Pre-Feasibility Study
CORRUGATED PACKAGES
Small and Medium Enterprise Development Authority
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
Waheed Trade Complex, 1st Floor , 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore
Tel: (042) 111-111-456, Fax: (042) 5896619, 5899756
Helpdesk@smeda.org.pk
REGIONAL OFFICE
PUNJAB
Waheed Trade Complex,
st
1 Floor, 36-Commercial Zone,
Phase III, Sector XX,
Khayaban-e-Iqbal, DHA Lahore.
Tel: (042) 111-111-456
Fax: (042) 5896619, 5899756
helpdesk@smeda.org.pk
REGIONAL OFFICE
SINDH
REGIONAL OFFICE
NWFP
REGIONAL OFFICE
BALOCHISTAN
5TH Floor, Bahria
Complex II, M.T. Khan Road,
Karachi.
Tel: (021) 111-111-456
Fax: (021) 5610572
Helpdesk-khi@smeda.org.pk
Ground Floor
State Life Building
The Mall, Peshawar.
Tel: (091) 9213046-47
Fax: (091) 286908
Helpdesk-pew@smeda.org.pk
Bungalow No. 15-A
Chaman Housing Scheme
Airport Road, Quetta.
Tel: (081) 831623, 831702
Fax: (081) 831922
helpdesk-qta@smeda.org.pk
September, 2004
Pre-feasibility Study
Corrugated Packages
1
INTRODUCTION TO SMEDA.................................................................................................... 5
2
PURPOSE OF THE DOCUMENT ............................................................................................... 5
3
CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT..................... 6
3.1
3.2
3.3
3.4
4
PROJECT PROFILE.................................................................................................................... 6
4.1
4.2
4.3
4.4
4.5
4.6
4.7
5
PRIMARY FUNCTIONS ............................................................................................................ 10
Protective Function.......................................................................................................... 10
Loading and Transport Function...................................................................................... 10
SECONDARY FUNCTIONS ....................................................................................................... 10
Sales Function ................................................................................................................. 10
Promotional Function...................................................................................................... 10
SERVICE FUNCTION ............................................................................................................... 10
PRODUCTION PROCESS FLOW ................................................................................................ 10
PRODUCT MIX ...................................................................................................................... 12
RAW MATERIAL REQUIREMENT ............................................................................................. 12
Take Up Factor (Liner Paper).......................................................................................... 13
Waste Margin .................................................................................................................. 14
Major Suppliers of Raw Material ..................................................................................... 14
SALES PRICE ......................................................................................................................... 14
TECHNOLOGY AND PROCESSES.......................................................................................... 14
8.1
8.2
8.3
8.4
8.5
8.6
9
MARKET POTENTIAL ............................................................................................................... 9
TARGET CUSTOMERS .............................................................................................................. 9
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
8
SECTOR CHARACTERISTICS ..................................................................................................... 8
MARKET INFORMATION ......................................................................................................... 9
6.1
6.2
7
OPPORTUNITY RATIONALE ...................................................................................................... 6
PROJECT BRIEF ....................................................................................................................... 7
MARKET ENTRY TIMING ......................................................................................................... 7
PROJECT CAPACITY AND RATIONALE ....................................................................................... 7
PROJECT INVESTMENT ............................................................................................................. 8
RECOMMENDED PROJECT PARAMETERS ................................................................................... 8
PROPOSED LOCATION .............................................................................................................. 8
SECTOR & INDUSTRY ANALYSIS........................................................................................... 8
5.1
6
STRENGTHS ............................................................................................................................ 6
WEAKNESSES.......................................................................................................................... 6
OPPORTUNITIES ...................................................................................................................... 6
THREATS ................................................................................................................................ 6
MACHINERY & EQUIPMENT REQUIREMENT ............................................................................ 15
REPAIR & MAINTENANCE ...................................................................................................... 16
ERECTION & INSTALLATION .................................................................................................. 16
OFFICE EQUIPMENT ............................................................................................................... 16
FURNITURE AND FIXTURES .................................................................................................... 17
MOTOR VEHICLES ................................................................................................................. 17
LAND & BUILDING REQUIREMENT .................................................................................... 17
9.1
9.2
COVERED AREA REQUIREMENT ............................................................................................. 17
RENT COST ........................................................................................................................... 17
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9.3
Corrugated Packages
UTILITIES REQUIREMENT ...................................................................................................... 18
10
HUMAN RESOURCE REQUIREMENT................................................................................... 18
11
PROJECT COSTS ...................................................................................................................... 18
11.1
12
FINANCIAL ANALYSIS............................................................................................................ 20
12.1
12.2
12.3
12.4
12.5
13
ESTIMATED TIME FOR PROJECT COMPLETION .......................................................................... 19
PROJECT COSTS .................................................................................................................... 20
PROJECTED INCOME STATEMENT ........................................................................................... 21
PROJECTED BALANCE SHEET ................................................................................................. 22
PROJECTED CASH FLOW STATEMENT ..................................................................................... 23
RAW MATERIAL COSTS ......................................................................................................... 24
KEY ASSUMPTIONS................................................................................................................. 25
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Corrugated Packages
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.
