Pre-Feasibility Study

Transcription

1 (Salt Products Manufacturing Unit) Small and Medium Enterprises Development Authority Ministry of Industries & Production Government of Pakistan HEAD OFFICE 4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road, Lahore Tel: (92 42) , Fax: (92 42) REGIONAL OFFICE Punjab 3 rd Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road Lahore, Tel: (042) Fax: (042) helpdesk.punjab@smeda.org.pk REGIONAL OFFICE Sindh 5 th Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) Fax: (021) helpdesk-khi@smeda.org.pk REGIONAL OFFICE Khyber Pakhtunkhwa Ground Floor State Life Building The Mall, Peshawar. Tel: (091) Fax: (091) helpdesk-pew@smeda.org.pk REGIONAL OFFICE Balochistan Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) , Fax: (081) helpdesk-qta@smeda.org.pk Note: All SMEDA Services / information related to PM's Youth Business Loan are Free of Cost May, 2014

2 TABLE OF CONTENTS 1. DISCLAIMER PURPOSE OF THE DOCUMENT INTRODUCTION TO SMEDA INTRODUCTION TO SCHEME EXECUTIVE SUMMARY BRIEF DESCRIPTION OF PROJECT & PRODUCT CRITICAL FACTORS INSTALLED & OPERATIONAL CAPACITY GEOGRAPHICAL POTENTIAL FOR INVESTMENT POTENTIAL TARGET MARKETS PROJECT COST SUMMARY PROJECT ECONOMICS PROJECT FINANCING PROJECT COST SPACE REQUIREMENT MACHINERY AND EQUIPMENT FURNITURE &OFFICE EQUIPMENT RAW MATERIAL REQUIREMENTS HUMAN RESOURCE REQUIREMENT REVENUE GENERATION OTHER COSTS CONTACT DETAILS OF SUPPLIERS, EXPERTS / CONSULTANTS ANNEXURE INCOME STATEMENT BALANCE SHEET CASH FLOW STATEMENT USEFUL PROJECT MANAGEMENT TIPS USEFUL LINKS KEY ASSUMPTIONS SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 1

3 1. DISCLAIMER This information memorandum is to introduce the subject matter and provide a general idea and information on the said subject. 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 exercised 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: SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 2

4 2. PURPOSE OF THE DOCUMENT The objective of the 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 purpose of this document is to facilitate potential investors in Salt Products Manufacturing Unit by providing them with a general understanding of the business with the intention of supporting potential investors in crucial investment decisions. The need to come up with pre-feasibility reports for undocumented or minimally documented sectors attains greater imminence as the research that precedes such reports reveal certain thumb rules; best practices developed by existing enterprises by trial and error, and certain industrial norms that become a guiding source regarding various aspects of business set-up and it s successful management. Apart from carefully studying the whole document one must consider critical aspects provided later on, which form basis of any investment decision. 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, institutional collaboration and networking initiatives. Preparation and dissemination of prefeasibility studies in key areas of investment has been a 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. SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 3

