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BUSINESS AND MANAGEMENT

EXTENDED ESSAY

“Will relocation to Mahindra World City (SEZ) provide Opel Overseas with Competitive and cost

advantage”?



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2 “Will relocation to Mahindra World City (SEZ) provide Opel Overseas with Competitive and cost advantage”?

Candidate Name: Agam Raj Gupta

Candidate Number: 002760-006

Word Count: 3880

School: Step By Step High School

Candidate Session No. 002760-00


Abstract

Opel Overseas is a Jaipur based handicraft exporter. The geopolitical changes in the

last three years have affected the export orders received by the Company . Therefore

the Company is looking for alternate strategies to reduce costs and improve its

production system be more modern. The Management is therefore exploring methods

to help reduce operational costs on one hand and implement changes which will give it

an ability to compete globally in the long term. Mahindra World City, a SEZ, has started

operating in Jaipur and Opel Overseas is considering relocating its labour intensive

Company to the SEZ. The extended essay has researched into the qualitative and

quantitative aspects of relocating to the SEZ. The research question therefore is:

“Will relocation to Mahindra World City (SEZ) provide Opel Overseas with Competitive and cost advantage”?

The research is primarily based on data collected from secondary sources. The sales

and operation records of the Company were the source of gathering information

regarding the financial and non-financial aspects of the business. Based on the

exploratory research, an in-depth research on the various websites and a study of the

SEZ Act Of India was undertaken to get a holistic view of the effect of the move. The

collected information was analyzed using tools like SWOT, PEST, and financial ratios.

In the end after detailed analysis of the data, it was concluded that relocating to the SEZ

was an advantage to the Company as it will give them the advantage of lower costs.

Therefore the research concluded that the move to the SEZ should be considered as it

would give substantial financial and non financial advantages. However, a detailed

business plan should be compiled on the basis of this extended essay, prior to

undertaking the move.

(289 words)

Contents



Abstract............................................................................................................................2

Contents...........................................................................................................................3

Introduction......................................................................................................................4

Research Question..........................................................................................................6

Research Methodology....................................................................................................8

Analysis And Discussion : Shifting to the Mahindra SEZ.................................................9

1. Benefits of Mahindra World City SEZ.....................................................................9

2. Financial Analysis.................................................................................................14

1. PAYBACK PERIOD..........................................................................................14

2. ACCOUNTING RATE OF RETURN (ARR)......................................................15

3. Qualitative Analysis..............................................................................................16

Conclusion and Recommendation.................................................................................20

References.....................................................................................................................22

APPENDIX 1 Interview with the Director (excerpts).......................................................23

APPENDIX 2: Projected Profit & Loss Account..............................................................24

APPENDIX 3: Comparative Chart showing Advantage under EOU & SEZ Schemes. . .26

APPENDIX 4: EXPORT PROCEDURE.........................................................................28

APPENDIX5 Overview of Mahindra World City..............................................................30

APPENDIX 6 Mahindra World City, Jaipur –PICTORAL REPRESENTATION.............34



Introduction

Opel Overseas is an export house dealing in handicrafts and textiles in Jaipur

Rajasthan (India) . The company is over twenty years old and has a steady growth of

over 15%1. The Company has been in the forefront of the export business in Jaipur and

has sustained growth as its mission.

The Company has been operating since the year 1990 and specializes in export of

handmade handicrafts like marble artifacts, wooden items and furniture. The products

made by the Company are customized according to the preference of the buyer.

Therefore the Company has an edge over its competitors who prefer to make the

products according to pre decided designs. The European Union and UK are the

primary destinations that the organization exports its products to.

As the company operates in the international market, the recession which hit the

Global economies in the year 2008 left its impact on the exports. The handicraft exports

from India which were growing at a rate of over 20%2 suffered a set back and started

declining from the year 2007-08(Fig 1: Handicraft Exports From India).

3

Source: Handicrafts Export Promotion Council

Fig 1: Export of handicrafts from India1 Financial Records: 2007-20102 http://commerce.nic.in/annual2006-07/html/chapter2.html3 http://www.handmadepapersindia.com/blog/index.php/2010/11/report-card-exports-handmade-paper-handmade-paper-products/



Consequently, the organization’s sales declined steeply by over 35%4 of its average

annual gross revenue in the year 2008.. The Company has therefore been forced to

look for an alternate strategy in an attempt to revive its falling revenues and profits.

