Professional Documents
Culture Documents
Small and Medium Enterprises Development Authority Ministry of Industries & Production
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
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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) 35610572 helpdesk-khi@smeda.org.pk REGIONAL OFFICE Khyber Pakhtunkhwa Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 111-111-456 Fax: (091) 5286908 helpdesk-pew@smeda.org.pk REGIONAL OFFICE Balochistan Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 2831623, 2831702 Fax: (081) 2831922 helpdesk-qta@smeda.org.pk
Note: All SMEDA Services / information related to PM's Youth Business Loan are Free of Cost December, 2013
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12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 12.10
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Project Economics ............................................................................................... 9 Project Financing ................................................................................................. 9 Project Cost ........................................................................................................ 10 Space Requirement ........................................................................................... 10 Machinery and Equipment ................................................................................ 11 Office Equipment ............................................................................................... 12 Raw Material Requirements ............................................................................. 12 Human Resource Requirement ....................................................................... 13 Revenue Generation ......................................................................................... 13 Other Costs ......................................................................................................... 13
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ANNEXURE ..........................................................................................15
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Income Statement .............................................................................................. 15 Projected Balance Sheet .................................................................................. 16 Cash Flow Statement ........................................................................................ 17 Useful Project Management Tips .................................................................... 18 Useful Links ........................................................................................................ 18
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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: www.smeda.org.pk
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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.
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4 INTRODUCTION TO SCHEME
Prime Ministers Youth Business Loan 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 by National Bank of Pakistan (NBP) and First Women Bank Ltd. (FWBL). Loans from Rs.0.1 million to Rs.2.0 million with tenure upto 8 years inclusive 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
Light Weight Roof Tiles Manufacturing Unit is proposed to be located in adjoining areas and major towns of any of the major cities of Balochistan. Roof tiles used in Balochistan are generally available in the size 12x12 (one Sqft.) However, on demand, roof tiles of different specifications can also be manufactured. Installed capacity of the proposed unit is 288,000 tiles and its initial utilization will be 230,400 tiles at 80% in year 1. Total Cost Estimates is Rs. 2.15 Million with fixed investment Rs. 1.69 Million and working capital Rs. 0.46 Million. Given the cost assumptions, internal rate of return (IRR) and payback are 33% and 3.97 years respectively
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Target Market: Main target market for the proposed project is the local industry. However customers from neighbouring country Afghanistan can also be targeted since reconstruction of the country is in progress. Employment Generation: The proposed unit will provide direct employment to 04 people. Financial analysis shows the unit shall be profitable from the very first year of operation.
7 CRITICAL FACTORS
Establishment of the unit in areas where basic facilities including water and electricity are available. Material procurement skills. Training of staff to increase efficiency. Effective distribution networks.
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are in high demand in most of the rural and peri urban areas of the country. The tiles are used in a large number of construction projects including non-traditional / traditional housing, community centers, warehouses and factories etc. It is also suitable for schools and other public buildings especially in the rural areas. Demand for such type mainly exists for housing projects in towns and smaller cities. Additionally, in larger cities the low cost roofs are used in suburban housing schemes, warehouses and factories. The production unit can be established in cities and towns where access to basic raw materials including cement, sand and water is easily available.
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Mixing (1 Day)
Molding (1 Day)
Following steps describe the process flow for the production of light weight roof tiles in detail: Step 1: Ordering & Stockpiling of Raw Materials Raw materials required for the production of light weight roof tiles include sand, cement, iron wires and crushed gravel and are ordered and stored as per the production requirement. It is recommended to store raw materials for at least one weeks production requirements for efficient running of project and orders fulfillment on time.
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Step 2: Mixing Cement aggregates while mixing in the foremost step. Sand is pre-washed to remove dirt contaminants. When the aggregate are mixed thoroughly, water is added to the mixture. In the local roof tile industry, mixing is performed manually, however, for higher production requirements aggregate mixer machine may also be used when producing large quantity of tiles.
Step 3: Molding The mold is lubricated with a thin layer of used motor oil and kerosene mixture. It prevents sticking and allows the tile to be easily removed from the mold after setting. The lubrication is applied by using a paint brush. After lubrication the mold is half filled with aggregate mixture. At this point metal wires are placed on the aggregate in a crisscross manner. Six to twelve wires are used depending upon the requirement of the customer. The diameter of wire also varies. After adding the wires the mold is completely filled with the cement aggregate. When the molds are full, the concrete is compacted and the upper surface is made smooth by using masonry tools. The size and design of the mold determines the size and design of the finished tile.
