Ermias Afework Vehicles and spar parts retail trade

FOR

Conducted by: -
ELCID consulting firm
Email:-
Elcid2020@gmail.com
Website:-
http//www.elcidconsulting.com

Company name:-Ermias Afework Vehicles and spare

parts retail trade
General Manage :- Ermias Afework
TABLE OF CONTENTS

Feb, 2024

Page 1
E-mail:Yamediyet53@gmail.com
 Ermias Afework Vehicles and spar parts retail trade
Contents pages

I. Executive summery------------------------------------------------------------------------------3
II. Sector review--------------------------------------------------------------------------------------5
2.1 Role of car tire in domestic trade in Ethiopia ---------- --------------------6
2.2 Trends of tire market in the country ------------------------------------------6
III. Company profile---------------------------------------------------------------------------------7
1. Background------------------------------------------------------------------------------8
2. Legality-----------------------------------------------------------------------------------8
3. Management and manpower-------------------------------------------------------9
4. Vision, mission and objectives------------------------------------------------------9
IV. Revenue and cost estimation ----------------------------------------------- ---------------10
4.1 Purchase cost-------------------------------------------------------------------------------10
4.2 Revenue Estimation ---------------------------------------------------------------------10
V. Financial projection----------------------------------------------------------------------------11
A. Projected Profit and loss statement--------------------------------------11
B. Cash flow projections-------------------------------------------------------11
VI. Assumptions Employed in the Financial Appraisal. ---------------------------------12

I. Executive summery

Feb, 2024

Page 2
 Ermias Afework Vehicles and spar parts retail trade
The transport sector has been playing a crucial role in reducing transaction cost for
transporting goods and commodities in different parts of the nations in managing the
relationship with producers and buyers and bridge the gap between supply and
demand along the commodity value chain. It acts as an organizer and generates added
value from their ability to optimize the logistics chain and to overcome the price risks
(volatility of prices during the transport) and operational risks (e.g. climatic hazards,
currency volatility, piracy, counterparty risks and legal risks). It also secures access to
resources through the establishment of reliable partnerships with producing
counterparts. As part of the service sector, it contributes its own share to the GDP. And
there are several stakeholders who are directly or indirectly engaged in the sector to
play positive roles for the sector's development.

The car tire is one of the important parts of the car. It is directly in contact with the road
to ensure the adhesion between wheels and road surface and improve the traction,
braking as well as stability of the vehicle.

Therefore, this business plan is prepared to assess and evaluate the financial and
managerial capacity and capability of Ermias Afework vehicles and spare parts
business and also identify areas that need attention for improved productivity and
profitability. However, in achieving the sales and profit targets as indicated on the
profit & loss and cash flow projection, the company is in need of working capital of birr
20 million OD facility to be renewed annually.

II. Sector review

2.1 The Role of domestic trade in Ethiopia

Feb, 2024

Page 3
Ermias Afework Vehicles and spar parts retail trade
The transport value chain involves a large variety of actors performing different
activities (extraction, logistics, shipping, transformative industries, financing, etc.)
belonging to the same value chain but following distinct business models.

The tire market of the country is dominated by passenger car tire segment, followed by
medium and heavy commercial vehicle tire segment, which cumulatively captured a
market share of more than 75% in 2014. Few of the major tire companies operating
in Ethiopia include Horizon Tire, which is the only tire manufacturing company in the
country; Bridgestone, Pirelli, Michelin, Yokohama, Goodyear, etc
Rising domestic demand and expanding fleet size are expected to boost tire demand
in Ethiopia over the next five years. As of 2013, Ethiopia's vehicle motorization rate (for
Passenger cars and Commercial vehicles) stood at 2 vehicles per 1,000 people. As a
result of this low vehicle ownership, Ethiopia is expected to continue witnessing growth
in the sales of vehicles as well as automobile fleet size, thereby driving tire demand
during the forecast period.

Due to unstable political environment, automobile as well as tire companies have been
facing challenges in conducting their operations in the country over the last few years.
However, with the country gradually regaining political stability, coupled with better
fiscal and regulatory policies, Ethiopia is expected to evolve into a more open and stable
economy over the course of next 5-10 years, which would eventually have a positive
impact on the country's automotive industry in the coming years.

