Pre-Feasibility Study

CORRUGATED PACKAGES

Small and Medium Enterprise Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE 6th Floor, LDA Plaza, Egerton Road, Lahore Tel: (042) 111-111-456, Fax: (042) 6304326-27 Helpdesk@smeda.org.pk
REGIONAL OFFICE PUNJAB 8th Floor, LDA Plaza, Egerton Road, Lahore. Tel: (042) 111-111-456 Fax: (042) 6370474 helpdesk@smeda.org.pk REGIONAL OFFICE SINDH 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 Helpdesk-khi@smeda.org.pk REGIONAL OFFICE NWFP Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 9213046-47 Fax: (091) 286908 Helpdesk-pew@smeda.org.pk REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 831623, 831702 Fax: (081) 831922 helpdesk-qta@smeda.org.pk

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1 2 3

INTRODUCTION TO SMEDA ....................................................................................................5 PURPOSE OF THE DOCUMENT ...............................................................................................5 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT.....................6 3.1 3.2 3.3 3.4 STRENGTHS .............................................................................................................................6 WEAKNESSES ..........................................................................................................................6 OPPORTUNITIES .......................................................................................................................6 THREATS.................................................................................................................................6

PROJECT PROFILE ....................................................................................................................6 4.1 4.2 4.3 4.4 4.5 4.6 4.7 OPPORTUNITY RATIONALE ......................................................................................................6 PROJECT BRIEF........................................................................................................................7 MARKET ENTRY TIMING ..........................................................................................................7 PROJECT CAPACITY AND RATIONALE .......................................................................................7 PROJECT INVESTMENT .............................................................................................................8 RECOMMENDED PROJECT PARAMETERS ............................. ERROR! BOOKMARK NOT DEFINED. PROPOSED LOCATION ..............................................................................................................8

SECTOR & INDUSTRY ANALYSIS ...........................................................................................8 5.1 SECTOR CHARACTERISTICS ......................................................................................................8

MARKET INFORMATION..........................................................................................................9 6.1 6.2 MARKET POTENTIAL ...............................................................................................................9 TARGET CUSTOMERS ............................................................................................................. 10

PRODUCT ................................................................................................................................... 10 7.1 7.1.1 7.1.2 7.2 7.2.1 7.2.2 7.3 7.4 7.5 7.6 7.6.1 7.6.2 7.6.3 7.7 PRIMARY FUNCTIONS ............................................................................................................ 10 Protective Function.......................................................................................................... 10 Loading and Transport Function ...................................................................................... 10 SECONDARY FUNCTIONS........................................................................................................ 10 Sales Function ................................................................................................................. 10 Promotional Function ...................................................................................................... 10 SERVICE FUNCTION ............................................................................................................... 11 PRODUCTION PROCESS FLOW ................................................................................................. 11 PRODUCT MIX ....................................................................................................................... 13 RAW MATERIAL REQUIREMENT ............................................................................................. 13 Take Up Factor (Liner Paper).......................................................................................... 14 Waste Margin................................................................................................................... 15 Major Suppliers of Raw Material...................................................................................... 15 SALES PRICE ......................................................................................................................... 15

TECHNOLOGY AND PROCESSES.......................................................................................... 15 8.1 8.2 8.3 8.4 8.5 8.6 MACHINERY & EQUIPMENT REQUIREMENT ............................................................................ 16 REPAIR & MAINTENANCE ...................................................................................................... 17 ERECTION & INSTALLATION .................................................................................................. 17 OFFICE EQUIPMENT ............................................................................................................... 17 FURNITURE AND FIXTURES .................................................................................................... 18 MOTOR VEHICLES ................................................................................................................. 18

LAND & BUILDING REQUIREMENT..................................................................................... 18 9.1 9.2 COVERED AREA REQUIREMENT ............................................................................................. 18 RENT COST ........................................................................................................................... 19 2

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9.3 10 11

UTILITIES REQUIREMENT ....................................................................................................... 19

HUMAN RESOURCE REQUIREMENT................................................................................... 19 PROJECT COSTS....................................................................................................................... 20 11.1 ESTIMATED TIME FOR PROJECT COMPLETION .......................................................................... 20

