State Electricity Board. The current tariff rate is Rs. 3.00 per unit. The board is asking for a bank
guarantee of Rs. 150 Lakhs for installation of transformers and other infrastructure.

Needless to say, that we also propose to acquire 2 D.G. Set of 860 KVA (SKODA – imported) and 500
KVA (Kirloskar) capacities respectively for its weaving unit and finishing unit to meet any eventualities
arising out of power cuts.

The daily requirement of water for the weaving unit (4.25 Lakh liters per day) for air- conditioning and
humidification etc. and for the finishing unit (3.75 Lakh liters per day) for boiler and wet-processing
etc., estimated to be about 8 Lakh liters per day is proposed to be met by two bore-wells to be located
at the respective sites. No difficulty has been envisaged by us for meeting its water requirement.

We are also planning to acquire an oil-fired tube boiler of 1.5 tones per hour capacity from Thermax to
meet its estimated steam requirement for its finishing unit. Process of conversion of raw material is
very fast the unfinished goods are not held more than 15 days.
The total man-power requirement per day has been estimated at 179 and 111 for the weaving unit and
the finishing unit respectively (including relievers for 7 days working). The requisite labor force, which
would initially be of I.T.I. trained cadre, is proposed to be recruited locally or from nearby States and
will be suitably trained. We do not foresee any difficulty in recruiting the required manpower.
Administrative and supervisory staff has been estimated at 79 for weaving unit and 68 for finishing
unit respectively. The rates of remuneration have been considered at Rs. 4000 per month for labor and
Rs.8000per month for supervisory staff.
Other fixed administrative expenses are estimated as Rs.200 Lakhs at 100 % capacity and the variable
expenses are Rs. 2.00 per meter of fabric. We wish to maintain a minimum cash of Rs.180 Lakhs to
meet these administrative expenses.
Although our sales are mostly against export order, we cannot stop producing goods till the order is
placed. We wish to warehouse the finished goods for 45 days.
We wish to export the goods on DA basis and the usance period not exceeding 180 days. All collections
will be in USD only. This credit would be necessary to enable the company to enter the international
market, which is highly competitive. We believe that realisation of payment advice may take not less
than 15 days’ time. This may push the realisation of sale proceeds to 6.5 months.
As our operations are likely to begin from February 2022, we request you to assist us in importing the
raw material. Once again, we request you to be main bankers for our venture and suggest an effective
financial solutions package.
If there is anything further to know please do call us or send a mail.

Looking for a fruitful relationship between our two Institutions.

Yours Sincerely,
AK Mehta
Questions:
 Estimate the working capital requirements of Yorkshire Spinners Ltd?
 Suggest suitable instruments of working capital finance to meet both the import and
export requirements of the project?
 What are the sources of risks identified and suggest suitable mechanisms to hedge the
risk?

ALL THE BEST!!