5 4. INTRODUCTION TO SCHEME Prime Minister s Youth Business Loan scheme, for young entrepreneurs, with an allocated budget of Rs. 5.0 Billion for the year , is designed to provide subsidised financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions, initially by National Bank of Pakistan (NBP) and First Women Bank Ltd. (FWBL). Loans from Rs. 0.1 million to Rs. 2.0 millionwith tenure upto 8 yearsinclusive of grace period of 1 year and a debt : equity of 90 : 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan, Gilgit Baltistan, Azad Jammu &Kashmir and Federally Administered Tribal Areas (FATA). 5. EXECUTIVE SUMMARY This pre-feasibility provides details for setting up a Salt Products Manufacturing Unit. The salt products manufacturing project entails production of rock salt crystal products ranging from lamps, tiles, candle stands, salt soaps and various decorative shapes/pieces. Salt products are known for their therapeutic/healing effects on body and mind. There is an increasing trend and preference for organic quality products for their natural curative properties. Salt products are equally sought for decorative purposes due to their distinctive colors and composition. There is growing demand of salt products in western countries due to its healing properties for a number of ailments. Pakistan s salt products are well known all over the world for their distinctive composition and craftsmanship. Pakistan holds one of the largest reserves of salt deposits in the world. Growing international demand for salt products, availability of cheap and skilled labor coupled with abundant raw material offers new startups a very promising opportunity to venture into salt products manufacturing. Salt products manufacturing business entails a total investment of about Rs million. This includes capital investment of Rs.0.86 million and a sum of Rs.0.58 million as initial working capital. The project is financed through 90% debt and 10% equity. The Net Present Value (NPV) of the project is around Rs million with an Internal Rate of Return (IRR) of 47% and a payback period of 3.03 years. The project will generate employment opportunity for 11 persons including owner manager. Higher return on investment and a steady growth of business is closely associated with the entrepreneur having some prior experience or education in the related field of business. This pre-feasibility encompasses essential SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 4

6 information regarding various aspects of starting a salt products manufacturing unit business in Pakistan. 6. BRIEF DESCRIPTION OF PROJECT & PRODUCT This pre-feasibility provides information on Salt Products Manufacturing Unit in Pakistan. There are a number of factors for which salt products are sought worldwide, however, therapeutic and decorative, are two distinct reasons for which, salt products are bought all over the world. This pre-feasibility details information about investment opportunities for the production of salt products such as salt lamps, candle stand, salt soap, salt spa products, salt inhalers, salt bricks, tiles and blocks etc. Salt products manufacturing unit will primarily focus on indirect export (middlemen / traders). Salt products manufacturing unit requires an estimated investment of Rs.1.44 million. This pre-feasibility is based on a unit with 2 lathe machines (5ft capacity), 1 cutter (24 length), grinder, drill and blowers with a capacity of manufacturing 120,000 units (salt products) per annum. Total employment required for this unit would be 11 persons including owner / manager. Total area required for salt products manufacturing would be approximately 1 kanal that would be acquired on rent. Estimated rent for such an area is Rs. 30,000/- per month. 7. CRITICAL FACTORS Awareness/knowledge of international markets and the demand trends for salt products. Regular training and capacity building of the entrepreneur and employees. Prior experience/education in the related field of business. Strict management/supervision controls to minimize wastage. Availability of skilled labor and good quality raw material. Ventilation and adequate safety measures at the production facility. Linkage / contacts with direct exporters. 8. INSTALLED & OPERATIONAL CAPACITY This pre-feasibility is based on 2 lathe machines and 1 cutting machine with a capacity of manufacturing 400 salt products per 8 hours shift. The total employment required for this unit would be 11 persons. Total number of salt products produced in year 1 would be 60,000 reaching 50% of the total installed capacity, while maximum capacity (95%) will be achieved with production reaching at 114,000 pieces in year 10 of the project. SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 5

7 9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT The said project can be started in any adjoining industrial areas of Khewra, district Jhelum and Warcha and Kalabagh district Mianwali. These areas are preferred due to their proximity to raw material and availability of skilled labor. 10. POTENTIAL TARGET MARKETS Salt products manufactured in this unit will be sold to exporters for European countries such as UK, Germany, France, Italy, and Spain. In addition to these countries, Korea, Japan and Australia are also potential markets of salt products. 11. PROJECT COST SUMMARY A detailed financial model has been developed to analyze the commercial viability of Salt Products Manufacturing Unit. Various cost and revenue related assumptions along with results of the analysis are outlined in this section. The projected Income Statement, Cash Flow Statement and Balance Sheet are attached as appendices Project Economics The installed production capacity of the project is120,000 salt products per year. However during the first year of operations, it will operate at 50% of the installed capacity producing 60,000 salt products. The following table shows internal rate of return, payback period and net present value; Table 1: Project Economics Description Details Internal Rate of Return (IRR) 47% Payback Period (yrs) 3.03 Net Present Value (NPV) Rs. 6,684,395 Returns on the project and its profitability are highly dependent on acquiring and maintaining regular orders, prudent procurement of salt and timely deliveries. Skilled labor plays an important role in manufacturing operations for quality products. SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 6