PREF-79
Prepared by
SMEDA-Punjab
Approved by
Provincial Chief Punjab
Issue Date
September, 2004
Issued by
Library Officer
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1
Corrugated Packages
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 SMEDA’s
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.
2
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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3
Corrugated Packages
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
Strengths




3.2
Weaknesses




3.3

3.4
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 13.4% in the year
2003-2004, which in turn increases the demand for packaging facilities as well.
Threats

4.1
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

4
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.
Innovations in the packing industry like plastic crates, plastic bags etc. may affect
the market demand for corrugated packages.
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 world’s liquid and
solid materials from producer to consumer.
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Corrugated Packages
In Pakistan, the demand for corrugated packages is increasing, as the growth in the
manufacturing industry touched a level of 13.4%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 3000 boxes per day in 8 hours
shift. Details are given in the following table.
Table 4-1
Project Capacity
Hours utilized by one batch
Number of product lines
Maximum box capacity per day per shift
2
4
3,000
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.
1
Economic Survey Of Pakistan 2003-2004
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4.5
Corrugated Packages
Project Investment
Total project cost is Rs. 5.37 million.
4.6
Recommended Project Parameters
Capacity
3,000 boxes
Human Resource
Technology/Machinery Location
28
Local
Lahore
Financial Summary
Project Cost
IRR
NPV (Rs.)
Payback Period
Rs. 5.37 million
42%
Rs. 8.80 million
4 Yrs.
Total cost of the project is worked out in the table below:
Table 4-1
Project Costs
Capital Investment
Working Capital Requirement
Total Investment
4.7
4,311,000
1,056,000
5,367,000
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
Suitable Locations
City
Lahore
Rawalpindi
Karachi
Faisalabad
5
5.1
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
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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PREF-79 /Sep, 2004/Rev 1
Pre-feasibility Study





Corrugated Packages
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.
MARKET INFORMATION
6
6.1
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.
Table 6-1
Global Trade of Corrugated Packages2
Year
1998
1999
2000
2001
2002
US $ (000)
2,685,150
2,694,482
2,899,206
2,739,371
2,869,572
Pakistan’s share in the global trade is not very high but Pakistan has been exporting
corrugated Packages to UAE and Somalia in the year 2000 and 2001.
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.







2
Pharmaceutical Industry
Textile Industry
Home Appliances
Garments
Dairy Products
Fruits and Vegetables and
Shoes
Trade Analysis System 2001-2002
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7
Corrugated Packages
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.
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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PREF-79 /Sep, 2004/Rev 1
Pre-feasibility Study
Figure 7-1
Corrugated Packages
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
Slanting/
bending
Rotary
Pasting
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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Corrugated Packages
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”
19.69”x17.72”x13.78” (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
Box Sizes
24”x24”x8"
14.54”x10.5”x6.25
19.69”x17.72”x13.78”
Others(avg.)