On one hand, the Company is trying to improve its profitability by focusing on markets

which were till now untapped by them. These are the developing economies like Russia,

and Brazil. However the challenge has been to maintain profitability as the consumers

in these countries are cost conscious and do not prefer to pay high prices for innovative

designs and superior quality. Therefore, the Company is trying to improve its bottom

line by reducing the costs of operations. It has evaluated different cost cutting strategies

like subcontracting to purchasing from alternate suppliers.5 However in both the cases

the loss of control on production and the adverse effect on quality deterred the

Company from adopting either of the strategies.

Research Question

4 Appendix 1:Interview with the Director5 ibid



The primary causes for the Company’s problems are a mix of external and internal

factors. The main reasons can be attributed to: –

High production cost – The Company specializes in hand made handicrafts

and uses very little modern machinery. This increases the cost per unit and the

individual nature of products prevents the company from using technical

economies of scale. As a result the Company has high cost of operations.

Decrease in the number and size of orders on account of global recession -

there has been a reduction in the number and size of orders by almost 30% on

account of the global slowdown. The recession which affected the US and

Europe has decreased the purchasing power of the citizens6 and consequently

the demand too has decreased.

Low Profit Margins: The Company uses premium pricing technique. However

with the decline in the number of orders on account of recession and increased

competition domestically, the Company had to shift to competitive pricing

strategy which affected the profit margins negatively7. Therefore the combined

impact of rising costs and reduced revenues and profit margins have affected the

growth of the Company and have created a problem for its long term viability,

Competition From China made products: A drop in the sale has also been

registered on account of the increased competition from China which due to

economies of scale is able to produce the same products more economically.

Therefore the customers have started shifting to Chinese exports.

As per the Director, Mrs. Gupta, taken individually none of the above stated factors

would be a cause of grave concern but as all above are happening simultaneously they

6 http://business.timesonline.co.uk/tol/business/economics/wef/article3241372.ece7 Appendix 1: Interview with the Director



are a serious cause of concern. Further, she feels that the time is right to undertake an

evaluation of the correct way forward and plan an approach which will help the

organization in the long run and after the recovery of the economies from the aftermath

of recession.

The Company is deliberating on a proposal to purchase a piece of land in the Special

Economic Zone(SEZ) being constructed on the outskirts of Jaipur8. The Mahindra

Group is creating the SEZ and has named it Mahindra World City. The SEZ is jointly

promoted by Mahindra Group9 and the government owned Rajasthan State Industrial

and Investment Corporation (RIICO)10.

In case the Company decides to relocate the factory it will get cost advantages which

will be beneficial for it in the long run. However, in the short term purchasing and setting

up a factory means substantial investment and will put even more pressures on a

Company reeling under the pressure of reduced orders and revenues. So it is important

to research into the effects of the relocation on the organization both financially and non

financially.

Therefore the dilemma which the Company is facing is that should they purchase this

land and relocate to the new site. Therefore the report researched into the proposed

move and the research question will be;

“Will relocation to Mahindra World City (SEZ) provide Opel Overseas with Competitive and cost advantage”?

Research Methodology

8 Appendix 6: Location Map9 www.mahindra.com10 www.riico.com/



The research is based on data collected from secondary sources, however interview of the Director was

conducted (Primary research ) to clarify the doubts and help fill the lacunas in information collected.

Secondary Data Source

The main sources of information were the Company records on sales and orders

received. This was an aid in assessing the revenue versus profit margin factors with

reasonable accuracy. A Company profile was also studied to understand the business

in detail.

The websites of Government bodies like RIICO, Export promotion councils were a

source of data on macro economic level while the websites of income tax and sales tax

department added to the understanding of the taxation structure prevalent in India.

Continual reference to books on financial appraisal were made and the website of

Mahindra SEZ11 was an invaluable source of understanding the concept of the SEZ in

Jaipur. A detailed study of the SEZ Act of India12 was also done to make sure that the

financial impact of the relocation to the Company was clearly understood.

Primary Data Source

It involves collecting first hand information from the data sources. The only primary

research was the interview of the Dirctoe which was taken to help clarify the doubts

which arose during the research.

The data so collected was analyzed using a mix of planning tools like Qualitative Project

analysis and financial tools like Payback Period and the Accounting rate of return.

Analysis And Discussion : Shifting to the Mahindra SEZ

11 http://www.mahindraworldcity.com/jaipur.aspx12 http://sezindia.nic.in/index.asp



1. Benefits of Mahindra World City SEZ

Opel Overseas is an Export Oriented Unit13 and accordingly gets benefits from State

and Central Government schemes for such units. The proposed shift to the SEZ may

add to these benefits and a study of the total financial benefits and a comparison with

the existing business is required prior to taking any decisions.

