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FLUX CORED WIRE PROJECT
1.01 PREAMBLE
01. The new liberalization policies of The Government of India have
marked a steady growth of the Indian economy. Various
industries, including Infrastructure, Oil and gas, Automobiles,
Heavy industries, Power etc., have largely been benefited as a
result of this.
02. As per the Indian Economic Survey, Industrial production
for the Mining, Manufacturing and Electricity has performed
well resulting in overall GDP growth rate of 9.1% for the fiscal
year 2007-08.
03. Increase in expenditure on infrastructure projects during mid
1990’s has changed the Indian economic scenario. Billions of
US$ were invested in constructing Highways, Bridges, Airports
and Seaports modernisation, Power projects etc. This situation
will continue for the next 10-20 years to come. The increased
spending on infrastructure projects has resulted in higher
demand for various related products and faster growth rate of
manufacturing sector as well.
04. The high growth rate in the manufacturing sector is also the
result of improved production efficiencies by adopting more
efficient technologies and pruning the production costs. The
improved efficiency is due to more automated production
techniques adopted by the manufacturing sector thus making
them globally competitive.
05. The growth in manufacturing sector results in growth in
consumption of steel and steel products.
06. Welding is a critical requirement in the manufacture and
fabrication of any engineered product, machine or
consumer durable and the ability to produce adequate
welding consumables is essential for the industrial self-
reliance and development of a country.

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07. The welding process is widely used in Structural
Fabrication and Construction, Machine Building,
Consumer Durables, Oil Recovery and Refining, Petroleum
and Gas Pipelines, Pressure Vessels and Boilers, Mining,
Nuclear Energy and Defence Production and armaments. A
wide range of welding consumables are required to cater to
the exacting requirements in each engineering industry.
08. This also results in growth in welding consumables
requirement. As a result all the leading welding
consumables manufacturers in the country are on
expansion mode.
09. In view of achieving higher efficiency, and cost
effectiveness, manufacturing sector is swiftly replacing the
conventional manual welding process with semi-automated
or automated welding techniques, such as Flux cored
systems.
10. In India, there is a great potential for Flux cored wire
electrodes and special purpose welding electrodes. This
is very clear from the fact that about 70% of flux cored
wires demand is met by imports into the country.
1.02. SUMMARY
01. Project
The proposed project is mainly aimed at creating facilities for
manufacturing welding electrodes with the state-of-the-art technology
and machinery. XYZ is mainly contemplating three lines of activities.
They are:
Manufacture of:
a. Low alloy mild steel & Hard facing Flux cored wires (USA
Collaboration)
b. Stainless steel Flux cored wires (USA Collaboration)

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c. Special purpose Metal arc stick electrodes (Low alloy mild steel,
Hard facing and stainless steel) (German formulations)
These facilities will cater to the domestic and export markets.
02. Name of the Company
M/s XYZ (XYZ)
03. Constitution
Private Limited Company.
04. Date of Incorporation
The company name approval obtained and incorporated is under
process under the Companies Act, 1956.
05. Location
Registered and Administrative office
Manufacturing facilities
06. Project Driver
The Indian Government is making huge investments in Infrastructure
sector, Steel, Cement, Power, Airports, Seaports, Heavy industry, Oil
and Gas, Petroleum exploration and production etc.
As a result of this there is a rising demand for various grades of steel in
the country. This in turn is raising the demand for steel fabrication.
Steel fabrication in turn depends upon the welding consumables for
quality welding.
There is a rising demand for welding consumables in India and other
developing countries. In the Middle East like Saudi Arabia, Qatar,
Dubai various new infrastructure projects are coming up and the
demand for welding consumables is increasing. The demand growth is