12

FINANCIAL ANALYSIS ............................................................................................................ 22 12.3 12.4 12.5 PROJECTED BALANCE SHEET ............................................. ERROR! BOOKMARK NOT DEFINED. PROJECTED CASH FLOW STATEMENT ................................. ERROR! BOOKMARK NOT DEFINED. RAW MATERIAL COSTS ......................................................................................................... 25

13

KEY ASSUMPTIONS ................................................................................................................. 26

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DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information he/she feels necessary for making an informed decision. For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk

DOCUMENT CONTROL
Document No. Prepared by Issue Date Up-dation Date Issued by PREF-79 SMEDA-Punjab September, 2004 January, 2007 Library Officer

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INTRODUCTION TO SMEDA

Small and Medium Enterprise Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program. Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development. SMEDA has so far successfully formulated strategies for sectors including, fruits and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear, textiles, surgical instruments, transport and dairy. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDAs areas of operation. Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way. This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.

PURPOSE OF THE DOCUMENT

The objective of a pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, production, marketing, finance and business management. The document also provides sectoral information, brief on government policies and international scenario, which have some bearing on the project itself. This particular pre-feasibility relates to Corrugated Packages. Before studying the whole document one must consider following critical aspects, which form the basis of any investment decision.
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CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT

Before making the decision, whether to invest in the corrugated packaging business or not, one should carefully analyze the associated risk factors. A SWOT analysis can help in analyzing these factors which can play important role in making the decision. 3.1 3.2 3.3 3.4 Strengths Corrugated packages provide efficient and convenient unit for marketing of the product. They allow weighing of produce as well as handling and transport to be accomplished in fewer steps. When compared with wooden crates, corrugated boxes are light to carry and are preferred by air freight companies. They are recyclable unlike non-recyclable packaging that has to be burnt at the end of its life. Weaknesses Corrugated packages are not reusable. They cannot be produced economically on a small scale. Cost of labour for each batch and cost of overheads keep on decreasing with the increasing production. They are easily damaged by water and rough handling unless impregnated with wax at extra cost. They offer most practical and economic choice for packaging but availability of suitable designs at the right price remains the greatest challenge to improvements. Opportunities Corrugated packages allow for easy printing of labels and can be manufactured to a wide range of sizes, shapes and strength specifications. Manufacturing sector of Pakistan showed a record growth of 12.6% in the year 2003-2004, which in turn increases the demand for packaging facilities as well. Threats Innovations in the packing industry like plastic crates, plastic bags etc. may affect the market demand for corrugated packages.

4
4.1

PROJECT PROFILE
Opportunity Rationale

Corrugated Packaging is visible wherever goods are produced, transported and displayed. Since its invention years ago, corrugated packaging has ensured efficient safe and sanitary transit of goods, protecting and wrapping about 70% of the worlds liquid and solid materials from producer to consumer.
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In Pakistan, the demand for corrugated packages is increasing, as the growth in the manufacturing industry touched a level of 12.6 %1 last year Corrugated packaging protects the product during storage, transportation and handling. Thus the package, by virtue of its protective function-becomes a vital link in the distribution chain. Also corrugated cartons offer the most practical and economic choice for packaging for inter island trade. Product range includes consumer packages, food and non food-packages, transport packages. 4.2 Project Brief

The proposed project will be producing corrugated packages. Corrugated packages are paperboard made from one or more plies of fluted paper, which is glued onto, paper or cardboard. The said business will be producing 7-ply corrugated sheets. Different sizes of boxes will be produced to facilitate the customers nationwide. The proposed business will be manufacturing corrugated boxes for meeting the local demand. 4.3 Market Entry Timing

Corrugated Packages are used in so many different sectors that the demand never gets affected with seasons, changing trends and emerging attributes. So the proposed business can be started at any time of the year. At the commencement of the proposed business, it is important that the entrepreneur must have good public relations in the market and should have some orders in hand. 4.4 Project Capacity and Rationale

The proposed corrugated packaging facility will handle 5000 boxes per day of proposed sizes in 8 hours shift. Details are given in the following table. Table 4-1 Project Capacity 2 4 5,000

Hours utilized by one batch Number of product lines Maximum box capacity per day per shift

The industry norm is to run the unit for one shift per 8 hours. However, it can vary depending on the level of orders received from the market. This feasibility is based on one shift of 8 hours.

