47.

PROFILE ON PRODUCTION OF TRAYS,

DISHES, PLATES, CUPS AND EGG TRAYS OF
PAPER
 47-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 47-3

II. PRODUCT DESCRIPTION & APPLICATION 47-3

III. MARKET STUDY AND PLANT CAPACITY 47-4

A. MARKET STUDY 47-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 47-6

IV. RAW MATERIALS AND INPUTS 47-7

A. RAW MATERIALS 47-7
B. AUXILIARY MATERIALS 47-7
C. UTILITIES 47-8

V. TECHNOLOGY & ENGINEERING 47-8

A. TECHNOLOGY 47-8
B. ENGINEERING 47-9

VI. MANPOWER & TRAINING REQUIREMENT 47-10

A. MANPOWER REQUIREMENT 47-10
B. TRAINING REQUIREMENT 47-11

VII. FINANCIAL ANALYSIS 47-12

A. TOTAL INITIAL INVESTMENT COST 47-12
B. PRODUCTION COST 47-13
C. FINANCIAL EVALUATION 47-14
D. ECONOMIC BENEFITS 47-15
 47-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of cups, plates and
egg trays from paper with a capacity of 10,000 kgs per annum.

The present demand for the proposed product is estimated at 33 tonnes per annum. The
demand is expected to reach at 65 tonnes by the year 2017.

The plant will create employment opportunities for 15 persons.

The total investment requirement is estimated at Birr 862,700, out of which Birr
291,500 is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 19 % and a net
present value (NPV) of Birr 365,280 discounted at 8.5 %.

II. PRODUCT DESCRIPTION AND APPLICATION

Paper cups, dishes, egg trays and plates are the most commonly used disposable crockery.
They are very light in weight and easy to handle. They are also used as containers for ice
creams and sweets. Now-a-days paper cups, dishes, egg trays and plates are finding
extensive usage for servicing foods in parties, functional and social gatherings. The
demand for paper cups, dishes, egg trays and plates are met both from local production
and imports. But demand for the product is still very high because of the increased
number of usages.
 47-4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Paper trays, dishes, plates and cups are finding extensive usage for servicing foods in
parties, functional and social gatherings. As urbanization expands, the demand for these
products will increase substantially. Currently, the demand for paper trays, dishes, plates
and cups is met both from local production and imports. Domestic production of these
products is usually undertaken by the small scale sector. However, there is no
quantitative data on how much is produced by this sector. On the other hand, due to their
inability to satisfy the existing demand a huge amount is imported from abroad.
Considering this situation the imported quantity in the past five years is analyzed to
determine the current unsatisfied demand (see Table 3.1).

Table 3.1
IMPORT OF TRAYS, DISHES, PLATES, AND
CUPS OF PAPER (TONNES)

Year Quantity
2002 20.80
2003 14.5
2004 30.7
2005 12.5
2006 55.0
Total 133.5
Average 26.7
Source:- Customs Authority).
 47-5

The data on Table 3.1 reveals that the country has been importing around 27 tonnes of
paper trays, dishes, plates and cups annually for the past five years. To determine the
current effective demand, the average of the recent three years is calculated and found to
be 33 tonnes.

2. Projected Demand

The demand for paper trays, dishes, plates and cups of paper is highly influenced by the
growth of the service sector which includes micro enterprise engaged in the supply of fast
foods, pastries and the like. In addition, the products are highly demanded by the urban
population during parties, functional and social gatherings. Considering the above
factors, a conservative growth rate of 7% per annum is taken to forecast the future
demand.

Table 3.1
FORECASTED DEMAND FOR TRAYS, DISHES, PLATES & CUPS

Year Qty(Tonnes)
2008 35.3
2009 37.8
2010 40.4
2011 43.3
2012 46.3
2013 49.6
2014 53.1
2015 56.8
2016 60.8
2017 65.0

Demand for the products will increase from 35.3 tonnes in 2008 to 46.3 tonnes and 65.0
tonnes by the year 2012 and 2017, respectively. By considering a market share of 25 -
 47-6

30%, a number of small and micro enterprises can be established in the various Zonal and
Special Woreda towns of SNPPR.

