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Small and Medium Enterprises Development Authority Ministry of Industries & Production
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road, Lahore Tel: (92 42) 111 111 456, Fax: (92 42) 36304926-7 helpdesk@smeda.org.pk REGIONAL OFFICE PUNJAB 3rd Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road Lahore, Tel: (042) 111-111-456 Fax: (042) 36304926-7 helpdesk.punjab@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 KPK 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
September 2013
Pre-Feasibility Study
Table of Contents
1. DISCLAIMER ........................................................................................................................ 1 2. PURPOSE OF THE DOCUMENT ..................................................................................... 2 3. INTRODUCTION TO SMEDA ............................................................................................ 2 4. INTRODUCTION TO SCHEME ......................................................................................... 3 5. EXECUTIVE SUMMARY .................................................................................................... 3 6. BRIEF DESCRIPTION OF PROJECT & PRODUCE ..................................................... 3 7. CRITICAL FACTORS IN DECISION MAKING................................................................ 4 8. INSTALLED & OPERATIONAL CAPACITIES ................................................................ 4 9. POTENTIAL FOR INVESTMENT ...................................................................................... 4 10. POTENTIAL TARGET MARKETS & CITIES ............................................................... 5 11. PRODUCTION PROCESS FLOW ................................................................................ 5 11.1 De-Linting ......................................................................................................................... 6 11.2 Washing ............................................................................................................................ 6 11.3 Drying & Warming ........................................................................................................... 6 11.4 Expeller ............................................................................................................................. 6 11.5 Filter & Shaker ................................................................................................................. 6 11.6 Packaging & Dispatching ............................................................................................... 6 12. PROJECT COST SUMMARY ........................................................................................ 7 12.1 Project Economics .......................................................................................................... 7 12.2 Project Financing ............................................................................................................. 7 12.3 Project Cost ...................................................................................................................... 8 12.4 Space Requirement ........................................................................................................ 8 12.5 Equipment Requirement ................................................................................................ 8 12.6 Furniture & Fixtures Requirement ................................................................................ 9 12.8 Human Resource Requirement .................................................................................... 9 12.9 Revenue Generation ....................................................................................................... 9 12.10 Other Costs .................................................................................................................. 10 13. CONTACTS SUPPLIERS, EXPERTS/CONSULTANTS, DEV INSTITUTIONS 10 14. ANNEXURE .................................................................................................................... 11 14.1 Income Statement ......................................................................................................... 11 14.2 Balance Sheet................................................................................................................ 12 14.3 Cash Flow Statement ................................................................................................... 13 14.4 USEFUL PROJECT MANAGEMENT TIPS ........................................................... 14 14.5 Useful Links ................................................................................................................. 15 15. KEY ASSUMPTIONS .................................................................................................... 17
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Pre-Feasibility Study
1. DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general idea and information on the said matter. Although, the material included in this document is based on data/information gathered from various reliable sources; however, it is based upon certain assumptions which may differ from case to case. The information has been provided on as is where is basis without any warranties or assertions as to the correctness or soundness thereof. 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, its employees or agents do not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The contained information does not preclude any further professional advice. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information which is necessary for making an informed decision, including taking professional advice from a qualified consultant/technical expert before taking any decision to act upon the information. For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk
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Pre-Feasibility Study
3. INTRODUCTION TO SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was established in October 1998 with an objective to provide fresh impetus to the economy through development of Small and Medium Enterprises (SMEs). With a mission "to assist in employment generation and value addition to the national income, through development of the SME sector, by helping increase the number, scale and competitiveness of SMEs" , SMEDA has carried out sectoral research to identify policy, access to finance, business development services, strategic initiatives and institutional collaboration and networking initiatives. Preparation and dissemination of prefeasibility studies in key areas of investment has been a successful hallmark of SME facilitation by SMEDA. Concurrent to the prefeasibility studies, a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of experts and consultants and delivery of need based capacity building programs of different types in addition to business guidance through help desk services.