8 11.2. Project Financing Following table provides details of the equity required and variables related to bank loan; Table 2: Project Financing Description Details Total Equity (10%) Rs.144,033 Bank Loan (90%) Rs.1,296,294 Markup to the Borrower (%age/annum) 8% Tenure of the Loan (Years) 8 Grace Period (Year) Project Cost Following requirements have been identified for operations of the proposed business. A rented premise for the unit is recommended. Table 3: Capital Investment for the Project Capital Investment Amount (Rs.) Machinery 724,000 Furniture & Fixture 69,500 Office Equipment 51,000 Pre Operational Expenses 20,000 Total Capital Cost 864, Working Capital Equipment Spare Part Inventory 12,500 Raw Material Inventory 340,800 Upfront Building Rent 120,000 Cash 102, Total Working Capital 575,827 Total Project Cost 1,440, Space Requirement SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 7

9 The area has been calculated on the basis of space requirement for production, management and storage. However, the units operating in the industry do not follow any set pattern. Following table shows calculations for project space requirement. Table 4: Space Requirement Space Requirement Sq. Ft. Management building 150 Production area 900 Store 3,000 Open area 450 Total Area 4,500 Premises will be obtained on Rs. 30,000 per month Machinery and Equipment Following table provides list of machinery and equipment required for an average salt products manufacturing unit. Table 5: Machinery & Equipment Description Quantity Cost Rs/unit Total Cost Rs. Cutter ,000 60,000 Lathe machine (5 Feet Used) 2 250, ,000 Grinder 4 10,000 40,000 Drill machine (3 Feet) with special bit 1 20,000 20,000 Hand drill 4 3,000 12,000 Blower 2 8,500 17,000 Electrification, installation, tools, etc 1 75,000 75,000 Total ,000 Normally, blocks of salt are cut into small pieces by cutters. Lathe machines are used to shape and size salt pieces into lamps and candle stands etc. Finishing operations are carried out on a grinder and drill machine. Natural profile products (natural shape) are made on grinders and hand drills. SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 8

10 11.6. Furniture &Office Equipment Following are details of necessary furniture &office equipment. Table 6: Furniture &Office Equipment Quantity Cost Amount Computer desktop (used) 1 25,000 25,000 UPS 1 10,000 10,000 Computer printer 1 15,000 15,000 Telephone set 1 1,000 1,000 Office Tables 2 7,500 15,000 Stools 5 2,500 12,500 Chairs 2 5,000 10,000 Cupboard Steel 1 12,000 12,000 Working Table 2 10,000 20,000 Total 120, Raw Material Requirements Mined salt primarily from Khewra, Kalabagh and Warcha mines will be used as basic raw material. Raw materials requirements have been calculated on the basis of 4 product categories (i.e. Lamp, Candle Stand, Soap and Natural Profiles), which the unit will be producing and are assumed at 20% of its sale price Human Resource Requirement Following table provides details of human resource required for this project: Description Table 7: Human Resource Requirement No. of Employees Monthly Salary per Person (Rs.) Owner Manager 1 20,000 Accountant 1 12,000 Machinist 3 12,000 Helper 6 10,000 Total Staff 11 The owner will focus on acquiring orders, purchase of salt and overall management of the unit. The unit is capable of producing approximately 400 SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 9