Total
7.6
Per Day Production
750
1,000
750
500
3,000
Per Annum Production
225,000
300,000
225,000
150,000
900,000
Raw Material Requirement
Following raw material are used in corrugated packages.
 Kraft Paper
 Flutter or Liner Paper
 Pasting fluid
 Printing Ink
Raw material used for each size of box and their costing is shown in the tables below 3:
3
Calculations for quantity required are provided in the Financial Analysis section.
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PREF-79 /Sep, 2004/Rev 1
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Table 7-3
Raw Material Costing for 24”x24”x8”
Raw Material Used
Kraft Paper
Flutter Paper (Plain)
Flutter Paper (Liner)
Total
Table 7-4
Kraft Paper
Flutter Paper (Plain)
Flutter Paper (Liner)
Total
Quantity
Required (Kg.)
0.55
0.52
1.10
Rs./Kg
48
12
12
Total Cost
(Rs.)
26.29
6.31
13.25
45.85
No. of
Papers
2
2
3
7
Quantity
Required (Kg.)
0.16
0.15
0.32
Rs./Kg
48
12
12
Total Cost
(Rs.)
7.51
1.80
3.79
13.11
Raw Material Costing for 19.69”x17.72”x13.78”
Raw Material Used
Kraft Paper
Flutter Paper (Plain)
Flutter Paper (Liner)
Total
Table 7-6
No. of
Papers
2
2
3
7
Raw Material Costing for 14.54”x10.5”x6.25”
Raw Material Used
Table 7-5
Corrugated Packages
No. of
Papers
2
2
3
7
Quantity
Required (Kg.)
0.07
0.07
0.14
Rs./Kg
48
12
12
Total Cost
(Rs.)
3.43
0.82
1.72
5.97
Raw Material Costing for Miscellaneous Sizes
Raw Material Used
Kraft Paper
Flutter Paper (Plain)
Flutter Paper (Liner)
Total
No. of
Papers
2
2
3
7
Quantity
Required (Kg.)
0.55
0.53
1.10
Rs./Kg
48
12
12
Total Cost
(Rs.)
26.29
6.31
13.25
45.85
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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Corrugated Packages
7.6.2 Waste Margin
Wastage is a common feature for corrugated packages business. It is estimated that 5% 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.4.50 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
35% above the cost of raw material consumed for the proposed box size. This 35%
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.5 per kilogram. Consumption of pasting fluids depends upon
the size of the box.
This particular pre-feasibility assumes that the sales prices are 35% 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.)
24”x24”x8"
14.54”x10.5”x6.25
19.69”x17.72”x13.78”
Others(avg.)
8
62
18
8
62
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.
 Brazil
 Sweden
 USA
 Russia
 China
 Norway
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
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PREF-79 /Sep, 2004/Rev 1
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Corrugated Packages
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
Machine type
Manually operated corrugation machine set
Semi automated corrugation plant
Fully automated corrugation plant
Estimated Cost of Plant
Rs. 1.5 million
Rs. 3.5 million
Rs. 6 million
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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PREF-79 /Sep, 2004/Rev 1
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Table 8-2
Corrugated Packages
Details of Machinery
Machines
No. of Machines
Corrugation Machine
Pasting 105”
Rotary 105”
Rotary 65”
Came Slote 85”
Flexo Printing Machine
Hand Cutter 80”
Dye Cutting Machine
Total
1
1
1
1
1
1
2
1
9
8.2
Price per Machine Total Cost(Rs.)
(Rs.)
225,000
225,000
55,000
55,000
45,000
45,000
35,000
35,000
100,000
100,000
600,000
600,000
30,000
60,000
450,000
450,000
1,570,000
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
Following office equipment will be required for the proposed project:
Table 8-3
Details of Office Equipment
Description
No.
Cost Per Unit(Rs.)
Total(Rs.)
Split Unit
1
25,000
25,000
Computer
2
15,000
30,000
Printer
1
5,000
5,000
Telephone Sets
4
750
3,000
Fire Extinguish
2
4,000
8,000
Fax Machine
1
14,000
14,000
Total
85,000
Depreciation on office equipment will be charged at 10% per annum on straight-line
basis.