Federal Budget 2005-06 7

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4.5

Project Investment

Total project cost is Rs. 5.9 million. Table 4-4-1 Project Costs Capital Investment Working Capital Requirement Total Investment 4,432,560 1,541,201 5,973,761

Table 4-4-2 Project returns IRR Pay Back period NPV % Yrs. Rs. 34% 5 7,204

4.6

Proposed Location

Selection of a district or a particular city for a project has an imperial effect on fixed and operational costs. The proposed location should be located near the industrial areas as this would reduce the transport cost. Suitable locations in Pakistan for setting up the proposed business are mentioned in the table below: Table 4-2 Lahore Rawalpindi Karachi Faisalabad Sargodha Suitable Locations City Location Kot Lakhpat, Bund Road, Multan Road, Sheikhupura Road, Kasur Road,Raiwand Road Peshawar Road, Peer wadhai Korangi Industrial Area, Landhi Industrial Area Sargodha Road, Jharanwala Road Bhalwal-Kotmomon Road,

5
5.1

SECTOR & INDUSTRY ANALYSIS

Sector Characteristics

The numbers of corrugated packaging facilities in Pakistan has increased at a rapid pace over the last few years. The size of this sector is still growing. Large corrugated packaging facilities have been set up in the industrial areas of Pakistan. Approximately 2,000 corrugated packaging facilities are being operated in Lahore. Few of them are as follows: Fine Packages Packages Limited
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Roshan Packages Al-sheikh Packages Convertec Packages Bismillah Packages General Packages

Similarly, large corrugated packaging facilities are also working in prime business locations in Karachi and Rawalpindi, Faisalabad.

6
6.1

MARKET INFORMATION
Market Potential

The trend for packaging has changed from the primitive packaging (wooden boxes) to a modern and up-to-date packaging (corrugated packaging). Nowadays, corrugated packaging is used by almost every manufacturer and supplier or perishable, non perishable and fragile products. Corrugated Packages have inherent benefits as they are environment friendly and have recycling capability. This is the major reason, the international market prefers corrugated packages. Trade Flow of Corrugated Packages (Pakistan)2 Year 2003 2004 2005 Top Export Partner3 Partner Afghanistan Iran United Arab Emirates United Kingdom USA Trade Value (US$) 5,495,404 3,830,161 3,308,145 2,017,029 1,748,040 Import (US$) 211,953,808 225,411,291 296,908,438 Export (US$) 8,374,225 11,766,966 6,125,474

UN comtrade UN comtrade

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6.2

Target Customers

As mentioned above, the target customers are manufacturers and suppliers of all types of goods. Following are some of the target clients for a manufacturer of corrugated packaging. Pharmaceutical Industry Textile Industry Home Appliances Garments Confectionary Fruits and Vegetables Shoes Cosmetics

PRODUCT

The proposed project will be producing 7 ply corrugated packaging boxes of different sizes which will be serving several purposes. The functions of the product can be classified into three different categories. 7.1 Primary Functions

7.1.1 Protective Function The protective function of packaging essentially involves protecting the contents from the environment and vice versa. This is intended to ensure full retention of the utility value of the packaged goods or in other words it is intended to protect the goods from loss, damage and theft. 7.1.2 Loading and Transport Function Convenient goods handling entails designing transport packaging in such a manner that it may be held, lifted, moved, set down and stowed easily, efficiently and safely. Packaging thus has a crucial impact on the efficiency of transport, handling and storage of goods. 7.2 Secondary Functions

7.2.1 Sales Function The purpose of the sales function of a package is to enable or promote the sales process and to make it more efficient 7.2.2 Promotional Function Promotional material placed on the packaging is intended to attract the potential purchaser and to have a positive impact upon the purchasing decision.