Ethiopia Tire Market Forecast & Opportunities, 2021 report elaborates following
aspects of tire market in Ethiopia:

 Diversifying Agriculture Sector

 Increasing Demand for Motorbikes

Feb, 2024

Page 4
Ermias Afework Vehicles and spar parts retail trade
 Growing Focus on Public Transportation

 Growing Demand for Radial Tires

 Increasing Chinese Tire Penetration

The transport sectors play a crucial role in managing the relationship with producers
and buyers and bridge the gap between supply and demand along the commodity
value chain. They act as an organizer and generate added value from their ability to
optimize the logistics chain and to overcome the price risks (volatility of prices during
the transport) and operational risks (e.g. climatic hazards, currency volatility, piracy,
counterparty risks and legal risks). They also secure access to resources through the
establishment of reliable partnerships with producing counterparts.

2.3 Trends of tire market in the country.

The tire market in the country is projected to exhibit a CAGR of over 4% during 2017-
2022. Passenger car tires dominated Ethiopia tire market over the past few years and are
expected to continue to dominate in the coming years as well, owing to rising
purchasing power and recovering passenger car sales in the country.

Ethiopia witnessed major economic challenges over the past few years, owing to
continuously decreasing oil prices, rising political instability and unfavorable
government policies. However, tire market in Ethiopia grew at a moderate pace during
the same period owing to rising automobile sales and expanding vehicle fleet size in the
country.

Government of Ethiopia has been rigorously working to improving the economic

conditions of the country by attracting large sums of foreign investment for setting up
of industries and manufacturing facilities in the country. Therefore, growing investment
in industrial sector, improving economic scenario, increasing demand for motorbikes

Feb, 2024

Page 5
 Ermias Afework Vehicles and spar parts retail trade
and rising penetration of Chinese tires is expected to fuel demand for tires in Ethiopia
during 2017-2022.

Companies Mentioned

 Apollo Tyres Ltd.

 Balkrishna Industries Ltd

 Bridgestone Middle East & Africa FZE

 CEAT Limited

 Goodyear Middle East FZE

 Hangzhou Zhongce Rubber CO.,LTD

 Horizon Addis Tyres S.C.

 MRF Limited

 Michelin AIM FZE

 Pirelli Tyre (Suisse) SA Middle East Branch

 Triangle Tyre Co. Ltd.

III. Company profile

3.1 Background

Ermias Afework Business Activity was established on 2011E.C with initial paid up
capital of birr two million five hundred thirty thousand to engaged in

Feb, 2024

Page 6
Ermias Afework Vehicles and spar parts retail trade
 To Retail trade
 To vehicles part
 To Spare parts
 etc

3.2 Legality

The details of the customer profile are as follows

 Name: - Ermias Afework Business Activity

 Managingdirector:- Ato Ermias Afework
 Registered capital:- birr 2,530,000
 Tin no:-0054917066
 Legal form of business:-sole proprietorship
 Address: -City: Addis Ababa Sub City: Akaki kality: Woreda 05

3.3 Vision, mission and objectives

 Vision

The company’s vision is to be one of the best in providing the best of tire and spare
parts for transport services to the local market with a reasonable market price.

 Mission

The company’s main missions are:-

 To stand by the side of the Government and contribute the best of its ability for
the attainment of the 10 years prosperity plan in the transport sector.
 To promote and represent the local and international interest of all in the value
chain.

Feb, 2024

Page 7
 Ermias Afework Vehicles and spar parts retail trade
 To maximize profit by utilizing resources including production time equitably
and reducing cost.
 Contributing foreign currency earning endeavors to the country

4 Management and man power

As shown in the following table, the management team of the business is composed of
qualified and experienced personnel that can run the company effectively.

Position Qualification Experience

General Manager 12 complete More than 10 years
Deputy Manager BA in Management More than 9 years
Senior Accountant BA Degree in accounting 4 plus years
Executive Diploma In secretary 3 Years
secretary

IV. Cost and Revenue plan

The income of this unit is generating from car parts mainly tire. The sales and cost plan
of the company for the coming five years is depicted below.