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Pre-feasibility Study
8.5
Corrugated Packages
Furniture and Fixtures
Following furniture and fixtures will be required for factory and sales outlets.
Table 8-4
Details of Furniture and Fixtures
Description
No.
Cost Per Unit(Rs.)
Total(Rs.)
Sofa Set 2 seat
2
3,000
6,000
Chairs
10
500
5,000
File Cabinets
3
9,000
27,000
Office Table
3
5,000
15,000
Total
53,000
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. 750,000.
Motor vehicles will be depreciated at 10% on straight-line method.
9
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
Total Area (Sq. ft.)
Production Hall
Storage Area
Finished Goods Area
Plant & Machinery Area
Wastage Area
Total Production Area
Administrative Block
Total Covered Area
Free Area
Total Area Requirement
9.2
1,125
900
5,625
900
8,550
900
9,450
1,800
11,250
Rent Cost
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
17
PREF-79 /Sep, 2004/Rev 1
Pre-feasibility Study
Corrugated Packages
industrial area, Lahore. An area of 2.5 kanal can be obtained on monthly rent of
approximately Rs. 50,000 to 60,000.
9.3




Utilities Requirement
Electricity
Telephone
Gas
Water
10 HUMAN RESOURCE REQUIREMENT
Following staff would be required for the proposed project:
Table 10-1
Human Resource Requirement
Staff
Accountant
Purchase Manager
Marketing Manager
Production Supervisor
Semi-skilled workers
(helper/operator/Loaders)
Peon
Security Guard
Driver
Total
No. of
Employees
1
1
1
1
21
Salary per month
(Rs.)
8,000
8,000
10,000
7,000
3.500
1
1
1
28
3,500
3,500
4,000
Annual Salary
(Rs.)
96,000
96,000
120,000
84,000
882,000
42,000
42,000
48,000
1,410,000
11 PROJECT COSTS
Break down of total project cost is in the table below:
Table 11-1
Project Costs
Description
Capital Cost
Plant and Machinery
Pre-production expenses
Furniture, fixture, and equipment and Vehicles
Erection and Installation
Contingencies
Total Capital Costs
Working Capital
Inventory
18
PREF-79 /Sep, 2004/Rev 1
Rs. in Thousands
1,570
925
1,638
79
99
4,311
562
Pre-feasibility Study
Corrugated Packages
Pre-paid rent
Cash
Total Working Capital
Total Cost
300
194
1,056
5,367
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.
This project can take-off within five to six months as well, as some of the activities will
be in progress simultaneously.
19
PREF-79 /Sep, 2004/Rev 1
Pre-feasibility Study
Corrugated Packages
12 FINANCIAL ANALYSIS
12.1 Project Costs
CORRUGATED PACKAGES
Project Summary
Plant and Machinery
Furniture an dFixture and Vehicles
Pre operating Expenses
Erection and Installation ( 5% of total machinery Cost)
Contingencies
Fixed Assets
Rs. (1000)
1,570
1,638
925
79
99
4,311
Initial working Capital
1056
Total Project Costs
Financing
5,367
Debt
Equity
Total Financing
Project Returns
IRR
Pay Back period
NPV
50%
50%
%
Yrs.
Rs.