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7.3

Service Function

The various items of information printed on packaging provide the consumer with details about the contents and use of the particular product i.e. dosage information on medicines. 7.4 Production Process Flow

A 7 ply corrugated box consists of 7 layers of sheets. 2 sheets of kraft paper are used on both sides and 5 sheets of flutter paper are used in between them. 3 three sheets of flutter paper will be lined and 2 sheets will be of plain flutter paper. A 7 ply sheet is shown in the figure below:

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Figure 7-1

7 Ply corrugated sheet

Kraft Paper Flutter paper (plain)

Kraft Paper Flutter Paper (lined)

The process of manufacturing starts from corrugating followed by cutting in accordance with different shapes and sizes, pasting, rotary, bending according to the design and finally stapling to form a shape and to remain strongly intact. Figure 7-2 Process Flow

Corrugating

Cutting

Pasting

Slanting/ bending

Rotary

Printing

Stapling
The above process takes approximately 8 hours to complete from corrugation to stapling. Each process is explained as below: a) Corrugation: - In this process the flutter paper is firstly heated up, then passed over the tray, which contains pasting fluid, along with the kraft paper. It is then passed through a corrugating machine, where 5-ply paper corrugated board is manufactured by using glue making unit and reel stand. b) The Liner paper can also be used instead of Flutter paper for better quality upon clients special request. c) Cutting: - The sheet is cut according to the required size using a paper cutter. d) Pasting: - The corrugated sheet is then pasted on to another set of corrugated sheet, making it 7 Ply.
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e) Printing: - It is then printed as required by the customers i.e. fragile, some object, recycle after use etc. f) Rotary: - In this process the flaps and the Four Corners of the box are made using rotary machine. g) Slanting: - The sheet is bent in this process, forming a box shape. h) Stapling To give the box a firm and a proper shape, they are finally stapled. 7.5 Product Mix

Different sizes of boxes are produced for various target industries. They are as follows: Table 7-1 Sizes A B C D Product Range Measurements 24 x 24 x 8 14.54 x 10.5 x 6.25 19.69x17.72x13.78 (50cm x 45cm x 35cm) Others Target Industry Textile Sector Pharmaceutical Sector Multi purpose Fridge, Electronic products etc.

Production capacity varies with the size of the box. Production for each size of box will be taking one batch of two hours. Proposed production for each size at 100% capacity will be as under: Table 7-2 Product Mix Per Day Production 750 1,000 750 500 3,000 Per Annum Production 225,000 300,000 225,000 150,000 900,000

Box Sizes 24x24x8" 14.54x10.5x6.25 19.69x17.72x13.78 Others(avg.) Total 7.6

Raw Material Requirement Kraft paper Flutter paper (Plain) Flutter paper (Liner) Pasting fluid (Silicate)

Following raw material are used in corrugated packages.

Raw material used for each size of box and their costing is shown in the tables below 4:

Calculations for quantity required are provided in the Financial Analysis section. 13

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Table 7-3

Raw Material Costing for 24x24x8 No. of Papers 2 2 3 7 No. of Papers 2 2 3 7 No. of Papers 2 2 3 7 No. of Papers 2 2 3 7 Quantity Required (Kg.) 0.53 0.51 1.1 Rs./Kg 55 15 15 Total Cost (Rs.) 29.15 7.65 16.5 53.3 Total Cost (Rs.) 8.25 2.1 4.5 14.85 Total Cost (Rs.) 3.85 0.9 1.95 6.7 Total Cost (Rs.) 29.15 7.65 16.5 53.3

Raw Material Used Liner Paper Flutter Paper (Plain) Corrugated Flutter Total Table 7-4 Raw Material Used Kraft Paper Flutter Paper (Plain) Flutter Paper (Liner) Total Table 7-5 Raw Material Used Kraft Paper Flutter Paper (Plain) Flutter Paper (Liner) Total Table 7-6 Raw Material Used Liner Paper Flutter Paper (Plain) Corrugated Flutter Total

Raw Material Costing for 14.54x10.5x6.25 Quantity Required (Kg.) 0.15 0.14 0.30 Rs./Kg 55 15 15

Raw Material Costing for 19.69x17.72x13.78 Quantity Required (Kg.) 0.07

0.06

Rs./Kg 55 15 15

0.13

Raw Material Costing for Miscellaneous Sizes Quantity Required (Kg.) 0.53 0.51 1.1 Rs./Kg 55 15 15