3. Pricing and Distribution

The price of trays, dishes, plates and cups differs widely according to size, quality of raw
materials used, design and the like. By considering the average CIF price of the recent
two years and allowing some costs for duty and other charges, a factory-gate price of Birr
50 per k.g is recommended. The product can find its market outlet through the general
merchandizing goods shops.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

The market study above indicates that demand projection for the assorted products for
the year 2008 will be 35.3 tons, and this figure is indicated to grow to 56.8 tonnes by the
year 2015. The envisaged plant will, therefore, have annual production capacity of 15
tonnes of assorted products (cups, plates and egg trays). The plant will operate single
shift of 8 hours a day and 300 days a year. Production can be doubled by operating the
plant for 16 hours.

2. Production Programme

The envisaged plant will need time for developing production skill and establishing a
significant market share of the economy. The plant will not, thus, start full capacity
production during the first year. It will be advisable to start production at 65% of full
capacity, and then will grow production to 75%, 85% and 100% in the successive years.
Table 3.3 below shows the details of production programme.
 47-7

Table 3.3
PRODUCTION PROGRAMME

Year 1 2 3 4 and above

Capacity utilization (%) 65 75 85 100
Production
a) Paper cups (pieces) 325,000 375,000 425,000 500,000
b) Paper plates ( pieces) 325,000 375,000 425,000 500,000
c) Egg trays (pieces) 6,500 7,500 8,500 10,000

IV. MATERIALS AND INPUTS

A. RAW MATERIALS

The major raw materials required for the envisaged project are card board and Kraft
paper. Annual requirement together with associated cost of these materials is given in
Table 4.1 below.

Table 4.1
ANNUAL RAW MATERIALS REQUIREMENT AND COST

Sr. Description Qty Cost (000 Birr)

No. (Tonnes)
LC FC TC
1 Grey board/mill board or card board 10.05 10.34 25.81 36.15
2 Draft paper 5.0 6.35 15.89 22.24
Total 15.05 16.69 41.7 58.39

B. AUXILIARY MATERIALS

Auxiliary materials required for the envisaged project are given in Table 4.2 below.
 47-8

Table 4.2
AUXILIARY MATERIALS REQUIREMENT AND COST

Sr. Description Qty (ton) Cost (000 Birr)

No. LC FC TC
1 Paraffin wax 4.2 15 40 55
2 Packing material Reqd 5.5 13 18.5
3 Miscellaneous (Ink, gum, etc) Reqd 6 - 6
Total 26.5 53 79.5

C. UTILITIES

Electricity and water are inputs required by the plant. Annual requirement of electrical
energy is 24,000 kWh while annual requirement of water is estimated to be 500 m3. At
the rate of Birr 0.474 per kWh and Birr 10 per m3 of water, the annual expenditure on
utilities will be Birr 16,376.

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

Paper is first printed on the printing machine. The printed part is cut to size and given the
desired shape by die cutting. The bottom part and the upper part of the cup are then
assembled to cup shape as desired in screw press. For wax coated type, the assembled
cups are put in a wax coating machine.

For paper saucers (plates) the paper is printed and cut to circles. The cut circles are
passed in screw press for obtaining the desired shape.
 47-9

2. Source of Technology

The address of technology supplier is given below:-

Savio Texcone Pvt. Ltd
Jayco House, Kishan Ganj, Hapur 245101, INDIA
Phone: + (91)-(122)-2309034
Fax: +)91)-(122)-2333412
Website: http://www. Saviotexcone.com

B. ENGINEERING

1. Machinery and Equipment

The plant machinery and equipment are listed in Table 5.1. The total cost of plant
machinery and equipment is estimated to be Birr 232,362, out of which Birr 198,600 is
required in foreign currency.

2. Building and Civil Work

The total area of the plant including provision for open spaces is estimated to be 500m2,
out of which 250 m2 is a built-up area. The lease cost of land and building is Birr 40,000
and Birr 375,000, respectively. Land lease cost in rated at Birr 1.0 per m2, for 80 years
and building cost at the rate of Birr 1,500 per m2.

Thus, the total investment on land, building and civil work will be Birr 415,000.