20
PREF-79 /Sep, 2004/Rev 1
2,683
2,683
5,367
42%
4
8,807
Pre-feasibility Study
Corrugated Packages
12.2 Projected Income Statement
CORRUGATED PACKAGES
Projected Income Statement
Rs. (1000)
Year 1 Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Cost of Sales
15,225
120
15,345
12,719
17,920
135
18,055
14,572
20,917
150
21,067
16,582
24,247
166
24,412
18,759
27,940
182
28,122
21,117
32,031
199
32,230
23,668
36,558
216
36,774
26,425
41,562
234
41,796
29,403
47,087
253
47,340
32,619
53,182
273
53,455
36,088
Gross Profit
2,626
3,483
4,486
5,653
7,005
8,562
10,349
12,393
14,721
17,367
Operating Expenses
1,464
1,592
1,733
1,887
2,058
2,060
2,266
2,492
2,742
3,016
Operating Profit
Less:
Financial expenses
1,162
1,891
2,753
3,766
4,947
6,502
8,083
9,900
11,979
14,351
671
671
201
201
148
148
94
94
40
40
-
-
-
-
-
Profit Before Taxation
Income Tax
Net profit After Taxation
491
68
423
1,690
466
1,223
2,606
787
1,819
3,672
1,160
2,512
4,907
1,592
3,314
6,502
2,151
4,351
8,083
2,704
5,379
9,900
3,340
6,560
11,979
4,068
7,912
14,351
4,898
9,453
Retained earnings
Profit transferred to balance sheet
423
423
1,646
1,646
3,465
3,465
5,976
5,976
9,291
9,291
13,642
13,642
19,021
19,021
25,582
25,582
33,493
33,493
42,946
Sales
Corrugated Boxes
Waste
21
PREF-79 /Sep, 2004/Rev 1
Pre-feasibility Study
Corrugated Packages
12.3 Projected Balance Sheet
CORRUGATED PACKAGES
Balance Sheet
Capital and Reserves
Year 0
Share Capital
2683
Reatined Earnings
0
2,683
Long Term Loan
2,683
Current Liabilities
Current portion of long term liabilitites
Tax Payable
Accounts Payable
-
Fixed Assets
Fixed Assets
Pre-operating expenses
Current Assets
Advance rent
Raw Material Inventory
A/C Receivable
Cash/Bank
Rs. (1000)
Year 1
2683
423
3,106
1,610
Year 2
2683
1,646
4,330
1,073
Year 3
2683
3,465
6,148
537
Year 4 Year 5
2683
2683
5,976
9,291
8,660 11,974
-
537
68
264
869
537
466
305
1,308
537
787
349
1,673
537
1,160
397
2,094
2,151
505
2,656
2,704
565
3,270
3,340
631
3,971
4,068
701
4,769
Year 10
2683
42,946
45,630
4,898
734
5,632
5,367
5,586
6,711
8,358
10,754
14,016
18,981
24,974
32,236
40,945
51,261
3,386
925
3,057
740
2,728
555
2,400
370
2,071
185
1,742
1,414
1,085
756
428
99
300
562
194
1,056
649
355
784
1,789
743
418
2,266
3,428
845
488
4,255
5,588
956
566
6,976
8,498
1,075
652
10,546
12,273
1,204
747
15,616
17,568
1,344
853
21,693
23,889
1,494
970
29,016
31,479
1,656
1,099
37,763
40,518
1,241
49,922
51,163
5,367
-
5,586
-
6,711
-
8,358
-
10,754
-
14,016
-
18,981
-
24,974
-
32,236
-
40,945
-
51,261
-
22
PREF-79 /Sep, 2004/Rev 1
1,592
449
2,041
Year 6 Year 7 Year 8 Year 9
2683
2683
2683
2683
13,642 19,021 25,582 33,493
16,326 21,705 28,265 36,177
Pre-feasibility Study
Corrugated Packages
12.4 Projected Cash Flow Statement
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
Financing activities
Long term debt principal repayment
Addition to long term debt
Owner's investment
Cash provided by/ (used for) financing activities
Investing activities
Capital expenditure
Cash (used for)/ provided by investing activities
Net Cash
Cash balance brought forward
Cash carried forward
Year 0
(562)
-
Year 1
423
185
329
(87)
(355)
264
68
Year 2
1,223
185
329
(94)
(63)
41
398
Year 3
1,819
185
329
(102)
(70)
44
321
Year 4
2,512
185
329
(111)
(78)
48
373
Year 5
3,314
185
329
(119)
(86)
52
432
Year 6
4,351
Year 7
5,379
Year 8
6,560
329
(129)
(95)
56
558
329
(139)
(106)
60
553
329
(150)
(117)
65
636
300
1,127
2,018
2,525
3,258
4,106
5,070
6,077
7,323
8,748