7.6.1 Take Up Factor (Liner Paper) A 7 plied corrugated sheet consists of 2 kraft papers on both sides, 2 plain flutter papers and three sheets of lined flutter paper. The proposed business will only be buying kraft paper and plain flutter paper from the market. A plain flutter paper is converted into a lined flutter paper during the process of corrugation. A lined flutter paper consumes more flutter paper and the take up factor is 40% on average. In other words, a lined flutter paper is 40% heavier than a plain flutter paper. While costing for lined flutter paper it is very important that the cost of additional take up of flutter paper is considered.
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7.6.2 Waste Margin Wastage is a common feature for corrugated packages business. It is estimated that 1% of the total production goes into waste. But as the wastage occurs during the production process, it is generally charged to the client. The wastage on the other hand is sold as scrap by the manufacturer at the rate of Rs.8.00 per kg. 7.6.3 Major Suppliers of Raw Material The raw materials are easily available in Lahore and other major cities. Some of the suppliers in Lahore are having their sales point on Bund road and Gunpat road. 7.7 Sales Price

It is generally observed in the corrugated packages business that the sales price is fixed 25% above the cost of raw material consumed for the proposed box size. This 25% includes the profit margins, cost of pasting fluids and printing costs. On the other hand, cost of printing is approximately Rs.1 per box and pasting fluids are available at the rate of Rs.6 per kilogram. Consumption of pasting fluids depends upon the size of the box. This particular pre-feasibility assumes that the sales prices are 25% above the cost of raw material which include the costs of printing and pasting fluids. Table 7-7 Sales Prices Box Sizes Sales Prices (Rs.) 67 19 8 67

24x24x8" 14.54x10.5x6.25 19.69x17.72x13.78 Others(avg.)

TECHNOLOGY AND PROCESSES

In Pakistan, there are several manufacturers of corrugated packaging machines. There are around 10 suppliers in Lahore i.e. Muhammad Hussain in Misree Shah, Mr. Shafiq in Shah Jamal, almost 42 suppliers in Karachi and 2 suppliers are in Islamabad. These machines can also be imported from the following countries. However, the cost of imported machinery is too high as compared to local machinery. German Brazil Sweden USA Taiwan China Korea

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The locally manufactured machinery is comparable to the imported machinery in terms of production and quality of the output, whereas price wise, local machinery has an edge over imported machinery. Some of the corrugation machinery manufacturers are listed below: Chughtai Engineering Works, Lahore Prime Tech International, Lahore Sama Engineering works, Karachi The above mentioned suppliers also export the corrugated packaging machinery to Tashkent and South Africa, which proves the fact that local machinery is comparable to international standards. 8.1 Machinery & Equipment Requirement

The major cost involved in establishing a well-equipped corrugated packaging facility is primarily the cost of plant and machinery. Basically there are three types of machineries available in the market, which are as follows: Table 8-1 Machinery Types Estimated Cost of Plant Rs. 1.9 million Rs. 8 million

Machine type Semi automated corrugation plant Fully automated corrugation plant

Production capacity for the three types varies. Fully automated machinery employs lesser labor and gives the highest production but as the proposed business will be order based, it is recommended that initially it should concentrate on capturing the market while keeping the project costs at lower end therefore the proposed project will be operating on manually operated corrugation machine. There is a huge difference in the costs of the three types of machineries. As the total project cost is directly related with the cost of machinery, the proposed project will be using manually operated corrugation machine set. Manually operated corrugation machine set comprises of 9 machines to form a complete corrugated setup. Details of required machinery are shown in the table below:

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Table 8-2

Details of Machinery No. of Machines 1 1 1 1 1 1 1 2 1 2 12 Price per Machine Total Cost(Rs.) (Rs.) 250,000 250,000 50,000 50,000 35,000 35,000 50,000 50,000 35,000 35,000 100,000 100,000 700,000 700,000 30,000 60,000 500,000 500,000 50,000 100,000 1,880,000

Machines Corrugation Machine Pasting 105 Pasting 65 Rotary 105 Rotary 65 Came Slote 85 Flexo Printing Machine Hand Cutter 60
Dye Cutting Machine 40x60

Staple Machine 52 Total 8.2 Repair & Maintenance

A regular inspection is imperative for the smooth running of machines. The maintenance cost can be suppressed by these regular checkups. However, maintenance will be required to ensure its long life and better output. Annual repair & maintenance of the plant and machinery is estimated to be 1 % of the total machinery cost in the initial year and this rate is expected to grow at 0.05% in the proceeding years. Spare parts i.e. Rollers, Bearings and Cutter Blade are easily available from the suppliers of the machinery. 8.3 Erection & Installation