11 products in an 8 hour shift. Salaries of all employees are estimated to increase at 10% annually Revenue Generation Following table provides details of the revenue generated by the project in the first year; Table 8: Revenue Generation Product Unit Sales Price (Rs./Unit) First Year Production First Year Sales Revenue (Rs) Salt lamp (2-4 kg) No , ,000 Candle stand (1-2 kg) No , ,000 Salt Soap ( kg) No , ,000 Natural Profile (3-4 kg) No ,000 2,184,000 Total Sales Revenue 60,000 3,744, Other Costs Other essential costs to be borne by the company are electricity and communication expenses. 12. CONTACT DETAILS OF SUPPLIERS, EXPERTS / CONSULTANTS Director General Mines and Mineral Department Govt. of the Punjab Poonch House, Multan Road, Lahore Phone: (+92-42) Pakistan Stone Development Company 2nd floor, Islamabad Chamber of Commerce & industry Building Area, G-8/1, Islamabad, Pakistan Phone: (92 51) , (92 51) SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 10

12 13. ANNEXURE Income Statement Calculations Income Statement SMEDA Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Revenue 3,744,000 4,530,240 5,436,288 6,478,243 7,674,227 9,044,624 10,612,359 12,403,195 14,446,074 16,773,497 Cost of sales Raw Material Cost 748, ,048 1,087,258 1,295,649 1,534,845 1,808,925 2,122,472 2,480,639 2,889,215 3,354,699 Labor Cost 1,296,000 1,568,160 1,881,792 2,242,469 2,656,463 3,130,831 3,673,509 4,293,414 5,000,564 5,806,210 Machinery Maintenance 150, , , , , , , , , ,015 Electricity Cost 224, , , , , , , , ,460 1,006,056 Total cost of sales 2,419,361 2,927,427 3,512,912 4,186,221 4,959,061 5,844,608 6,857,673 8,014,906 9,335,008 10,838,981 Gross Profit 1,324,639 1,602,813 1,923,376 2,292,023 2,715,165 3,200,016 3,754,686 4,388,289 5,111,066 5,934,516 General administration & selling expenses Administration expense 240, , , , , , , , , ,907 Building rental expense 360, , , , , , , , , ,861 Electricity expense 22,882 25,170 27,687 30,456 33,502 36,852 40,537 44,591 49,050 53,955 Travelling expense 74,880 90, , , , , , , , ,470 Communications expense (phone, fax, mail, internet, etc.) 48,000 52,800 58,080 63,888 70,277 77,304 85,035 93, , ,181 Office expenses (stationary, entertainment, janitorial services, etc.) 60,000 66,000 72,600 79,860 87,846 96, , , , ,477 Promotional expense 50,000 55,000 60,500 66,550 73,205 80,526 88,578 97, , ,897 Depreciation expense 89,550 89,550 89,550 89,550 89,550 92,368 92,368 92,368 92,368 92,368 Amortization of pre-operating costs 4,000 4,000 4,000 4,000 4, Subtotal 949,312 1,043,125 1,147,143 1,262,469 1,390,324 1,530,879 1,687,996 1,862,150 2,055,180 2,269,117 Operating Income 375, , ,232 1,029,554 1,324,841 1,669,137 2,066,690 2,526,139 3,055,886 3,665,398 Other income (interest on cash) Gain / (loss) on sale of office equipment , Earnings Before Interest & Taxes 375, , ,232 1,029,554 1,345,241 1,669,137 2,066,690 2,526,139 3,055,886 3,665,398 Interest expense on long term debt (Project Loan) 107,592 98,501 86,554 73,614 59,601 44,424 27,988 10, Interest expense on long term debt (Working Capital Loan) Subtotal 107,592 98,501 86,554 73,614 59,601 44,424 27,988 10, Earnings Before Tax 267, , , ,940 1,285,641 1,624,713 2,038,702 2,515,951 3,055,886 3,665,398 Tax - 6,119 28,968 65, , , , , , ,849 NET PROFIT/(LOSS) AFTER TAX 267, , , ,049 1,170,295 1,452,271 1,783,462 2,164,464 2,569,415 3,026,549 SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 11