12,158
329
(162)
(129)
70
728
329
1,656
(142)
33
830
(300)
(862)
(537)
(537)
(537)
(537)
(537)
2683
2683
5367
(537)
(537)
(537)
(537)
(537)
-
-
-
-
-
(4,311)
(4,311)
194
194
590
194
784
1,482
784
2,266
1,988
2,266
4,255
2,722
4,255
6,976
3,570
6,976
10,546
5,070
10,546
15,616
6,077
15,616
21,693
7,323
21,693
29,016
8,748
29,016
37,763
12,158
37,763
49,922
23
PREF-79 /Sep, 2004/Rev 1
Rs. (1000)
Year 9
Year 10
7,912
9,453
Pre-feasibility Study
Corrugated Packages
12.5 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(L +W )x 2 + (2 x 2 5 .4 )
S iz e in m illim eter s
L x 2 5 .4
W x 2 5 .4
H x 2 5 .4
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
W id th req u ire d x L e n g th re q u ire d
5%
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
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
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
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
T o ta l ra w m a te ria l c o st
co st o f kr a ft p a p er + c o st o f flu tte r p a p e r
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
24
PREF-79 /Sep, 2004/Rev 1
Pre-feasibility Study
Corrugated Packages
13 KEY ASSUMPTIONS
Table 13-1
Operating Assumptions
Annual production capacity (boxes)
Operating Shift per day4
Operating hours per shift
Days operational per year
No. of Batches
Hours consumed for one batch
Table 13-2
900,000
1
8
300
4
2
Machinery Assumptions
Machine Type
Number of Machines Installed
Installed capacity
Initial year capacity
Maximum capacity
Annual capacity growth rate
Depreciation rate on machinery (Straight Line Method)
Table 13-3
Revenue Assumptions
Sales prices
Sales price growth rate
Wastage sales
Industry norms
7%
5%
Wastage sales growth rate
Table 13-4
2%
Financial Assumptions
Project life (Years)
Debt
Equity
Interest rate on long term debt
Debt tenure (Years)
Principal debt repayments per year
No. of installments in a year
Amortization (years)
4
Manually operated
9
100%
50%
95%
5%
10%
10
50%
50%
10%
5
538,000
2
5
The industry norm is one shift per day. However, it can vary with the demand
25
PREF-79 /Sep, 2004/Rev 1
Pre-feasibility Study
Table 13-5
Corrugated Packages
Cost of sales Assumptions
Raw Material cost growth rate
Wage and salaries growth rate
Gas Expense for the first year
Gas Growth rates
Electricity Expense for the first year
Electricity growth rate
Depreciation (straight line method)
Table 13-6
5%
10%
Rs. 54,000
5%
Rs. 120,000
5%
10%
Operating Assumptions
Telephone Expense for the first year
Printing & stationery per year
Legal & professional charges per year
Entertainment per year
Factory rent per year
Advertisement per year
Traveling & conveyance per year
Miscellaneous expenses per year
Administrative expense growth rate
Income Tax (percentage of Net Profit)
Table 13-7
Rs. 36,000
Rs. 12,000
Rs. 10,000
Rs. 36,000
Rs.600,000
Rs. 60,000
Rs. 36,000
Rs. 45,000
10%
35%
Contingency Expense Assumptions
Erection and Installation
Furniture and Fixture
Pre-operating Expenses
Vehicles
Table 13-8
5%
1%
2%
5%
Cash Flow Assumptions
Accounts Receivable in days
Accounts Payable in days
Raw Material Inventory (days)
Stores and Spares Inventory (days)
Minimum Cash Required
Table 13-9
7
7
15
30
Rs.194,000
Pre-operational Expenses
Appraisal fee & Legal Documentation
Trial run expenses
Other pre-operating overheads5
5
Rs.25,000
Rs.250,000
Rs.650,000
Pre operating expenses include salaries & wages, traveling, and other expenses
26
PREF-79 /Sep, 2004/Rev 1