4.1 Sales plan

Based up on past performance & the assumptions stated in part VII the company has
planned to reach its revenue from sale of tire at the end of the planning period to birr

Feb, 2024

Page 8
 Ermias Afework Vehicles and spar parts retail trade
102 million. Detail revenue plan of the company for the coming five years is depicted
below:

1. Revenue from sale of tire

y Triangle GS 691Tyre Triangle T 680Tyre Aeolus HN 10 Aeolus HN 509 Total
r sales
Sol Pric Sales So Price Sales Sol Pric Sales So Pric Sales in Birr
d e ld /pcs d e ld e
in /pcs in in /pcs in /pcs
pcs pc pcs pc
s s
1 45 31,0 13,950,0 50 29,50 14,750,0 23 35,0 8,050,00 25 38,0 9,500,00 46,250,000
0 00 00 0 0 00 0 00 0 0 00 0
2 495 34,41 17,032,9 55 32,74 18,009,7 253 38,85 9,829,05 27 42,18 11,599,5 56,471,250
0 50 0 5 50 0 0 5 0 00
3 545 38,19 20,797,2 60 36,34 21,989,9 278 43,12 12,001,2 30 46,82 14,162,9 68,951,396
5 32 5 7 05 4 70 3 0 90
4 599 42,39 25,393,4 66 40,34 26,849,6 306 47,86 14,653,5 33 51,97 17,293,0 84,189,655
7 20 6 5 74 7 51 3 0 10
5 659 47,06 31,005,3 73 44,78 32,783,4 337 53,13 17,891,9 36 57,68 21,114,7 102,795,56
0 66 2 3 52 2 85 6 7 65 9
2. Cost Estimation
y Triangle GS Triangle T 680Tyre Aeolus HN 10 Aeolus HN 509
r 691Tyre
Pur unit Total Pur unit Total Purc unit Total Pu unit Total Grand
cha cost cost cha cost cost hase cost cost rch cost cost Total
sed sed d in ase
in in pcs d
pcs pcs in
pcs
1 450 22,5 10,125,0 500 22,5 11,250,0 230 28,0 6,440,00 25 30,0 7,500,00 35,315,
00 00 00 00 00 0 0 00 0 000
2 505 24,97 12,609,8 561 24,97 14,010,9 258 31,08 8,020,50 281 33,30 9,340,65 43,982,
5 78 5 75 0 5 0 0 007
3 555 27,72 15,396,6 617 27,72 17,107,4 284 34,49 9,793,03 309 36,96 11,404,9 53,702,
2 60 2 00 9 6 3 34 031
4 611 30,77 18,799,3 679 30,77 20,888,1 312 38,29 11,957,2 339 41,02 13,925,4 65,570,
2 22 2 36 4 97 9 24 180
5 672 34,15 22,953,9 747 34,15 25,504,4 343 42,50 14,599,8 373 45,54 17,002,9 80,061,
7 73 7 14 6 60 2 43 189

Feb, 2024

Page 9
 Ermias Afework Vehicles and spar parts retail trade
V. Financial projection:
A. Projected Profit and loss statement
The projected profit and Loss statement prepared for the coming five years based on the
past performance & the assumptions and facts (shown under VI below) is presented
below.

Description Year
0 1 2 3 4 5
Sales 26,310,34 46,250,00 56,471,250 68,951,396 84,189,655 102,795,569
8 0
Cost of sales 23,371,04 35,315,00 43,982,007 53,702,031 65,570,180 80,061,189
3 0
Gross profit 2,939,305 10,935,00 12,489,243 15,249,365 18,619,475 22,734,379
0
Operating 171,465 190,326 211,262 234,501 260,296 288,928
expense
Rent expense 105,166 116,734 129,575 143,828 159,649 177,211
Transportation 6,092 6,762 7,506 8,332 9,248 10,265
Allowance exp
Fuel and Lubricants 7,218 8,012 8,893 9,872 10,957 12,163
expense
Hospitality exp 814.00 904 1,003 1,113 1,236 1,372
Miscellaneous Exp 3,256 3,614 4,012 4,453 4,943 5,487
Repire & 3,256 3,614 4,012 4,453 4,943 5,487
maintenace Exp
Print, Stationery, 7,364 8,174 9,073 10,071 11,179 12,409
secretarial
Bank Service 5,690 6,316 7,011 7,782 8,638 9,588
charge
Telephone Expense 9,000 9,990 11,089 12,309 13,663 15,166
Donation 5,602 6,218 6,902 7,661 8,504 9,440
Member’s fee 8,007 8,888 9,865 10,951 12,155 13,492
News Paper 10,000 11,100 12,321 13,676 15,181 16,851
Expense
Profit before tax 2,767,840 10,744,67 12,277,981 15,014,864 18,359,179 22,445,451
4
Profit tax 950,744 3,742,636 4,279,293 5,237,203 6,407,713 7,837,908
Net profit 1,817,096 2,016,977 2,238,844 2,485,117 2,758,480 3,061,912