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Pre-Feasibility Study
4. INTRODUCTION TO SCHEME
Prime Ministers Small Business Loans Scheme, for young entrepreneurs, with an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidised financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions, initially through National Bank of Pakistan (NBP) and First Women Bank Ltd. (FWBL). Small business loans with tenure upto 7 years, and a debt : equity of 90 : 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).
5. EXECUTIVE SUMMARY
Seed Oil Extraction Unit is proposed to be established in cultivated areas of Balochistan e.g. Sibi, Naseer Abad, Jaffar Abad and other parts of the country including Dadu, Mirpur Khas, Sukkar, Multan, DG Khan, Bahawalpur, Rahim Yar Khan, Sadiqabad etc. The oil is used in stir-fry dishes, snack foods, seafood, vegetables and various foods around the globe and can be replaced with any other vegetable oil. The project can be used for Canola, Sunflower and Rapeseed, however keeping in view the resource availability, cost & demand factors of Rapeseed, the same is proposed for the said unit. The plant will process seeds of around 192,000 kgs, at maximum production capacity, assuming an 8 hour shift on daily basis and yield oil, residual cake and waste. It is crucial for the project, that clean and hygienic environment be maintained for quality control. Total cost estimate for the project is Rs. 1.90 Million with fixed investment of Rs. 0.90 Million and working capital of Rs. 1.00 Million. Given the cost assumptions, Internal Rate of Return (IRR) and payback are 42 % and 3.16 years respectively The most critical considerations or factors for success of the project are: 1. Most significant consideration Keeping in view the resource availability, cost & demand factors, Rapeseed is proposed for the said unit.
Pre-Feasibility Study
Balochistan e.g. Sibi, Naseer Abad, Jaffar Abad and other parts of the country including Dadu, Mirpur Khas, Sukkar, Multan, DG Khan, Bahawalpur, Rahim Yar Khan, Sadiqabad etc. Product: The proposed final product will be crude seed oil that can be sold to solvent oil mills for producing edible oil. Additional by products obtained from the process are residual cake (hulls & meal) and waste. Target Market: The target customers for the proposed product would primarily be solvent mills for oil and individuals, whole sellers & retailers for by products. Employment Generation: The proposed project will provide direct employment to 5 people. Financial analysis shows the unit to be profitable from the very first year of its operations.
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Pre-Feasibility Study
In 2005, the Government of Pakistan (GoP) liberalized the import of oilseeds, since then the crushing industry has been progressing remarkably. During the year 2010-11 (JulyMarch), a quantity of 1.7 million tons edible oil/oilseeds worth US$ 1.65 billion has been imported to fulfill the domestic demand. Oilseed consumption is likely to increase in coming years due to Pakistans high population growth rate. Total oilseed crush in upcoming years is predicted to be 20% higher than in previous years because of anticipated higher production1.
EXTRACTION PROCESS
De linting Washing Drying & Warming
Expeller
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Pre-Feasibility Study
A brief summary of the general operations is detailed under the following heads: 11.1 De-Linting De-linting is done to remove the hairs/linters from the seed. Internationally de-linting of seeds is done using specialized cutter. However acid de-linting is normally practice in Pakistan due to cost saving and technological constraints. For the purpose of acid delinting 1kg of Sulphuric acid is used for around 10kg of seeds. Or de-linted seeds can be purchased directly from the market for seed oil extraction. 11.2 Washing Washing of seeds is done initially to remove dust particles, stones, chaff and other impurities. The impurities as Chaff left in the seed can absorb some of the oil and keep it from getting squeezed out of the expeller while dust and stone particle can damage the oil press screw or piston. Water tubs will be use for the said purpose where washing is done manually however mechanical lines are also available in the market. 11.3 Drying & Warming Seeds are dry & warm in the second phase. Moist seed leads to low yields and can clog the screw, cage or a part of the press. A thumb rule is that the moisture content of the seed should be close to 10 percent whereas optimum heat range for seed oil extraction is from 100 to 160 degrees. Mechanical drying is practice internationally using oven or double boiler etc. However in Pakistan, seeds are normally dried in sheds under natural sunlight and hence proposed for the said unit. 11.4 Expeller Oil is extracted mechanically using expeller but ram press or even mortar & pestle can be used for the same purpose. Traditionally small handmade Presses/Expellers are used, however power-driven commercialize line are suggested for the plant. 11.5 Filter & Shaker The extracted seed oil is filter and shake to improve its quality and appearance. Caustic soda & Bleach are normally used in Pakistan for the said purpose. The remaining i.e. residual cake and left over raw ingredient (used in soap & paints etc.) are separated and sold in market for different purposes. 11.6 Packaging & Dispatching The final product is packed using hygienically cleaned barrels and sold to solvent plants.