Erections and installation cost is assumed to be 5% of the total cost of machinery. 8.4 Office Equipment Description Split Unit Computer Printer Telephone sets Fire Extinguish Fax machine Total No. 1 2 1 4 2 1 Cost Per Unit(Rs.) 25,000 20,000 15,000 500 4,000 10,000 Total(Rs.000) 25.00 40.00 15.00 2.00 8.00 10.00 10,000.00

Following office equipment will be required for the proposed project:

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Depreciation on office equipment will be charged at 10% per annum on straight-line basis. 8.5 Furniture and Fixtures

Following furniture and fixtures will be required for factory and sales outlets. Table 8-4 Details of Furniture and Fixtures Description Sofa Set 2 Seat Chairs File Cabinets Office Table Total No 2 10 3 3 Cost Per unit 4000 500 6000 5000 Total(Rs.000) 8.00 5.00 18.00 15.00 46,000.00

Depreciation on furniture and fixtures will be charged at 10% per annum on straight-line basis. 8.6 Motor Vehicles

Along with the above mentioned machinery and equipment the proposed business will also be using two shehzore trucks. Each truck will cost approximately Rs. 649,000. Motor vehicles will be depreciated at 10% on straight-line method.

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9.1

LAND & BUILDING REQUIREMENT

Covered Area Requirement

Covered area requirement and construction costs are listed in the table below. Table 9-1 Covered Area Requirement Section Production Hall Storage Area Finished Goods Area Plant & Machinery Area Wastage Area Total Production Area Administrative Block Total Covered Area
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Total Area (Sq. ft.) 1,125 900 5,625 900 8,550 900 9,450

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Free Area Total Area Requirement 9.2 Rent Cost

1,800 11,250

As no major construction costs are involved in the proposed building so it is recommended that the area should be acquired on rent basis. The rent cost for the business varies with location. This project is proposed to be located in Kot Lakhpat industrial area, Lahore. An area of 2.5 kanal can be obtained on monthly rent of approximately Rs. 50,000 to 75,000. 9.3 Utilities Requirement Electricity Telephone Gas Water

10 HUMAN RESOURCE REQUIREMENT

Following staff would be required for the proposed project: Table 10-1 Direct Labor Designation Production Supervisor Semi Skilled Workers Indirect Labor Designation Administrative Staff Security gaurd Peon Driver Accountant/Admin Selling & Marketing
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Human Resource Requirement

Per month Salary

No. of employees

Total annual salaries

16,000 6,000

1 30

192 2,160

Per month Salary

No. of employees

Total annual salaries

5,000 4,000 5,000 15,000

2 2 1 1

120 96 60 180

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Staff Purchase Manager Marketing Manager Total Human Resource 22,000 22,000 1 1 39 264 264

11 PROJECT COSTS
Break down of total project cost is in the table below: Table 11-1 Table 11-1 Project Summary Plant and Machinery Furniture an fixture and Vehicles Pre operating Expenses Erection and Installation ( 5% of total machinery Cost) Contingencies Fixed Assets Initial working Capital Total Project Costs Cost Rs. (1000) 1,880 1,444 925 94 90 4,433 1541 5,974 Project Costs

11.1 Estimated time for project completion The proposed project will be taking around 7 to 8 months for completion. Activities to be performed before the regular operations start are as under: 1. 2. 3. 4. Fifteen days for completion of initial formalities, i.e., selection of suitable location and renting of building etc. One month for sanction of loan (in case, if financing has to be arranged through bank). Five to Six month for purchase of machinery. One month for furnishing and staff appointments.
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This project can take-off within five to six months as well, as some of the activities will be in progress simultaneously.