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substantial in these countries.
Hence in addition to domestic demand, there is good export potential
for welding consumables at competitive prices to Middle East, African
countries, South America etc.
Govt. of India has realised the great potential of Exports and offering
various incentives for Exporting companies. This has encouraged the
promoters of XYZ to manufacture welding consumables mainly for
domestic markets and partly for exports.
07. Products
XYZ is planning to sell:
Products MT/Month MT/Year
1 Stainless steel SMAW 50 600
2 Low Alloy SMAW 100 1200
3 R&M SMAW 50 600
4 71 T1 FCW 80 960
5 70 T5 FCW 45 540
6 Hard Facing FCW 25 300
7 Stainless steel FCW 65 780
SMAW- Stick Metal arc welding, FCW- Flux cored wire
08. Background
XYZ is a new company incorporated in, India jointly promoted by Mr.
ABC and his associates in collaboration with M/s CDE, USA.
The proposed company XYZ will have three divisions viz., Flux cored
wire electrodes for Low alloys and hard facing applications, Flux cored
wire electrodes for Stainless steel applications, Special alloy stick
electrodes for Mild steel, Stainless steel and Harding facing
applications. The project is to be implemented under EPCG (Export
Promotion Capital Goods) scheme. This conscious decision has been
taken based on concessional import duty available based on export
commitment.

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Because of the size of the capital investment required, the promoters
felt the need for conducting a Techno-economic feasibility study to
ascertain the viability of the project to justify the investment.
09. Promoters and Management
10. Markets
01. Economic development of any country depends upon its
Infrastructure. Next to China, India is having fast infrastructural
growth. Indian Government is implementing various infrastructure
projects with private partnership.
02. In the infrastructure projects, highest priorities are given for setting
up of new steel, cement and power plants, building of new roads,
expansion of railways, developing ports, and increasing refining
capacities and so on.
03. Welding plays an important role in any manufacturing and
infrastructure sectors. Indian Welding Industry is supplying all types
of welding consumables, for SMAW process, semi-automatic or
automatic process.
04. Welding is a process used in almost all Engineering industries. In
India, there is a boom in welding related businesses like
Manufacture of capital Goods, welding equipment and welding
consumables etc. This trend will continue for the coming 10-20
years in India due to massive investments in infrastructure projects
and general boom in manufacturing sector.
05. The Indian Welding industry (as per registered capacities)is
estimated to be around US$ 575 Million and the welding
consumable segment - basically Welding Electrodes, account for
70 to 75 % of the market (say US$ 400 Million).
06. In the organized sector, very few welding consumables
manufacturers are there in India. Unorganized / small-scale sector
account for almost 50% of the Indian welding consumables market.

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In value terms Organized sector production accounts for US$ 200
Million.
07. Manual welding techniques account for 80% of the Indian market
(Say US$ 320 Million). The automation sector is also gaining
popularity in the country due to operational efficiency and cost
reduction programs undertaken by most of the manufacturing
companies. There is an increased use of automation, and
awareness of product quality.
08. The number of Gas pipeline projects and Railway projects,
announced by the Government of India, coupled with switching
over to FCW process by leading Equipment manufacturers in the
Power and Oil sector is expected to boost the demand for
specialized welding consumables.
09. India Imports special welding consumables in substantial quantities.
10. There are more than 150 welding consumable manufacturers in the
country out of which about 10 are either Big or medium scale
mainly manufacture normal mild steel types mostly for general and
low grade fabrication purpose and supply against local territorial
requirements.
11. Total consumption of welding consumables in the country is as
under:
S.No Particulars MT
1 Welding electrodes 2,70,000
2 CO2 Solid and Flux core Wires (MIG-MAG Wires) 50,000
3 Submerged arc welding consumables 12,000
(wire and flux together)
4 TIG Wires 8,000
12. The future of welding industry is very bright. The annual rate of
growth is 7.1% and the industrial growth will be at the rate of 7-8%
annually. The highlights of segmental growth can be summarized
as follows –