Step 4: De-molding, Setting & Curing The mold containing the wet concrete tile is moved to the setting area. Initially, small amount of water is applied to keep the tiles wet. After about one day the tiles are removed from the mold and moved to a water tank where they are kept immersed in water for further two days. After being removed from the water tank the tiles are kept in ambient temperature for another seven days to become firm.
Step 5: Storage and distribution The tiles do not require specific storage requirements; they are normally stored in open air. The tiles are inspected for defects before shipment.
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The projected Income Statement, Balance Sheet and Cash Flow Statement are attached as Appendices. 12.1 Project Economics
The total project investment is Rs. 2.15 Million which includes Capital Cost of Rs. 1.69 Million and Working Capital of Rs. 0.46 Million. The project is assumed to be financed through 10% equity and 90% debt basis. All the figures in this financial model have been calculated for an estimated area of around 10,000 Sqft. The manufacturing unit is expected to produce 900 tiles / day. Whereby production covered by proposed unit at 100% capacity in year one will be 288,000 tiles. The following table shows internal rate of return and payback period. Table 3 - Project Economics Description Internal Rate of Return (IRR) Payback Period (yrs) Net Present Value (NPV) Details 33% 3.97 Rs.2,599,480
Major portion of the cost of tile is attributed to the quantity of cement and number / diameter of reinforcement wire used in a single tile. There are variations in quantity of cement and the number of reinforcement wires used, additionally; the diameter of reinforcement wire is also reduced by some manufactures. This results in great variation in the production cost of a single tile. Therefore, it is difficult to compete solely on the basis of price in this sector. The entrepreneur can, however, attain competitive edge in this industry by standardizing the production process. Higher strengths can be produced with the addition of supplementary cement and using good quality of reinforcement wires. Price is normally determined by the amount of cement used and the number of reinforcement wires used in the tile. Owing to the nature of supply and demand, short-term price fluctuations may also occur. 12.2 Project Financing
Following table provides details of the equity required and variables related to bank loan:
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Table 4: Project Financing Description Total Equity (10%) Bank Loan (90%) Markup to the Borrower (%age/annum) Tenure of the Loan (Years) Grace period (Year) 12.3 Project Cost Details Rs.215,059 Rs.1,935,527 8% 08 01
Following requirements have been identified for operations of the proposed business: Table 5: Capital Investment for the Project Capital Investment Building/Infrastructure Machinery & equipment Furniture & fixtures Office equipment Pre-operating costs Total Capital Costs Working Capital Upfront Land lease Equipment spare part inventory Raw material inventory Cash Total Working Capital Total Investment 12.4 Space Requirement Rs. 843,400 750,000 25,000 20,000 51,681 1,690,081 Rs. 100,000 13,800 96,704 250,000 460,504 2,150,585
Considering the various facilities required including production, storage of raw materials and finished tiles, total land requirement for the project is estimated at 10,000 Sft. The finished product and raw materials (with the exception of cement) does not require covered area, therefore, they can be stored in open air. However, a storage room for cement is required and a small office should also be constructed at the production facility. A detail of covered area required for different facilities is given below:
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Table 6: Building Requirement Total Cost (Rs.) Office 291,200 Store 291,200 Production Shed 216,000 Water Tank 45,000 Total 843,400 Total cost for construction of building and infrastructure is worked out to be approximately Rs. 0.84 million. 12.5 Machinery and Equipment Description Area (Sft) 224 224 360 Unit Cost (Rs.) 1,300 1300 600 -
Major cost of the equipment is attributed to the molds (known as firma by the local industry), in addition to the molds the project requires very simple masonry equipment. (Cement mixer is only feasible to be used if the production capacity is in excess of 1,000 tiles / day). Following table provides a list of equipment required for the establishment of a Light Weight Roof Tiles Manufacturing Unit: Table 7: List of Equipment Items Tile Molds (450 molds)* Misc. Equipment (Shovels, Wheel barrow, Brushes and other masonry tools) Total * One mold produces 2 tiles 1 2 Total Cost (Rs.) 720,000 30,000 750,000
The unit does not require high tech equipments or machinery. The molds can be made of wood or metal, for this project it is proposed that metallic molds are used since they are much more durable and long lasting as compared to wooden molds. One mold consists of two tiles placed side by side. Other miscellaneous equipments include items such as shovels, wheel barrow, brushes and other masonry tools.