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Pre-Feasibility Study
Table 1: Project Economics Description Internal Rate of Return (IRR) Payback Period (yrs) Net Present Value (NPV) Details 42% 3.16 4,452,484
Returns on the project and its profitability are highly dependent on the demand, operational capacity, utilization of mixed raw material and staff. In case the project does not function at the proposed efficiency levels, it will not be able to cover its expenses and recover payments; 12.2 Project Financing Following table provides details of the equity required and variables related to bank loan; Table 2: Project Financing Description Total Equity (10%) Bank Loan (90%) Markup to the Borrower (%age/annum) Tenure of the Loan (Years) Details Rs.190,180 Rs.1,711,621 8% 7
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12.3 Project Cost Following requirements have been identified for operations of the proposed business. Table 3: Capital Investment for the Project Capital Investment Land Building/Infrastructure Furniture & fixtures Machinery & Equipment Office equipment Pre Operating Cost Total Capital Costs Initial Working Capital Total Project Cost 12.4 Space Requirement It is recommended that the proposed project should be established in a rented building to reduce project cost. In case a purpose built building is purchased, project cost will increase. Rent expense for the building is assumed at Rs. 18,750 per month. Table 4: Space Requirement Description Office Building Factory Store Grounds Total Building Area 12.5 Equipment Requirement Basic requirements for the said prefeasibility will be Seed oil extraction line. In addition to this, office equipment is recommended for routine operations. Details of equipment required for the project are given as below Sq .ft Required 250 1,000 Amount (Rs.) 162,500 120,000 501,400 18,000 86,351 888,251 1,013,550 1,901,801
1,250
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Pre-Feasibility Study
Table 5: Equipment Detail Equipment Details Expeller (local) Motor 5HP. Storage drums (200 kg) Wiring/electrician Cell Phone Fax Total 12.6 Furniture & Fixtures Requirement The furniture & fixtures requirement for the project will be inclusive of office furniture and one air conditioner; costing Rs. 120,000 only. 12.8 Human Resource Requirement Manpower required for operating the project is as follows: Qty 1 1 13 1 1 Cost/Uni t 350,000 100,000 2,000 25,000 5,000 13,000 Total Cost 350,000 100,000 26,400 25,000 5,000 13,000 519,400
Table 7: Human Resource Detail Description Owner Manager Worker 12.9 Revenue Generation It is assumed that oil, residual cake and waste will be produced as per the following percentages of total quantity of seeds processed; 33%, 65% and 2% respectively. Further, expected sale prices of oil and residual cake are; Rs. 160 and Rs. 25 respectively, whereas waste cannot be resold. The unit is proposed to begin functioning at 50% capacity from year 1 and will steadily increase its functional capacity by 5% for a maximum 80% capacity utilization. Qty 1 4 Total Monthly Salary (Rs.) 20,000 40,000
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Pre-Feasibility Study
Table 9: Revenue Detail Product Sales Price / Unit (Rs) Kg/Liter 35.00 Unit First Year Production 360,000 First Year Revenue (Rs) 12,600,000
A primary cost of the project is purchase of seeds for processing; for the purpose of rapeseed oil extraction, cost of seed is assumed at Rs. 35 per kg as per market rates. Similarly, overhead costs include utilities; electricity, gas & water and machinery maintenance costs. It is also proposed that two months worth of raw material inventory be maintained during the life of the project