The research shows that the primary benefits will be:

Decrease in Cost accruing from:

Increase in period for exemption from the income tax and other taxes –

Opel Overseas has not been paying income tax in accordance with the

benefit accorded to the EOUs in India. Yet this benefit is granted till the

year 201014 only. Therefore from the financial year 2011-2012, the

Company will have to pay income tax at the normal levels. Therefore a

shift to the SEZ will help the company to save Rs. One lakh15 fifty

thousand( at current profit levels of tax), which it may have to pay form the

financial year 2011-12

No duties levied on goods purchased or imported for the unit at the SEZ.

This includes goods required for production or maintenance of the new

production unit. 16 Usually duty component for the imported raw material

and machines at approx 35% of the value. Hence, the items imported by

the firm are more expensive to this limit by approx 15%. The Company will

save on the costs of importing the machinery and tools from China and

Germany. The company is planning to modernize its setup along with the

relocation decision and so the exemption from import duty will help it get

benefits to the tune of 35%17 on import costs as savings in import duty. (As

13 http://www.stpiconsultancy.com/eoubenefits.html14 http://www.stpiconsultancy.com/eoubenefits.html15 1 lakh=.1 million16 http://www.stpiconsultancy.com/about_sez.html17 http://www.infodriveindia.com/indian-customs-duty/44219014-for-other-machinery.aspx



stated by the director they think it will be a good idea to plan for new

machinery as the ones being currently used are outdated and they would

like to import world class machinery rather than source local ones,

especially s they do not have to pay a duty. Further, the Company will also

be able to use more efficient machinery leading to savings in the

production costs.

The operative unit at the SEZ would be able to claim for service tax refund

for services which are availed of from outside the tax free export zone18.

This will further help the organization to further reduce costs.

The Purchase/Sale transactions would not attract any VAT or C.S.T19

charges20 Currently non- SEZ units have to incur a cost by way of service

tax to the tune of about 12.33% on banking charges, transport charges,

courier charges, security services and maintenance services/charges. The

Sales Tax itself is at the rate of 4 % of the invoice value. In addition they

have to pay a local tax known as Local Sales Tax, which is commodity

dependent but is at an average of 10 %. If the company relocated to the

SEZ then they have will a substantial cost savings of 4 % on all raw

material inputs and on local sales tax and service tax. A decrease in the

tax to be paid will help reduce costs and so boost the profit margins,

allowing the Company to be more competitive in the international market.

The current land prices at Ajmer Road, Jaipur where the SEZ is located

are Rs. 636 per sq feet21 approximately. The land at Mahindra SEZ is

available at a subsidized rate of Rs22. 240 per sq feet. As compared to the

18 http://www.business-standard.com/india/news/sez-units-get-service-tax-relief/350968/19 Central Sales Tax20 http://stpam.org/str/note-special-economic-zone-vat21 http://www.zamanzar.com/Jaipur/Ajmer+Road/Commercial-Property-Prices.html22 $1= Rs.45.5 approx



current market price, it is a saving of almost 200% on the purchase of the

land. These cost advantages can be used to offset and purchase the

machinery from other countries.

Apart from the cost savings the other benefits include:

Speeding up the Exim Process: The SEZ has special customs area

staffed with custom officers which will deal with units within the SEZ.

Therefore, as their focus is only these units so the whole process

becomes faster, leading to substantial savings in time which may be

utilized by the Company for other purpose.

The SEZ can have 100 % Foreign Direct Investment (FDI).23 Therefore in

future if the wants to undertake growth using a foreign partner or would

like to sell the business to a Foreign Company, then the options are

available to Opel Overseas on account of the permission being granted by

the Government for the same. Thus the use of Brownfield expansion 24 is

available for Opel Overseas.

The SEZ Company can borrow up to US$500 million(approx equivalent to

INR 2500 million) in a year without any maturity restriction through

recognized banking channels25. The value of loan sanctioned depends on

the business plan and the credit rating of the Company. This will be an

23 http://www.sezindiainvest.com/24A brownfield expansion means adding on to an existing facility. (source: http://www.steelguru.com/glossary/category/6/Brownfield_Expansion.html)25 http://sezindia.nic.in/index.asp



important source of finance for the organization as it will allow the

Organization to borrow large sums of money for a longer period of time.

Hence, allowing the organization greater flexibility in arranging for loans

and also undertaking aggressive growth plans or capital investment.