B. Cash flow projections

Feb, 2024

Page 10
Ermias Afework Vehicles and spar parts retail trade
The following Cash flow forecasting or cash flow management prepared based on the
above profit and loss statement and following assumptions in part VI below. It is a key
aspect of financial management of our company, planning our future cash requirements
to avoid a crisis of liquidity and at the same time to achieve our profit targets. It enables
us to project our future cash income (receipts) and cash expenditure (payments) over
the planning period of time.
The forecast can then be used as a management decision-making tool
that allows us to identify:-
 The level of working capital requirement
 When the financing is required,
 What level of loan repayments we can afford,
 When and for what the business will be able to spend cash, etc.
Description Year
0 1 2 3 4 5
Revenue 1,817,096 46,250,000 56,471,250 68,951,396 84,189,655 102,795,569
Loan 20,000,000
Total inflow 21,817,096 46,250,000 56,471,250 68,951,396 84,189,655 102,795,569
Purchase 1,300,000 35,315,000 43,982,007 53,702,031 65,570,180 80,061,189
Administrative 171,465 190,326 211,262 234,501 260,296 288,928
expense
Repayment 2,768,909 3,280,987 3,887,654 4,606,789 4,448,765
principal
Repayment 3,700,000 3,187,654 2,581,234 1,861,234 1,009,793
interest
Profit tax 950,744 3,742,636 4,279,293 5,237,203 6,407,713 7,837,908
Total outflow 2,422,209 45,716,871 54,941,204 65,642,622 78,706,211 93,646,584
Net cash inflow 19,394,887 533,129 1,530,046 3,308,774 5,483,443 9,148,985
Cumulative flow 19,394,887 19,928,016 21,458,062 24,766,836 30,250,280 39,399,265

As shown in the above table, starting from the first year, the company can generate
positive net cash flow covering the loan repayment and other costs. Finally, at the end
of the planning period the business can generate birr 39 million which will accrue as a
cumulative cash inflow. However, in achieving the sales and profit targets as indicated

Feb, 2024

Page 11
 Ermias Afework Vehicles and spar parts retail trade
on the profit & loss and cash flow projection, the company is in need of overdraft
facility of birr 20 million to be repaid within five years renewed annually.

VI. Assumptions Employed in the Financial

Appraisal.
1. Project life in years: 5
2. interim financial statements are being used as base for forecasting
3. Per the recent statements, administration and general expenses is estimated to
increase by 10% from the financial statement in the planning period.
4. Purchase volume is increased by 10% each year
5. Purchase and selling price will increased by 11% each year
6. Selling price
Description Selling price
Triangle GS 31,000
691Tyre
Triangle T 29,500
680Tyre
Aeolus HN 10 35,000
Aeolus HN 509 38,000

7. Purchasing price
Description Purchasing
cost
Triangle GS 22,500

691Tyre
Triangle T 22,500
680Tyre
Aeolus HN 10 28,000

Feb, 2024

Page 12
Ermias Afework Vehicles and spar parts retail trade

Aeolus HN 509 30,000

8. Pension expense and selling price will increased by 11% each year.
9. Employees benefit is assumed to be 10% of wages and salaries per annum.
10. Fuel, oil, and lubricants increases by 5% per annum.
11. Spare parts cost is assumed to be 1% of the cost of machinery, vehicle and
furniture & Equipment.
12. Repair and maintenance cost is assumed to be 0.05% of fixed investment for the
first year and then increases by 2% per annum.
13. Income tax is considered 35% of income after interest.
14. Interest rate is assumed 15.5% per annum.
15. Repayment period is within 5 years renewed annually,

Feb, 2024

Page 13