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S.No Industry sector %
1 Automobile Industry 13.0%
2 Steel 7.5%
3 Oil & Gas 7.0%
4 Infrastructure 8.6%
5 Construction 12.0%
(source: Crisinfac)
13. Steel consumption is the reliable indicator of welding consumables.
Today India’s consumption is 35 kg / person against 180 kg /
person in China and 400 kg / person in other developed countries.
It is expected that India’s consumption will be doubled within a
decade. The demand for welding consumables also will double in
the same period.
Worldwide market
14. In all the developed countries like USA, Europe, Japan, Korea,
Taiwan, China and India the majority of welding is done by
FCW process. In USA the main players are M/s Lincoln Electric
Co., ESAB and Hobart. In Korea it is Tein-Thai, Goodweld,
Sorox and Kungtai. In China there are more than 10 big
companies making around 20,000 tons of FCW per month but
most of them are exported to USA. In South Korea the main
players are Tein Thai, Kissweld and SMP. In Europe the main
players are Bohler and Thyssen, AirLiquide, Thermodyne,
Eurofil SRL, OMC SRL etc and all these players service their
respective markets only.
15. The average world consumption is about 50,000 tons a month
and increasing steadily year on year, and the main exporters to
other markets are China, Taiwan and Korea. The product quality
and price is the major factor. All over the world, the shipping
industry adapts the FCW process. The same method is

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adopted in Earth Moving Machinery manufacturing and in
manufacture of Equipments for all heavy engineering industries.
Indian Scenario
16. There are four main players in India. They are Mailam
Metalogen, ESAB, D & H Secheron and Ador Welding Ltd. These
companies have got about 100 tons per month capacity each and
most of them import large quantities and they do repacking in
their own brand. As this product range contributes to only
about 10-12% of their turnover, the existing manufacturers so
far have not been focusing in developing this particular product
exclusively.
17. The demand pattern in India is as follows:
a) Railways - They have standardized a lot of products. Wagon
building and other rolling stock manufacturing. All the Metro
coaches are welded with FCW and also BEML; Bangalore
is the major consumer of this wire for Railways as well as
Defense industries.
b) Power Sector - BHEL and L & T are the major users of this
product along with power equipment manufacturers.
c) Repair & Maintenance - Many parts which are worn out are
salvaged by FCW for hard facing. Cement mills, sugar mills,
construction industries are the main users of repair and
maintenance.
18. The approximate demand in India considering the major users in
India is about 1100 tons of products per month which consists
of joining and hard facing wires. The present manufacturing
capacity is only about 500 tons per month. The balance
requirements are met by imports. This project shall add another

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175-200 MT/month thus reducing the import portion.. The
average growth experienced in the last 3 years is about 32%.
So India is the destination for cheap imports from China in local
brand names. But off late the Chinese products have also become
very expensive due to capacity constraints.
11. Marketing and Selling Arrangements
01. The promoters of XYZ are having wide contacts in India and Middle
East as traders of specialised welding electrodes. Hence, they are
planning to market the products in these countries aggressively.
The domestic market in India is also increasing continuously due to
Economic growth and Infrastructure boom.
02. XYZ is planning to export 30% of the production to other countries
like Kingdom of Saudi Arabia and UAE including 10% to the
collaborators under the buy back option. The balance 70% will be
sold in Indian market.
03. Although there are many welding electrode manufacturers in India,
there are very few players with latest technology at their disposal.
For some companies, the Technology agreements have expired
and no new agreements are signed.
04. The company plans to markets its products through a dealer
network supported by aggressive publicity measures such as
advertisements in trade journals, distribution of brochures and
catalogues, participation in International trade fairs in India and
Abroad. XYZ will also popularise its products through CD
presentations. Internet being a very powerful and popular media for
business leads, XYZ will also use this media to the fullest extent.
05. The production capacity is planned to be marketed in the
following markets with the mentioned respective shares:

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Countr Mild SS M&R FCW FCW
y Steel Grade Grade MS S.S
India
El t d El t d
70-65% 70-75%
El 50% d
t 60% 55%
KSA 30-35% 30-25% 40% 30% 35%
UAE 10% 10% 10%
KSA Market:
06. This market will be serviced through chain of distributors /
Dealers in the region. The dealers will be supported by a
professional and well experienced sales team of the
Company. The sales team will take care of technical
qualification of the product and initial penetration of the product
in the major consumers such as ARAMCO, SABIC etc and will
maintain constant pressure to achieve sales targets. .
UAE Market:
07. The products of the Aditya Overseas is already being marketed
by a company in Dubai, namely ACS Universal LLC, Dubai, who
are competent to take on the additional tonnage to be marketed in
the region including the surrounding regions of UAE, hence this
region is planned to be serviced through this company as they
have already established this line in the market
12. Installed Capacity
01. The products proposed to be manufactured from the new
facility can be categorized as under:

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S.No Sales quantities MT/Month MT/Year
1 Stainless steel SMAW 50 600
Two
2 Low Alloy SMAW 100 1200 2400 shift
3 R&M SMAW 50 600
4 71 T1 FCW, Selectarc Inc, USA 80 960
Two
5 70 T5 FCW, Selectarc Inc, USA 45 540 1800 shift
Hard Facing FCW, Selectarc
6 Inc, USA 25 300
Two
7 Stainless steel FCW 65 780 780 shift
a. Production and Sales
Per Production Qty.
S.No Item Year ( In MT)
Capacity Utilisation 34% 53% 60% 75%
1 Stainless Steel SMAW 600 203 315 360 450
2 Low Alloy SMAW 1,200 405 630 720 900
3 R & M SMAW 600 203 315 360 450
4 71 T1 FCW 960 324 504 576 720
5 70 T5 FCW 540 182 284 324 405
6 Hard facing FCW 300 101 158 180 225
7 Stainless Steel FCW 780 263 410 468 585
Total 4,980 1,681 2,615 2,988 3,735
Value
S.No Item (US$ in Million)
Capacity Utilisation 34% 53% 60% 75%
1 Stainless Steel SMAW 2.09 3.26 3.72 4.66
2 Low Alloy SMAW 1.02 1.59 1.82 2.28
3 R & M SMAW 2.33 3.62 4.14 5.17
4 71 T1 FCW 0.89 1.39 1.59 0.89
5 70 T5 FCW 0.50 0.78 0.89 0.50
6 Hard facing FCW 1.22 1.90 2.17 1.22
7 Stainless Steel FCW 4.24 6.59 7.53 4.24
Total 12.30 19.14 21.87 27.34

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b. Present Proposal
The objective of the present proposal is to rise:
(US$ in Million)
S.No Particulars Amount
1 Term loan 15.69
2 Working capital financing 2.50
The term loan is to be mobilised from USA based banks/ Funding
agencies. The working capital need to be mobilised from Indian
Banking system.
15. Technology and Collaboration
01. XYZ has entered into a technical and financial collaboration
agreement with WXY. WXY is well known in USA and European
markets for its product quality and technical superiority. Their
products are used widely throughout the world. The Company
is market leader in the field of flux cored wire manufacture and
has proven technology and know-how for the same.
02. Under this agreement, XYZ obtains its technical know-how and
supervision support from WXY.
03. The purpose of WXY entering into collaboration
agreement in Asia is to establish a reliable manufacturing
center in the region to cater to the ever-growing markets in
India, Far East, Middle East, CIS countries and Africa. WXY has
its state-of-the-art plant in the state of Ohio, USA.
04. WXY is offering the Technical Know-how on ongoing basis as
well as participating in 20% of the equity capital of the company.
05. Under this agreement, WXY will provide the technical know-how for
Low alloy and Stainless steel tubular/ Flux cored wire electrodes on
an ongoing basis for a period of 10 years. The period can be

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extended by another 5 years on mutually agreed terms.
06. Under this agreement, WXY will provide the detailed plant layout,
supply plant and equipments, operating manuals and maintenance
manuals for the plant and equipment supplied by it for manufacture
and quality control, assist in erection, supervision, commissioning,
performance tests, running and establishing of trial and commercial
production, depute its experts to XYZ works from time to time, offer
training facilities to XYZ staff at its plant, assist in establishing an
Research Center at the XYZ plant site, provide detailed
specifications and requirements of all raw materials, consumables,
utilities, permit XYZ to use its patented technologies.
07. XYZ will pay a Technical Know-how fee of US$ 850,000 (One time)
and Royalty of 2.0% of the net sales value every year. XYZ will also
pay US$ 5.60 Million towards mild steel and stainless steel FCW
Plant and machinery.
16. Plant Location
01. The proposed plant site is about 60 Km from City, India
02. All the necessary infrastructure facilities like power, water, roads
and well-developed township are available near to the site at
reasonable cost.
03. The site is well suited from logistics angle. It is well connected by
Road, rail and air transport. Nearest sea port is about 700 KM at
Vizag, Chennai or Mumbai. Nearest Airport at Shamshabad is
about 60 KM from the project site.
04. Hence the finished goods can be transported to destination by any
one of the four modes, road, rail, sea or air. Raw material and
components can reach the plant very easily.
17. Land, Site development and Buildings