Single window clearance for Central and State level approvals- this will

help the firm get rid of the red tapism and will lead to faster working

around the bureaucracy.

Further, Mahindra World City has26 the following features which will be

advantageous to the Company :

World class infrastructure: Keeping the needs of the exporters in mind

and the problems faced by them on account of poor infrastructure, the

MWC27 has invested to ensure that the infrastructure is world class, with

abundant power and water so that the units in the SEZ do not lose

production hours.

External economies of scale: Due to availability of skilled manpower

from nearby villages, the supply of manpower is ensured.

A one stop logistics Solution: The SEZ has an area earmarked for In-

house logistics and Warehousing zone. This will facilitate the movement

from the SEZ of the custom cleared goods and as the degree of

specialization will be high, so improvement in service levels will be seen.

Dedicated handicraft zone : The SEZ has exclusive areas marked

according to the type of products being produced. So due to all the

handicraft firms being clustered together, there may be many ancillary

firms available leading to time and cost savings due to external economies

of scale.26 http://www.mahindraworldcity.com/jaipur.aspx27 Mahindra World City



The additional benefits are that the SEZ has Public Utilities like;

Details of Accident Prone Areas

Road Map/Road Details

E mail Addresses and Telephone Numbers

Accident/Trauma Care Centers

While these facilities are not essential yet their presence will benefit the organization as

the presence of these services will create a good image in the minds of the employees

and buyers regarding the concern which the Company has for emergency situations.

Analysis of the data collected to understand the benefits of relocation to the SEZ clearly

show that the Company stands to get substantial cost advantage which will have the

overall effect of decreasing the cost of operations and improve profit margins.

However, prior to undertaking any decision a financial cost benefit analysis of the

decision is a prerequisite.

2. Financial Analysis

After considering the cost advantages to Opel Overseas of relocating to the SEZ,

investment appraisal techniques were used to understand the attractiveness of the

project.



1. PAYBACK PERIOD

The initial investment required for setting up the factory is estimated to be Rs. 4.75 million28. The source of funds for the project is internal accruals and loan from the bank29.

Years Cash Inflow (all figures in million)

Operating Cost

Net Cash Inflow

Cumulative Cash Inflow

0 (4.75)

1, 5 4.3 .7 .7

2 5.1 4.1 1 1.7

3 5.2 3.8 1.4 3.1

4 5.4 3.7 1.8 4.9

5 5.5 3.3 2.2 7.1

Table 1:Fund Flow Statement

Calculating the payback period.

Time taken to Recover the funds: Amt to Be Recovered/inflows

=3 years 4.3 months

Therefore the company will recover Rs. 4.75 million in approximately 3 years and 4.3

months. The payback period is short enough to make the project financially attractive.

2. ACCOUNTING RATE OF RETURN (ARR)

The Calculation of ARR is based on Table 1 pg 14

ARR= (Annual Profits/Initial Investment)*100

28 Appendix 1: Interview Of the Director

29 ibid



Total Profit = 71 – 47.5

= 23.5

Average Profit = 23.5/5

= 4.7

ARR = (4.7 x 100) / 47.5

= 9.89%

The investment appraisal techniques return a payback of 3 years and 4.3 months and

an ARR of 9.89%. Both the figures are attractive enough to make the relocation

financially attractive. Moreover, the cost savings in operations coupled with the high

ARR and a short Payback Period make the project a financially lucrative decision both

in the short and the long run.

3. Qualitative Analysis

The final decision to undertake a project depends not only on the financial advantages

but also on a host of non financial factors. Therefore, it is important to understand the

non financial advantages and risks which will accrue to the business as a result of this

business decision.



Capital Gains

The current premises of the organization which is located at Amer Road, Jaipur can be

easily sold or rented. This is because it is at prime location. The funds raised from the

sale may be utilised to finance the relocation and purchase of the new factory. This will

help to reduce the dependence on loans which may be expensive and prevent the

retained profits from being completely used up.

External Economies Of scale

The area is expected to benefit from external economies of scale as the presence of

handicraft exporters in close proximity will encourage skilled manpower and specialist

mechanics and support firms to setup in the vicinity. This will be advantageous as the

Company may otherwise have to spend money on hiring labour on increased wages.

Further transportation of samples, documents and shipments is another area of concern

in the current business structure. Non reliable service on account of low cost

advantages has often affected the delivery time of the Company. If the Company

relocates, this issue is addressed as there will be a presence of major international

cargo and courier movers, providing service at competitive rates.