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Pre-feasibility Study
14. ANNEXURE
14.1 Income Statement
Statement Summaries
Income Statement
Year 1 Revenue Cost of goods sold Gross Profit General administration & selling expenses Administration expense Rental expense Utilities expense Travelling & Comm. expense (phone, fax, etc.) Office vehicles running expense Office expenses (stationary, etc.) Promotional expense Insurance expense Professional fees (legal, audit, etc.) Depreciation expense Amortization expense Property tax expense Miscellaneous expense Subtotal Operating Income Other income Gain / (loss) on sale of assets Earnings Before Interest & Taxes Interest expense Earnings Before Tax Tax NET PROFIT/(LOSS) AFTER TAX Balance brought forward Total profit available for appropriation Dividend Balance carried forward 6,628,800 5,531,664 1,097,136 Year 2 8,020,848 6,663,309 1,357,539 Year 3 9,625,018 7,973,671 1,651,347 Year 4 11,469,813 9,489,083 1,980,730 Year 5 13,587,317 11,239,823 2,347,493 Year 6 16,013,623 13,260,745 2,752,878 Year 7 18,789,318 15,592,027 3,197,291 Year 8 20,668,249 17,258,863 3,409,387 Year 9 22,735,074 19,115,235 3,619,840 Rs. in actuals Year 10 25,008,582 21,184,919 3,823,662
SMEDA
240,000 18,750 120,000 72,065 17,270 468,085 629,051 629,051 131,312 497,739 497,739
263,367 20,625 132,000 72,065 17,270 505,327 852,212 852,212 115,617 736,595 33,764 702,831 497,739 1,200,570 1,200,570
289,008 22,688 145,200 72,065 17,270 546,231 1,105,116 1,105,116 98,628 1,006,488 73,621 932,867 1,200,570 2,133,437 2,133,437
317,147 24,956 159,720 72,065 17,270 591,158 1,389,571 1,389,571 80,238 1,309,333 119,039 1,190,295 2,133,437 3,323,731 3,323,731
348,025 27,452 175,692 72,065 17,270 640,504 1,706,990 1,706,990 60,333 1,646,657 177,003 1,469,654 3,323,731 4,793,385 4,793,385
381,909 30,197 193,261 72,065 677,432 2,075,446 2,075,446 38,786 2,036,660 264,886 1,771,773 4,793,385 6,565,159 6,565,159
419,092 33,217 212,587 72,065 736,961 2,460,330 2,460,330 15,464 2,444,866 346,512 2,098,354 6,565,159 8,663,513 8,663,513
459,895 36,538 233,846 72,065 802,345 2,607,042 2,607,042 2,607,042 386,795 2,220,247 8,663,513 10,883,760 10,883,760
504,671 40,192 257,231 72,065 874,159 2,745,680 2,745,680 2,745,680 421,455 2,324,225 10,883,760 13,207,985 13,207,985
553,807 44,212 282,954 72,065 953,037 2,870,625 2,870,625 2,870,625 452,691 2,417,934 13,207,985 15,625,919 15,625,919
497,739 497,739
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Pre-feasibility Study
SMEDA
15,734,849 15,734,849
81,250 81,250
5,572,743
7,061,589
8,853,693
11,073,940
13,398,165
15,816,099
1,711,621 1,711,621
1,521,218 1,521,218
1,315,121 1,315,121
1,092,035 1,092,035
850,559 850,559
589,177 589,177
306,250 306,250
Shareholders' equity Paid-up capital 190,180 Retained earnings Total Equity 190,180 TOTAL CAPITAL AND LIABILITIES 1,901,801
Note: Total assets value will differ from project cost due to first installment of leases paid at the start of year 0
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Pre-feasibility Study
SMEDA
(744,800) (744,800)
Financing activities Change in long term debt 1,711,621 Change in short term debt Change in export re-finance facility Add: land lease expense Land lease payment (18,750) Change in lease financing Issuance of shares 190,180 Purchase of (treasury) shares Cash provided by / (used for) financing1,883,051 activities Investing activities Capital expenditure (888,251) Acquisitions Cash (used for) / provided by investing activities (888,251) NET CASH Cash balance brought forward Cash available for appropriation Dividend Cash carried forward 250,000