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Office Equipment
These costs are based on the assumption that a setup will be required to monitor the unit and manage the production of roof tiles. The office is also proposed to be located at site. Table 8: Office Equipment Costs Furniture / Office equipment Furniture Office Equipment Total Cost per unit Total Cost (Rs.) Lumpsum 25,000 Lumpsum 20,000 45,000
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The raw material required for making roof tiles includes cement, sand, crushed stone, stone powder, iron wire and water. Cost of goods sold for cement tiles is determined for by adding cement, sand, gravel, sand powder, iron wires, water and direct labour costs. This cost varies owing to the different ratios of raw materials used by different manufacturers. For this project an average cost of goods sold is assumed to be Rs. 13.14 per tile. Table 9: Cost of Material Description Unit Required to produce 115 tiles Cement (1 bag) Sand (1-1.5 bag) Gravel (zero size-0.5 bag) Crush powder (khaka-1.5 bag) Iron wire Used Motor Oil (1-1.5 liters) Water Cost per Unit 1 4.05 1.5 4.5 4.6 1.5 135 Unit Cost (Rs.) Cost (Rs.) Cost / Tile (12x12) (Rs.) 510 40 40 50 65 80 1 510 162 60 225 299 120 135 4.43 1.41 0.52 1.96 2.60 1.04 1.17 13.14
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12.8
Roof tiles manufacturing is a simple process hence unskilled workers with proper training / instructions can easily start the production. The personal needed for the project are as under: Table 10: Human Resource Requirement
Description No. of Employees Salary per month (Rs.)
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The above table provides details of human resource required to run the proposed manufacturing unit. Semi / unskilled workers are required to make the roof tiles. The owner will be responsible to oversee the raw material, finished goods and take orders and manage the marketing / sales of the roof tiles. 12.9 Revenue Generation
Sales price ranges from Rs. 16 to Rs. 20 per tile depending upon the quality of tile. Sale price for this project has been calculated as Rs. 18 per tile. The sales price growth rate is assumed to increase at 10% per annum. Table 11: Revenue Assumptions Product Sales First Year Price Production (Rs./Unit) @ 80% (less inventory) 288,000 18 220,800 Unit First Year Sales Revenue (Rs) 3,974,400 3,974,400
12.10
Description Administration expense Land lease rental expense Travelling expense Communications expense (phone, fax, mail, internet, etc.) Office expenses (stationary, entertainment, janitorial
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services, etc.) Professional fees (legal, audit, consultants, etc.) Depreciation expense Amortization of pre-operating costs Subtotal
1. Institute of Ceramics, Small Industrial Estate (SIE) G.T Road, Gujrat Ph: 053 3520883 2. Muhmammad Iqbal Khan M/s Khan & Brothers RCC Pipe and tough Tile, Zarghoon Road, Quetta. Cell: 0333-7817500. 3. Kasi RRC Pipes and Tiles, Airport Road, Quetta. Cell: 0300-3887682, 0333-7875901. 4. Haji Abdullah M/s haji Abdullah RCC Pipes & Pillar Factory, Almo Choke,Airport Road,Near Ganj Quetta. Cell: 0321-8114680 (Haji Abdullah) Cell:0336-6719161 (Nasar Ullah)
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ANNEXURE
SMEDA
120,000 60,000 12,000 9,936 121,670 10,336 433,942 250,178 250,178 160,648 89,530 17,906 71,624
131,683 65,842 13,168 12,771 121,670 10,336 455,471 542,119 542,119 147,075 395,044 79,009 316,035 71,624 387,659 387,659
144,504 72,252 14,450 14,865 121,670 10,336 478,078 785,973 785,973 129,235 656,738 131,348 525,390 387,659 913,050 913,050
158,573 79,287 15,857 16,387 121,670 10,336 502,111 976,725 976,725 109,915 866,810 173,362 693,448 913,050 1,606,497 1,606,497
174,012 87,006 17,401 18,026 121,670 10,336 528,452 1,190,437 1,190,437 88,991 1,101,446 220,289 881,157 1,606,497 2,487,654 2,487,654
190,954 95,477 19,095 19,829 121,670 547,026 1,443,317 1,443,317 66,331 1,376,987 275,397 1,101,590 2,487,654 3,589,244 3,589,244
209,546 104,773 20,955 21,811 121,670 578,755 1,718,177 1,718,177 41,789 1,676,387 335,277 1,341,110 3,589,244 4,930,354 4,930,354
229,948 114,974 22,995 23,993 121,670 613,579 2,029,231 2,029,231 15,211 2,014,020 402,804 1,611,216 4,930,354 6,541,569 6,541,569
252,336 126,168 25,234 26,392 121,670 651,799 2,380,800 2,380,800 2,380,800 476,160 1,904,640 6,541,569 8,446,210 8,446,210
276,903 138,452 27,690 29,031 121,670 693,747 2,777,693 2,777,693 2,777,693 555,539 2,222,155 8,446,210 10,668,364 10,668,364