13 13.2. Balance Sheet Calculations Balance Sheet SMEDA Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Assets Current assets Cash & Bank 102, , , ,970 1,479,878 2,228,325 3,157,754 4,296,204 5,665,863 7,508,083 14,411,735 Accounts receivable 153, , , , , , , , , ,498 Equipment spare part inventory 12,500 15,881 20,010 25,038 31,143 38,540 47,481 58,268 71,259 86,876 - Raw material inventory 340, , , ,872 1,022,749 1,325,921 1,711,322 2,200,119 2,818,740 3,600,158 - Pre-paid building rent 120, , , , , , , , , ,954 - Total Current Assets 575,827 1,046,603 1,476,347 2,104,392 2,954,282 4,076,851 5,472,682 7,192,348 9,286,015 12,029,768 15,053,233 Fixed assets Machinery & equipment 724, , , , , , , , ,800 72,400 - Furniture & fixtures 69,500 62,550 55,600 48,650 41,700 34,750 27,800 20,850 13,900 6,950 - Office equipment 51,000 40,800 30,600 20,400 10,200 65,090 52,072 39,054 26,036 13,018 - Total Fixed Assets 844, , , , , , , , ,736 92,368 - Intangible assets Pre-operation costs 20,000 16,000 12,000 8,000 4, Total Intangible Assets 20,000 16,000 12,000 8,000 4, TOTAL ASSETS 1,440,327 1,817,553 2,153,747 2,688,242 3,444,582 4,538,691 5,842,155 7,469,452 9,470,751 12,122,136 15,053,233 Liabilities & Shareholders' Equity Current liabilities Accounts payable 109, , , , , , , , , ,093 Total Current Liabilities - 109, , , , , , , , , ,093 Other liabilities Deferred tax Long term debt (Project Loan) 1,296,294 1,296,294 1,152, , , , , , Total Long Term Liabilities 1,296,294 1,296,294 1,152, , , , , , Shareholders' equity Paid-up capital 144, , , , , , , , , , ,123 Retained earnings 267, ,803 1,383,514 2,273,563 3,443,857 4,896,128 6,679,590 8,844,054 11,413,469 14,440,018 Total Equity 144, , ,835 1,527,547 2,417,595 3,652,980 5,105,251 6,888,713 9,053,177 11,622,592 14,649,141 TOTAL CAPITAL AND LIABILITIES 1,440,327 1,817,553 2,153,747 2,688,242 3,444,582 4,538,691 5,842,155 7,469,452 9,470,751 12,122,136 15,053,233 SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 12

14 13.3. Cash Flow Statement Calculations Cash Flow Statement SMEDA Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Operating activities Net profit 267, , , ,049 1,170,295 1,452,271 1,783,462 2,164,464 2,569,415 3,026,549 Add: depreciation expense 89,550 89,550 89,550 89,550 89,550 92,368 92,368 92,368 92,368 92,368 amortization of pre-operating costs 4,000 4,000 4,000 4,000 4, Accounts receivable (153,863) (16,156) (34,773) (40,027) (45,985) (52,734) (60,373) (69,012) (78,775) (89,801) Equipment inventory (12,500) (3,381) (4,129) (5,028) (6,105) (7,397) (8,941) (10,787) (12,990) (15,618) 86,876 Raw material inventory (340,800) (112,805) (145,154) (186,114) (237,877) (303,172) (385,401) (488,796) (618,622) (781,417) 3,600,158 Pre-paid building rent (120,000) (12,000) (13,200) (14,520) (15,972) (17,569) (19,326) (21,259) (23,385) (25,723) 282,954 Accounts payable 109,491 25,076 29,683 35,129 41,576 49,220 58,299 69,100 81,970 (95,452) Cash provided by operations (473,300) 188, , , , ,298 1,127,457 1,352,915 1,601,923 1,842,220 6,903,652 Financing activities Project Loan - principal repayment - (143,951) (155,898) (168,838) (182,851) (198,028) (214,464) (232,264) - - Additions to Project Loan 1,296, Additions to Working Capital Loan Issuance of shares 144, , Cash provided by / (used for) financing activities 1,440,327 - (143,951) (155,898) (168,838) (117,761) (198,028) (214,464) (232,264) - - Investing activities Capital expenditure (864,500) (65,090) Cash (used for) / provided by investing activities (864,500) (65,090) NET CASH 102, , , , , , ,429 1,138,451 1,369,659 1,842,220 6,903,652 SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 13