Improved Quality Standards

Quality check at the SEZ would by default improve the quality of production and

positively impact the business by creating the image of superior quality. The handicrafts

would easily be able to establish their supremacy over the other inferior look alike which

have flooded the market. The buyer/importer would be able to easily understand the

Company’s commitment to authentic designs and quality.

The investment in technology will create better stock control and prevent pilferages and

spoilage of the raw material. This in turn will ensure that the product is of the highest

quality and standard.

Contemporary Production Facilities

The existing factory is old and outdated as per the present and future requirements.



Building a new factory will help the Company to use the modern technology and

infrastructure to create a production facility which is not only efficient in production but is

also aesthetically appealing.

The modern infrastructure and equipment will help create an image of the Company as

one which sets and meets high quality standards. Moreover, the new premises will also

allow the organization to implement the health and safety norms as per the prevalent

standards. Therefore if any customer was to visit the factory, the Company will be able

to prove their commitment to quality easily. This in turn may improve orders and

revenues.

Centralized operations and effect on LabourThe Current facilities of the Organization are scattered in different areas with the

production facility located in Amer Road, the design facilities in another part of the town

at Old City and the export office in C scheme. This makes it difficult for the owners to

coordinate and increase the cost of travelling within the city. With the new facility being

set up all the departments will be housed at one location. This will make better

coordination possible, which in turn is expected to increase productivity.

Labour CostsThe SEZ is located in Mahapura, which is on the outskirts of Jaipur. As a result the

Company will have access to skilled labour which currently resides in Mahapura30. This

will generate cost savings to the company as it will not have to retrain the labour.

Quantitatively, this will result in cost savings to the tune of 6% of the total operating

30 Appendix1: Interview Of the Director



costs31. Therefore, while the Company may have to hire new labour as the existing

ones may not wish to relocate on account of the increased distance. The current labour

force resides mainly in Amer32(North Of Jaipur), which is about three km from the

existing factory. The proposed site is on the other side of the town (South Of Jaipur)

which would increase the commuting distance by almost forty kilometers.

Uncertain FutureHowever despite the bulk of the factors being in favour of the relocation, the impact is

primarily due to the cost savings and modernization of the factory. There is no certainty

that the relocation will help in getting more orders as the decrease in orders has been

on account of macroeconomic environment and external factors like increase in

domestic and international competition. Therefore while the Company may improve

profit margins on account of lower costs it will not be able to improve revenues if the

marketing team is unable to create and capitalize on the business opportunity the new

factory may present.

Unemployment And Demotivated workforce.The move to the new premises involves greater distance to be travelled by the

workforce. As most of the workers are in the lowest rung (Physiological Needs)of the

Maslow’s pyramid of Needs(Fig 3), as they are on daily wages. They are dependent on

the Company for their livelihood.

31 Financial Records 2007-10

32 Employee Profiles and Records, Opel Overseas, 2010



33

Fig 2: Abraham Maslow’s Hierarchy Of Needs

The relocation will cause them to travel a distance greater than forty kilometers per day,

and also increase their travel expenses. This increase will decrease their net income

and so they will feel motivated. This will affect their operational productivity and may

increase their labour turnover. Therefore the Company has to plan ahead to ensure that

employees are not retrenched and or demotivated.

Conclusion and Recommendation

Based on the research carried out, the relocation appears to be a strategic move which

will accrue both financial and non financial advantage to the organization. The

conclusions drawn are;

33 http://arellevalla.com/2009/07/30/5-levels-of-a-mans-needs/.html



The primary motivator for moving to the SEZ is the extension in the exemption

from Income Tax which the Company will receive for the next five years and a

smaller percentage after that. The current income tax exemption is set to expire

after the fiscal year 2010-11.

There will be external economies of scale on account of close proximity of other

handicraft exporters.

The Company will gain substantial cost advantage on account of better

productivity due to new machinery and modern setup. Improved coordination

within the Company will result due to all the departments being located at one

place rather than being scattered all over Jaipur.

Thus, the relocation of Opel Overseas will be profitable for the Company and is

recommended. The recommendations are based on the cost advantages which will help

the Company remain competitive and regain the high levels of profitability it was

enjoying prior to recession. There are concerns about the way the things will develop in

the future but the Company need to address the marketing issues separately and use

the new premises as a means to prove its commitment to quality. Using this report as a

base, the Company may commission a project feasibility analysis to understand the

move to the SEZ in greater detail.