71,624 71,624
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14.2
Statement Summaries
Balance Sheet
Assets Current assets Cash & Bank Accounts receivable Finished goods inventory Equipment spare part inventory Raw material inventory Pre-paid annual land lease Total Current Assets Fixed assets Building/Infrastructure Machinery & equipment Furniture & fixtures Office equipment Total Fixed Assets Intangible assets Pre-operation costs Total Intangible Assets TOTAL ASSETS Liabilities & Shareholders' Equity Current liabilities Accounts payable Total Current Liabilities Other liabilities Deferred tax Long term debt Total Long Term Liabilities Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITI
421,700 421,700
4,167,823
4,994,905
6,040,185
7,332,521
9,268,956
11,476,313
251,691 251,691
317,230 317,230
362,866 362,866
394,175 394,175
427,410 427,410
463,582 463,582
502,973 502,973
545,893 545,893
592,688 592,688
592,890 592,890
1,935,527 1,935,527
30,000 30,000
15,000 15,000
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14.3
Statement Summaries
Cash Flow Statement
Operating activities Net profit Add: depreciation expense amortization expense Deferred income tax Accounts receivable Finished good inventory Equipment inventory Raw material inventory Accounts payable Other liabilities Cash provided by operations Financing activities Change in long term debt Issuance of shares Cash provided by / (used for) financing a
71,624 121,670 10,336 17,906 (326,663) (143,056) (4,486) (35,095) 251,691 (36,072)
316,035 121,670 10,336 57,094 (46,603) (29,025) (3,656) (30,869) 65,538 460,522
(214,936) (214,936)
(232,775) (232,775)
(252,096) (252,096)
(273,019) (273,019)
(295,680) (295,680)
(320,221) (320,221)
(346,799) (346,799)
100,000
Investing activities Capital expenditure (1,690,081) Cash (used for) / provided by investing a (1,690,081) NET CASH Cash balance brought forward Cash available for appropriation Cash carried forward 250,000
250,000 250,000
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14.4
Technology 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 Ads & P.O.S. Promotion: Business promotion and dissemination through banners and launch events is highly recommended. Product brochures from good quality service providers can be of great help. Sales & Distribution Network: Expert's advice and distribution agreements are required. 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.
Human Resources 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. 14.5
Useful Links
Prime Ministers Office www.pmo.gov.pk
Government of Pakistan
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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 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 Securities and Exchange 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
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KEY ASSUMPTIONS
Production related assumptions Average No. of Total Daily Annual Capacity Finished Tiles Daily Labour Production Production Utilization Tiles available Production (320 in Year-1 Inventory for Sale / person days/Yr) 80% (Year-1)* @ 100% capacity 300 3 900 288,000 230,400 9,600 220,800 Cost assumptions Cost of goods sold for cement tiles is determined by adding cement, sand, gravel, sand powder, iron wires, water and direct labour costs. This cost varies owing to the different ratios of raw materials used by different manufacturers. For this project an average cost of goods sold is assumed to be Rs. 13.14 per tile. Revenue assumptions Sales price ranges from Rs. 16 to Rs. 20 per tile depending upon the quality of tile. Sale price for this project has been calculated as Rs. 18 per tile. The sales price growth rate is assumed to increase at 10% per annum. Table 11: Revenue Assumptions Product Sales First Year Price Production (Rs./Unit) @ 80% (less inventory) 288,000 18 220,800 Unit First Year Sales Revenue (Rs) 3,974,400 3,974,400
Roof tiles Total Sales Revenue Financial Assumptions Debt Equity Required rate of return on equity WACC
90 % 10 % 25 % 16 %
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Depreciation Rates Building and Infrastructure Office Equipment Machinery and Equipment Cash Flow Assumptions Accounts Receivables Cycle (In Days) Accounts Payable Cycle (In Days) Cash in Hand Rs. Economy Related assumptions Inflation rate Electricity growth rate Water price growth rate Wage growth rate 10 % 10 % 10 % 10 % 30 30 250,000 5% 10 % 10 %
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