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Corrugated

12 FINANCIAL ANALYSIS
Projected Income Statement Year 1 Sales Corrugated Boxes Waste Cost of Sales Gross Profit Operating Expenses Operating Profit Less: Financial expenses 19,299 226 19,525 17,627 1,898 2,446 (547) 645 645 (1,192) (1,192) 22,528 251 22,779 19,706 3,073 2,662 411 251 251 160 8 152 26,113 278 26,391 21,906 4,485 2,900 1,585 184 184 1,401 365 1,035 (1,040) (4) 30,091 305 30,396 24,235 6,161 3,163 2,998 117 117 2,881 883 1,998 (4) 1,993 34,497 333 34,830 26,698 8,132 3,452 4,680 50 50 4,630 1,496 3,135 1,993 5,128 39,372 363 39,735 29,304 10,431 3,585 6,846 44,761 393 45,154 32,060 13,094 3,936 9,158 50,712 425 51,136 34,975 16,161 4,323 11,839 57,276 457 57,733 38,058 19,675 4,748 14,927 64,511 491 65,002 41,318 23,684 5,216 18,467 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9
Rs. (1000)

Year 10

6,846 2,271 4,575 5,128 9,703

9,158 3,080 6,078 9,703 15,780

11,839 4,019 7,820 15,780 23,600

14,927 5,100 9,828 23,600 33,428

18,467 6,339 12,129 33,428 45,557

Profit Before Taxation Income Tax Net profit After Taxation Retained earnings Profit transferred to balance sheet

(1,192) (1,192) (1,040)

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Corrugated

CORRUGATED PACKAGES Balance Sheet Capital and Reserves Share Capital Reatined Earnings Long Term Loan Current Liabilities Current portion of long term liabilitites Tax Payable Accounts Payable

Rs. (1000)

Year 0 3584 0 3,584 2,390

Year 1 Year 2 3584 3584 (1,192) (1,040) 2,392 2,544 1,434 956 478 347 825 4,650 3,166 740 830 450 (536) 745 4,650 478 8 390 876 4,376 2,824 555 926 526 (455) 997 4,376 -

Year 3 3584 (4) 3,580 478 478 365 435 1,278 5,335 2,482 370 1,027 609 847 2,483 5,335 -

Year 4 3584 1,993 5,578 478 883 482 1,843 7,421 2,140 185 1,134 702 3,260 5,096 7,421 -

Year 5 3584 5,128 8,712

Year 6 Year 7 Year 8 Year 9 3584 3584 3584 3584 9,703 15,780 23,600 33,428 13,287 19,365 27,185 37,012

Year 10 3584 45,557 49,141

5,974

1,496 532 2,027 10,739 1,799

2,271 584 2,855 16,142 1,457

3,080 639 3,719 23,084 1,115

4,019 697 4,715 31,900 773

5,100 757 5,857 42,869 431

6,339 777 7,115 56,257 90

Fixed Assets Fixed Assets Pre-operating expenses Current Assets Advance rent Raw Material Inventory A/C Receivable Cash/Bank

3,508 925 450 739 353 1,541 5,974 -

1,246 805 6,890 8,941 10,739 -

1,363 919 12,403 14,685 16,142 -

1,487 1,044 19,438 21,969 23,084 -

1,616 1,183 28,327 31,127 31,900 -

1,752 1,336 39,349 42,438 42,869 -

1,505 54,662 56,167 56,257 -

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Corrugated

CORRUGATED PACKAGES Cash Flow Statement

Operating activities Net profit Amortization (Pre-operational Expenses) Depreciation Raw Material Inventory Accounts receivable Accounts payable Tax Payable Building rent prepayments Prepaid Payments
Cash provided by operations

Year 0 (739) (450) (1,189)

Year 1 (1,192) 185 342 (91) (450) 347 450 (410) (478)

Year 2 152 185 342 (96) (75) 43 8

Year 3 1,035 185 342 (101) (84) 45 357

Year 4 1,998 185 342 (106) (93) 47 518

Year 5 3,135 185 342 (112) (103) 50 612

Year 6 4,575 342 (118) (114) 52 775

Year 7 6,078 342 (123) (126) 55 809

Year 8 7,820 342 (130) (139) 58 938

Year 9 9,828 342 (136) (153) 61 1,081

Rs. (1000) Year 10 12,129 342 1,752 (169) 19 1,239

559 (478)

1,780 (478)

2,891 (478)

4,108 (478)

5,513

7,035

8,889

11,022

15,313

Financing activities Long term debt principal repayment Addition to long term debt Owner's investment
Cash provided by/ (used for) financing activities

2390 3584 5974 (4,433) (4,433) 353 353

(478)

(478)

(478)

(478)

(478)

Investing activities Capital expenditure

Cash (used for)/ provided by investing activities

Net Cash Cash balance brought forward Cash carried forward

(888) 353 (536)