Limitations and Future Research

The research was undertaken in an objective manner. However, there may be elements

of biasness due :

Lack of competitor analysis; there was reluctance on the part of the promoters of

the Mahindra SEZ, to provide details about the customers who had already

purchased the land in SEZ. So competitor analysis was not possible, and the



effect of how having competitors in the area will negatively impact the business

operations was not calculated

Hesitation of directors to provide accurate financial data. The owners did not wish

to provide accurate financials due to confidentiality issues. However the

estimations provided by them were cross checked to ensure their accuracy to a

large extent.

The tax policy is up for review in the year 2013 and any changes in the taxation

structure proposed by the government will affect the accuracy of the report and

consequently will affect the decision of the Company.

The report also did not undertake network analysis to estimate the time required before

the operations can be started in the SEZ and so it is recommended that the Company

undertakes project management which may use the elements from this report.

References

Hoang, Paul. (2007), Business And Management, Melbourne: IBID Press.

Milling, Brian E. (April 2001),The Basics of Finance: Financial Tools for Non

Financial Managers, iUniverse.com

http://www.caclubindia.com/books/manual_sez_ftwz_ifsc/ accessed on 28.11.10



sezindia.nic.in/ accessed on 14.12.10

www. mahindraworldcity .com

http://economictimes.indiatimes.com/

APPENDIX 1 Interview with the Director (excerpts)

Q1. What are the problems faced by the company due to the economic slowdown?

The Problems faced by the company at the present scenario are:

Less orders in the factory.

High cost of production.

Low profit margins.



Competition from substitutes from china which are cheaper.

Q2. What is the USP Of the company? What are your main markets

The USP of the company is its Products that are fused with a classical Indian look. They are primarily exported to the US and Europe.

Q3. How has the recession affected your company? What has been your strategy

Sales have decreased almost 40%. The customers have stopped buying or prefer to deal in low price products rather than quality based ones.

We have tried a variety of things from concentrating in alternate markets like Brazil and Russia to subcontracting our products, however there have been many disadvantages so we have stopped them for now.

Q4. What is the average income tax you pay?

We are an EOU so we don’t pay tax. But after 2010-11 the tax benefit will end.

Q5. What are the cost cutting strategies you are looking for?

As a Cost cutting strategy our only focus is at relocating to SEZ. However we are not sure as the investment amount are approximately Rs.48 lacs approx.

Q6. What are the strengths and weaknesses of your company?

Strengths- Brand name, good quality and designs

Weakness- High cost of production, old machinery and scattered office premises all over the town

APPENDIX 2: Projected Profit & Loss Account

During the year First year

Cost Production Amount Sales/Revenue Amount

To Opening Stock 0.00 By Sales 50,00,000.00

To Purchase 1200000.00

To Consumable 535000.00

To Salary/Wages/Bonus 1550000.00



(Staff Welfare, Labor Charge)

To Packing Expenses 32000.00

To Freight 25000.00

To Electric & Water 216000.00

To Printing & Stationery 5000.00

To Postage & Courier 4000.00

To Travelling Expenses 18000.00

To Office Expenses 12000.00

To Vehicle Expenses 20000.00

To Selling/Distribution Exps. 35000.00

To Deprecation 100000.00

To Pre-operative Exps. 50000.00

To Profit 3,70000.00

5000000.00 Total 5000000.00

Particulars Amount Particulars Amount

Capital Account Invest land in Sez 2900000.00

Share Holder Fund 3000000.00 Machinery Assets

Generator, Cutting machine,

Unsecured Loan 1700000.00 Ultrasonic machine, packing Mac.,

etc, machine 1000000.00

Provision/ Outstanding Exps. 50000.00



Sundry Debtors 100000.00

Cash & Bank Balance 200000.00

Security & Other Advance 250000.00

Pre-operative Exps. 300000.00

Total 4750000.00 Total 4750000.00

APPENDIX 3: Comparative Chart showing Advantage under EOU & SEZ SchemesSource: http://finance.indiamart.com/exports_imports/export_financing/export_units/index.html

Sr. No. Benefits SEZ EOU

1 Income Tax 100% tax holiday for a period of 5 years and 50% benefit for 5 years thereafter. 50% for an additional 5 years on plough back of Profits. No time limit mentioned. Units setting up anytime will avail the same

100% IT tax holiday up to 31.03.2009 or first 10 years



benefits.

whichever is earlier

2 Construction MaterialGoods for infrastructure development maintenance i.e. construction material allowed to be imported / procured indigenously duty free

Goods for infrastructure development maintenance i.e. construction material not allowed to be imported / procured indigenously duty free