15 13.4. Useful Project Management Tips Technology Required Spare Parts & Consumables: Preventive maintenance of machines should be carried out. Availability of the machinery spare parts and consumables must be ensured. Energy Requirement: Generator has not been recommended for the project as it will increase the cost of production. Machinery Suppliers: Multiple machinery suppliers should be contacted and purchase should be made after thorough inspection. The availability of spare parts should also be considered. Such machinery is easily available in local markets of Lahore, Gujranwala, Faisalabad & Peshawar. Quality Assurance Equipment & Standards: The finished products should be according to the design specifications of buyers. Compliance should be ensured for dimensions, weight and especially for electrical fittings. Marketing Advertisement & Promotion: Business promotion and dissemination through banners and launch events is highly recommended. Product brochures should be developed from good quality service providers. Sales & Distribution Network: The owner should establish long term contacts with the buyers to ensure continuous flow of orders. Moreover, business linkages should be developed with the suppliers of salt from major salt mines of the country. Price - Bulk Discounts, Cost plus Introductory Discounts: Price should never be allowed to compromise quality. Price during introductory phase may be kept lower and used as a promotional tool. Product cost estimates should be carefully documented before price setting Human Resources Adequacy & Competencies: Skilled and experienced staff is necessary for the unit. Staff having requisite experience should be preferred. SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 14

16 13.5. Useful Links Prime Minister s Office, Small and Medium Enterprise Development Authority, National Bank of Pakistan (NBP), First Women Bank Limited (FWBL), Government of Pakistan, Ministry of Industries & Production, Ministry of Education, Training & Standards in Higher Education, Government of Punjab, Government of Sindh, Government of Khyber Pakhtunkhwa, Government of Balochistan, Government of Gilgit Baltistan, Government of Azad Jamu Kashmir, Trade Development Authority of Pakistan (TDAP), Securities and Exchange Commission of Pakistan (SECP), Federation of Pakistan Chambers of Commerce and Industry (FPCCI), State Bank of Pakistan (SBP), Punjab Mineral Development Corporation (PMDC) SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 15

17 14. KEY ASSUMPTIONS Table 9: Machinery Assumptions Capacity utilization (Year 1) 50% Maximum capacity utilization 95% Total production of the unit per 8 hour shift 300 Table 10: Operating Assumptions Annual production capacity 120,000 Hours operational per day 8 Days operational per month 25 No. of shifts 1 Days operational per year 300 Table 11: Economy-Related Assumptions Cost of electricity &fuel growth rate 10% Wage growth rate 10% Table 12: Cash Flow Assumptions Accounts receivable cycle (in days) Accounts payable cycle (in days) Raw material inventory (in day) 60 Equipment and spare part inventory (in days) 30 Table 13: Revenue Assumptions Production capacity of the unit 120,000 Sale price growth rate 10% Local sales 100% SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 16

18 Table 14:Expense Assumptions Pre-paid building rent (months) 4 Rent growth rate 10% Raw material price growth rate 10% Communication expense (per month) Rs. 4,000 Promotional expense (per year) Rs. 50,000 Table 15:Financial Assumptions Project life (Years) 10 Debt 90% Equity 10% Interest rate on long-term debt 8% Debt tenure (Years) with 1 year grace period 8 Debt payments per year 12 SMEDA Services / Information related to PM s Youth Business Loan are FREE OF COST - 17