81 (536) (455)

1,302 (455) 847

2,413 847 3,260

3,631 3,260 6,890

5,513 6,890 12,403

7,035 12,403 19,438

8,889 19,438 28,327

11,022 28,327 39,349

15,313 39,349 54,662

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12.1 Raw Material Costs

C o n v er sio n F a c to rs 1 m 2 = 1 5 5 0 in ch 2 1 inc h = 2 5 .4 m m D im en sio n s S ize in In ch e s L e ng th L W id th W H eig ht H W id th req u ired (W +H )+2 5 .4 L e ng th req uired +W )x 2 + (2 x 2 5 .4 ) (L A rea o f sh e et W a ste M arg in K r a ft P a p er R e q u ir em e n t W e ig ht o f K raft p a p er (K g s p e r sq u are m eter) N o . o f kraft p ap e r W e ig ht o f k raft p a p er req u ire d P ric e p e r kg . kraft p ap er C o st o f kr a ft p a p er F lu tte r P a p e r R eq u ir em e n t W e ig ht o f F lutte r P ap er (K gs p e r sq u are m e ter) T a ke up fa cto r fo r lin ed flu tte r p a p er N o . o f flu tter p ap e r (p la in) W e ig ht o f p la in flutte r p ap er req u ired N o . o f flu tter p ap e r (lin er) w e igh t o f L ine d flutter p ap e r req u ired T o ta l w e igh t o f flu tte r p a p er P ric e p e r kg . F lutte r p ap e r C o st o f F lu tte r P a p er T o ta l ra w m a te ria l c o st S iz e in m illim eter s L x 2 5 .4 W x 2 5 .4 H x 2 5 .4

W id th req u ire d x L e n g th re q u ire d 5% 0 .1 2 5 2 (A re a o f sh ee t x w eig ht o f kraft p a p er x N o . o f k raft p a p er) x (1 +W aste M a rgin ) R s. 4 8 p r ice p er k g . x w eig h t o f k ra ft p a p er req u ire d 0 .1 2 40% 2 (A re a o f sh ee t x w eig ht o f flutte r p ap er x N o . o f flutte r p ap e r) x (1 +W aste M a rgin ) 3 (A re a o f sh ee t x w eig ht o f flutte r p ap er(1 + tak e u p fac to r fo r lined p ap e r) x N o . o f flutter p ap e r(L in er)) x (1 +W aste M a rg in ) w e igh t o f p la in flutte r p ap er req u ired + w e igh t o f lin ed flu tter p a p er req u ire d R s. 1 2 p r ice p er k g . x to ta l w e ig h t o f flu tter p a p er co st o f kr a ft p a p er + c o st o f flu tte r p a p e r

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13 KEY ASSUMPTIONS
Table 13-1 Operating Assumptions 900,000 1 8 300 4 2 Manually operated 9 100% 55% 5% 10% Annual production capacity (boxes) Operating Shift per day5 Operating hours per shift Days operational per year No. of Batches Hours consumed for one batch Table 13-2 Machinery Assumptions Machine Type Number of Machines Installed Installed capacity Initial year capacity Annual capacity growth rate Depreciation rate on machinery (Straight Line Method) Table 13-3 Revenue Assumptions Industry norms 30% 5% 2%

Sales prices Sales price growth rate Wastage sales Wastage sales growth rate Table 13-4 Financial Assumptions

Project life (Years) Debt Equity Interest rate on long term debt Debt tenure (Years) No. of installments in a year Amortization (years)

10 40% 60% 14% 5 2 5

The industry norm is one shift per day. However, it can vary with the demand 26

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Table 13-5

Cost of sales Assumptions 5% 10% 5% 10% 10% 5% 1% 2% 5% 7 7 15 30 Rs.194,000

Raw Material cost growth rate Wage and salaries growth rate Gas Growth rates Electricity growth rate Depreciation (straight line method) Table 13-6 Contingency Expense Assumptions Erection and Installation Furniture and Fixture Pre-operating Expenses Vehicles Table 13-7 Cash Flow Assumptions Accounts Receivable in days Accounts Payable in days Raw Material Inventory (days) Stores and Spares Inventory (days) Minimum Cash Required

27 PREF-79 /Sep, 2004/Rev 1