3 Service TaxSEZ units / developer exempted from payment of Service Tax

EOUs not exempted from payment of Service Tax, however CENVAT credit is allowed for service tax paid

4 Central Sales TaxExempted on the goods procured indigenously

No CST exemption, however CST reimbursement to be claimed from jurisdictional DC

5 DTA Saleallowed on payment of full customs duty as applicable on imported goods

Limited DTA sale up to 50% of FOB value of exports permitted on payment of concessional rate of duty

6 Trading UnitTrading units are allowed be set up in SEZ

Trading units not permitted to be set up under EOU scheme

7 Domestic ProcurementSupply from DTA to SEZ are physical exports

Supply from DTA to EOU considered as deemed exports

8 Benefit to DTA supplier

For supplies from DTA, benefit of DEPB/DFRC/Advance License available. The drawback/claim of rebate applicable as in case of physical export

For supplies from DTA, benefit of deemed export drawback/OFRC/Advance license / Refund of terminal excise duty available

9 Cost recovery chargesNo cost recovery charges recoverable for the customs staff deputed during office hours. Exclusive customs staff deployed in the SEZ for handling customs work

Cost recovery charges for Merchant Overtime recoverable for the customs staff deputed even during office hours. No exclusive customs / central excise staff for handling customs / Central Excise work relating to the unit



10 Period of utilization Duty free goods (except capital goods) to be utilized within the validity period of LOP

Duty free goods (except capital goods) to be utilized within the validity period of 03 years

11 Foreign Investment 100% FDI investment permitted through automatic route for SEZ manufacturing unit and formal FIPB approval not required

Formal FIPB approval required as per sectoral guidelines

12 Customs Documentation

All import / export documentation and assessment formalities to be completed in the zone itself

All import / export documentation and assessment formalities to be completed at the respective port of import / export

13Examination of Goods

No routine examination of exports / import goods by customs

Examination of exports / import goods by customs except in cases where self certification is allowed

14 Warehousing License Private Bonded Warehouse License not required

Private Bonded Warehouse License is required

15Location Requirements

SEZ can only be set up in the SEZ notified under section 4 of the SEZ Act

No such requirement for EOU, EOU can be set anywhere in the country on standalone basis provided the area has been declared as warehousing stations

16Investment Requirements

No minimum statutory investment limit prescribed

Minimum investment limit of 01 crore in plant & machinery required except under certain specified sectors such as software, handicrafts, etc.



APPENDIX 4: EXPORT PROCEDURE

The following chart sums up the viability and business prudence to move to the Mahindra World City SEZ of Opel Overseas:

Export procedure

The procedure for export from Special Economic Zone through seaports or airports or Inland

Container Depot or Container Freight Station or Land Customs Station or by Post or by Courier or

by Personal Carriage, as the case may be, shall be as under:

EXPORT PROCEDURE

If services are exported in non-physical form, the

export value is to be furnished by the Unit on self

certification basis as per the instructions of the

Reserve Bank of India.

Filing of the shipping bill

Assessment of shipping bill

Examination of goods in SEZ



Movement of export consignment

Let export order given on the basis of self certification by the Unit



APPENDIX5 Overview of Mahindra World City

Infrastructure Development Sector consists of Mahindra GESCO, Club Mahindra

Holidays, Mahindra World City, Mahindra Water Utilities, Mahindra Consulting

Engineers and Mahindra Infrastructure Developers.

Mahindra World City works on the concept that high quality infrastructure and a liberal

and supportive business environment can only promote more foreign investments.

The Mahindra Group is a key player in providing world-class infrastructure through the

Mahindra World City brand. The City's plug-n-play infrastructure and well-planned

township helps create a great working environment and an amazing living experience.

Mahindra has successfully developed India's first World City at Chennai. After this

milestone, the Group plans to come up with two more such projects, one at Jaipur and

another at Pane.

Mahindra World City, New Chennai - Corporate India's first operational Special

Economic Zone (SEZ) and India's first Integrated Business City is promoted by the

Mahindra Group and TIDCO (Govt of Tamil Nadu Enterprise). It is a public-private

initiative.

Situated on the NH45, Mahindra World City is located 45 km from Chennai city and is

30 mins away from Chennai international airport. Spread over 1,400 acres (5.7 km²),

Mahindra World City is well connected by both road and rail links, with Paranur railway

station on site.