3. Proposed Location

Location of a plant is determined on the basis of proximity to raw materials, availability

of infrastructure and distance to potential market outlets. Three woredas, namely;
Awassa zuria, Wonago and Arba Minch zuria, have been identified for this project.
 47-10

However, considering fair distribution of projects among SNNPRS woredas, Awassa

zuria has been selected. The plant will, therefore, be established in Awassa.

Table 5.1
LIST OF PLANT MACHINERY AND EQUIPMENT REQUIREMENT AND
COST

Sr. Description Qty Cost (000 Birr)

No. (Tonnes) LC FC TC
1 Printing machine 1 - 135 135
2 Paper cutting and creasing machine 1 - 35 35
3 Screw press (manual) 3 - 24 24
4 Wax coating machine 1 - 18 18
5 Grooving machine 1 - 23 23
6 Press-for paper plates (manual) 1 - 15 15
7 Weighing scale - 1.5 1.5
8 Dies, tools, testing equipment, etc. set - 10 10
FOB price - 261.5 261.5
Freight, Insurance, Customs, Bank 30 - 30
Charges, etc
CIF Landed Cost 30 261.5 291.50

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The details of manpower required for the envisaged plant the envisaged plant requires 9
persons labour and cost is given in Table 6.1 below.
 47-11

Table 6.1
MANPOWER REQUIREMENT

No. Job Title No. of Salary (Birr)

Persons Monthly Annual
Salary Salary
A. Administration
1 Plant manager 1 1,500 18,000
2 Secretary 1 500 6,000
3 Salesman 1 600 7,200
4 Cashier 1 500 6,000
5 Clerk 1 350 4,200
6 General services 2 200 4,800
Sub -total 7 - 46,200
B. Production
1 Skilled workers 5 600 36,000
2 Unskilled workers 3 250 9,000
Sub-total 8 45,000
Workers benefit (25% BS) 22,800
Total 15 114,000

B. TRAINING REQUIREMENT

Production equipment identified and selected for the plant are simple to operate.
Workers can develop the skill during erection and commissioning. No training cost is
required for this purpose.
 47-12

VII. FINANCIAL ANALYSIS

The financial analysis of the cups, plates and egg trays from paper
project is based on the data presented in the previous chapters and the following
assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 8.5 %
Discount cash flow 8.5 %
Accounts receivable 30 days
Raw material local 30 days
Work in progress 2 days
Finished products 30 days
Cash in hand 10 days
Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at 862,700,
of which 9 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
 47-13

Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (000 Birr)
1 Land lease value 40.0
2 Building and Civil Work 375.0
3 Plant Machinery and Equipment 291.5
4 Office Furniture and Equipment 35.0
5 Pre-production Expenditure* 90.2
6 Working Capital 31.0
Total Investment cost 862.7
Foreign Share 9

* N.B Pre-production expenditure includes interest during construction ( Birr 5.3.16 thousand ) and Birr
37 thousand costs of registration, licensing and formation of the company including legal fees,
commissioning expenses, etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 377,440 (see
Table 7.2). The material and utility cost accounts for 40.87 per cent, while repair and
maintenance take 3.97 per cent of the production cost.
 47-14

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 137.89 36.53
Utilities 16.38 4.34
Maintenance and repair 15 3.97
Labour direct 67.8 17.96
Administration Costs 46.2 12.24
Total Operating Costs 283.27 75.05
Depreciation 58.82 15.58
Cost of Finance 35.35 9.37
Total Production Cost 377.44 100

C. FINANCIAL EVALUATION

1. Profitability

According to the projected income statement, the project will start generating profit in the
first year of operation. Important ratios such as profit to total sales, net profit to equity
(Return on equity) and net profit plus interest on total investment (return on total
investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is
viable.
 47-15

2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at
full capacity ( year 3 ) is estimated by using income statement projection.

BE = Fixed Cost = 21 %
Sales Variable Cost

3. Pay Back Period

The investment cost and income statement projection are used to project the pay-back
period. The projects initial investment will be fully recovered within 5 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 19 % and the net
present value at 8.5 % discount rate is Birr 365,280 million.

D. ECONOMIC BENEFITS

The project can create employment for 15 persons. In addition to supply of the domestic
needs, the project will generate Birr 235,280 in terms of tax revenue. The establishment
of such factory will have a foreign exchange saving effect to the country by substituting
the current imports.