44,212 44,212
250,000 250,000
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Pre-feasibility Study
14.4 USEFUL PROJECT MANAGEMENT TIPS Technology List of Machinery & Equipment (As per Section 12.5)
Required spare parts & consumables: Suppliers credit agreements and availability as per schedule of maintenance be ensured before start of operations. Energy Requirement: Should not be overestimated or installed in excess and alternate source of energy for critical operations be arranged in advance. Machinery Suppliers: Should be asked for training and after sales services under the contract with the machinery suppliers. Quality Assurance Equipment & Standards: Whatever means required products quality standards need to be defined on the packaging and a system to check them instituted, this improves credibility.
Marketing Product Development & Packaging: Expert's help may be engaged for product/service and packaging design & development. Ads & P.O.S. Promotion: Business promotion and dissemination through banners and launch events is highly recommended. Product broachers from good quality service providers. Sales & Distribution Network: are required with. Expert's advise and distribution agreements
Price - Bulk Discounts, Cost plus Introductory Discounts: Price should never be allowed to compromise quality. Price during introductory phase may be lower and used as promotional tool. Product cost estimates should be carefully documented before price setting. Government controlled prices shall be displayed. Wholesale prices of seed, oil and cake extracted from various products are given below; Product Rapeseed Sunflower Canola Seed Oil (Rs. / Kg) (Rs. / Liter) 34.00 145.00 40.00 155.00 35.00 135.00 Cake (Rs. / Kg)) 25.00 32.00 25.00
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Pre-feasibility Study
Adequacy & Competencies: Skilled and experienced staff should be considered an investment even to the extent of offering share in business profit. Performance Based Remuneration: Attempt to manage human resource cost should be focused through performance measurement and performance based compensation. Training & Skill Development: Encouraging training and skill of self & employees through experts and exposure of best practices is route to success. Least cost options for Training and Skill Development (T&SD) may be linked with compensation benefits and awards. 14.5 Useful Links
Prime Ministers Office www.pmo.gov.pk Small & Medium Enterprises Development Authority (SMEDA) www.smeda.org.pk National Bank of Pakistan (NBP) www.nbp.com.pk First Women Bank Limited (FWBL) www.fwbl.com.pk Government of Pakistan www.pakistan.gov.pk Ministry of Industries & Production www.moip.gov.pk Ministry of Education, Training & Standards in Higher Education http://moptt.gov.pk Government of Punjab www.punjab.gov.pk Government of Sindh www.sindh.gov.pk
15 September, 2013
Pre-feasibility Study
Government of Khyber Pakhtoonkhwa www.khyberpakhtunkhwa.gov.pk Government of Balochistan www.balochistan.gov.pk Government of Gilgit Baltistan www.gilgitbaltistan.gov.pk Government of Azad Jammu & Kashmir www.ajk.gov.pk Trade Development Authority of Pakistan (TDAP) www.tdap.gov.pk Security Commission of Pakistan (SECP) www.secp.gov.pk Federation of Pakistan Chambers of Commerce and Industry (FPCCI) www.fpcci.com.pk State Bank of Pakistan (SBP) www.sbp.org.pk Pakistan Institute of Fashion Design(PIFD) www.pifd.edu.pk Pakistan Fashion Design Council (PFDC) www.pfdc.org
16 September, 2013
Pre-feasibility Study
17 September, 2013