Mahindra World City is divided into 3 sector-specific Special Economic Zones (IT/ITES;

Apparel and Fashion Accessories and Auto Components), a Domestic Tariff Area and

a Residential / Social zone. Mahindra World City today has over 35 customers with

leading companies like BMW, Braun, TTK Group, CapGemini, Infosys, Nestronics,

Mindtree, Renault, Nissan, Wipro, Timken and TVS Group of companies, among

others.



Mahindra World City, Jaipur - Following the success of Mahindra World City, New

Chennai, and the second Mahindra World City was established in Jaipur. Inaugurated

in December 2006, Mahindra World City, Jaipur is spread over an area of 3,000 acres

(12 km²). Promoted by the Mahindra Group in partnership with Rajasthan State

Industrial Development and Investment Corporation Ltd (RIICO, an agency of the

Government of Rajasthan). Mahindra World City, Jaipur is being developed as a multi-

product Special Economic Zone on the format of an “Integrated Business City”.

Besides these exclusive zones, there will also be a Domestic Tariff Area (DTA)

catering to the demand of domestic industries. Mahindra World City, Jaipur will also

have a dedicated Logistics and Warehousing Zone for the manufacturing companies in

order to provide complete end to end solutions.

Mahindra World City, Jaipur has one of the largest IT/ITeS centric SEZs under

development in India. The total area spread over 750 acres (3.0 km²) is under

development and has already attracted top companies such as Deutsche Bank,

Infosys, Wipro, Nagarro, Truworth, Tech Mahindra and QH Talbros among others.

A Technology Park ‘Evolve’ promoted by Mahindra World City, Jaipur will also come

up as part of the IT / ITeS SEZ. Set in a campus of 25 acres, the Technology Park will

lease built-up space for IT/ITES companies.

Mahindra World City – Karla (Pune District) - an Integrated business city with a multi-

product Special Economic Zone and a Domestic Tariff Area, Mahindra World City,

Karla will be spread over an area of 3000+ acres with separate zones for IT/ITES,

Manufacturing, Warehousing and Logistics. Jointly promoted by the Mahindra Group

and MIDC, (a Government of Maharashtra undertaking), Mahindra World City, Karla is

located off the Mumbai-Pune Expressway. Around 2 hours from Mumbai, Mahindra

World City, and Karla is close to Mumbai and Pune airports and the two international



seaports, JNPT and Mumbai seaports.

Advantage of Mahindra world city

Master planned by Jurong Constructions, Singapore, Mahindra World City will be truly

international in every way. From wide roads to seamless internet connectivity, every

little detail will be taken care of. Also a unique plug-n-play format will offer a quick start-

up and reduced cost of ownership. The City gives you an opportunity to operate in a

totally supportive environment and profit non-stop.

A modern Business City, Mahindra World City will be replete with state-of-the-art

infrastructure, flexible tenancy formats and with wide roads, potable water, power,

Telecom and data connectivity.

Fail-safe utilities in the form of stable power through an in-zone sub-station and

unlimited bandwidth through an optic fibre network.

Mahindra World City provides double benefit - Fiscal benefits, Tax Holidays and

Hassle free operations coupled with world class Physical & Social Infrastructure .

The benefits include:

Multiple tenancy formats

Plug-n-play infrastructure

Well connected with a wide road network

Fail proof power grid, water supply and data connectivity

Fibre optic communication backbone

DTA at Mahindra World City indeed offers suppliers to the SEZs, EoUs and

companies looking at tapping domestic markets an unparallel advantage.

Premium housing facilities

24 / 7 medical care

Schools and educational institutions



Banks and ATMs

Telephone exchange and post office

Clubs and recreation centers

Retail malls and Community centers

Mahindra World City, Jaipur – The splendor of Rajasthan Promoted by Govt. of Rajasthan through RIICO and Mahindra Group.

Both RIICO and Mahindra Group joined hands and signed Shareholders’

Agreement on 25th June, 2006.

Integrated business city spread over in 3000 acres.

Shareholding / Participation

in ownership of the

Company

Mahindra Lifespaces –

74%

RIICO –

26%

Directorship (No. of

Directors)

Mahindra Lifespaces – 6

RIICO - 4

Focus sectors –

IT / ITES

Light Engineering including Automotive/Auto Component

Handicrafts

Apparel

Gems & Jewellery

Logistics and Warehousing

DTA & Social Infrastructure

Master planners: JURONG Consultants Pte Ltd, Singapore.

Landscaping consultants: Site Concepts, Singapore.

Development of residential and social infrastructure is planned to have holistic &

inclusive development.



APPENDIX 6 Mahindra World City, Jaipur –PICTORAL REPRESENTATION



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