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01. The land requirement for the plant is around 5 acres. This is
adequate for green belting and future expansion.
02. The total built up area required for the factory and non-factory
buildings is 3909 Sq.Mt. These buildings include factory sheds for
the main plant and machinery, other non-factory buildings like
laboratory, workshops, administrative block, stores, and utility
buildings.
03. The main road is very close to the plant site. Hence a small stretch
of 100 RM of Bitumen road need to be laid to connect the plant to
the main road. Internal roads within the plant need to be laid. This
facilitates effective movement of the equipments, raw materials,
consumables and components and finished products to rail station /
Seaport/ airport. The company will lay about 500 RM of internal
roads connecting various buildings in the plant.
18. Plant and machinery
01. The plant and machinery for the project can be classified into three
categories. They are for SMAW electrodes, Low alloy and Stainless
steel FCW electrodes and Hard facing electrodes.
02. Main plant and equipments for these lines are imported from USA
and Germany. Balance is sourced from Indian manufacturers. The
imported machinery are Low alloy steel FCW plant line, Stainless
steel FCW plant line from M/s Selectarc, Inc., USA, Electrode
Extrusion Plant ( 8 Ton capacity) including Wire Cutting m/c, Mixing
m/c from Berner / Oerlikon and Photo spectrometer for laboratory.
03. Other machinery sourced from indigenous sources are De-Coiling,
Straightening & Wire Cutting Machine for Mild Steel and Stainless
steel Welding Electrodes, Computerized Dry Flux Preparation
Batching Plant for SMAW and FCW including software, Dry and wet
flux Mixers, Low temperature baking Oven for Electrodes, Material

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handling equipments, Automatic packing equipments, wire de-
greasing m/c, Electrode Numbering Machine, De-Flux Machine,
Furnace for Low Temperature Welding Electrodes Baking m/c, Lab
equipments, welding machines, Wire Drawing m/cs etc. The other
Utilities and miscellaneous equipments are also sourced
domestically.
19. Material Inputs
01. The main raw material used includes mild steel and stainless
steel strip for FCW, mild steel and stainless steel wire rod for
SMAW. Flux constituents include metal powders of iron, nickel,
various Ferro alloys and minerals.
02. All raw materials, required for production of welding
electrodes and Flux cored wires are available in India. TISCO
is a major supplier of Steel strips required for FCW and also
for wires required to manufacture electrodes. WXYL, Vizag
and other steel majors have ready supplies of these steel
requirements.
03. The other raw material includes mostly natural minerals, Ferro
alloys and metal powders. All these are mined or produced in
India. Certain metal powders and Ferro alloys are available
through merchant importers also which may be somewhat
higher in quality and also competitively priced.
04. However considering the scales involved the company can
improve its competitive edge by importing in bulk certain inputs
particularly Ferro-alloys and metal powders as well as certain
core wires directly from manufacturers through their main
distributors in this region, thereby cutting out one link in the
channel.

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05. This also has another quality advantage as large batches of
raw material can be procured and tested and their properties
established. This ensures consistency in the quality of
manufactured product.
20. Utilities and services
Power
The total connected load of the plant is 1000 KW and Maximum
Demand is 850 KVA. One DG set of 1000 KVA will be installed for
100% standby power generation.
Water
The total water requirement is 15 M3 per day at 100% capacity
utilisation.
Plant mainly consumes water for cooling and for human consumption.
Water is also required for cleaning and gardening. There is no steam
requirement or process water requirement in the manufacture.
Ground water can be tapped to meet the total water requirement of the
plant. Where ever possible, water is recycled. On a conservative basis,
water is assumed to be purchased from outside sources.
Compressed air
The Electrode plant uses compressed air for instrumentation. The
requirement is small and adequate provision has been made in the
project cost towards compressor and pipe lines for the compressed air
supply.
21. Manpower requirement
The total manpower requirement is 187 at 75% capacity utilisation for the
Electrode plant and Administration. The break up is:

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S.No Particulars 2010-11 2011-12 2012-13 2013-14
1 Administration 68 85 104 117
2 Plant Operations 42 47 61 65
Total 110 132 165 182
22. Logistics
01. Since, the product is low volume, high value item, logistics is not
critical for the project.
02. The raw materials, consumables and components can be moved to the
site by trucks. The total supplies of finished goods in the domestic
markets are moved by trucks due to ease of operation and cost
competitiveness. The export products are moved to the Container
freight station (ICD) at Sanath Nagar, Hyderabad by trucks from the
factory. From there the containers are moved to Vizag, Chennai or
Mumbai port based on the economies. For the project viability, it is
desirable to keep the transportation cost low.
23. Project Implementation
01. The welding electrode plant implementation period is 12 months after
the financial closure. It is planned to start the commercial operations
from April 2010.
02. The company’s own project team will implement the project. Wherever
necessary, external consultants will be involved. The collaborator team
also will assist the project team. The factory requires factory sheds and
other miscellaneous buildings. The construction of factory buildings will
take about 6 months. The lead time for the supply of imported
equipments is 8 months and 1 month for transport. The lead time for
German machinery is 6 months and 1 month for transport. The
domestic equipments supply has short gestation period.
03. Reputed vendors and contractors will be considered for the project
implementation due to tight time schedules.

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24. Government approvals
The company will be an Indian domestic company under EPCG scheme.
The important Government approvals required for the project
implementation are:
1. Industrial Entrepreneurs' Memorandum (IEM) to be submitted to the
Secretariat for Industrial Assistance
2. Technical and financial Collaboration approval / intimation.
3. EPCG scheme, DGFT approval for the project imports.
4. NOC and consent under Water and Air Pollution Control Acts.
5. Approval of construction activity and building plan (Local
authorities).
6. Sanction of Power.
7. VAT Registration.
8. Quality Marking Certificate (BIS, RDSO, LLOYDS, ABS, DNV,TUV)
9. Weights and Measures.
10. Code Number for Export and Import.
11. Registration under factories act.
12. ESI/ PF
01.03 FINANCIAL HIGHLIGHTS
01. The break-up of project cost estimates are as follows:
(US$. in Millions)
S.No Details Cost
1 Land and site development 1.48
2 Buildings: 1.10
3 Plant & Machinery 9.23
4 Technical know-how and Consultancy fee 1.54
5 Expenses on Training 0.10
6 Misc-fixed assets 0.97
7 Preliminary and Capital Issue expenses 0.09
8 Pre-operative expenses 1.10
9 Provision for Contingencies 0.83
10 Margin money for working capital 0.98
Total 17.43
02. The Means of finance for the Project implementation is indicated
below:

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(US$. in Millions)
S.No Particulars Total
A Total Capital outlay 17.43
B Scheme of Finance
-Equity Capital 1.74
-Term loan 15.69
03 The financial Highlights of the project is provided in the following
table:
S.No Particulars 2010-11 2011-12 2012-13 2013-14 2014-15
1 Sales realization 14.33 22.29 25.48 31.85 31.85
2 Total Cost of Operations 9.54 14.49 16.63 20.63 20.63
3 Gross profit 4.80 7.80 8.85 11.22 11.22
4 Income Tax 0.01 0.90 1.30 2.04 2.17
5 Profit after Tax 0.64 2.01 2.53 3.78 3.87
6 Earnings per share 3.70 11.55 14.53 21.70 22.22
7 Reserves and surplus 0.64 2.40 4.58 8.01 11.54
8 Cash at hand 2.07 3.44 4.22 4.96 7.30
Internal rate of
9 return(Post Tax) 25.50%
10 Average DSCR 1.95
11 Total Payback period 51.98 Months
12 Breakeven Point 16.19% 19.07% 20.92% 23.46%