COMMERCIAL STARCH PRODUCTION FOR PHARMACEUTICAL INDUSTRY

Prepared For

Md.Shahid Uddin Ahmed

Professor,

Department of Management Studies

Faculty of Business Studies

University of Dhaka

Prepared By

Md.Arafat Islam

Roll.10

Section: A, (B.B.A) 15th Batch

Department of Management Studies

Faculty of Business Studies

University of Dhaka

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Date of submission: December 15, 2011

Authorization Letter 

 

I was assigned to submit a business plan on Commercial starch production for pharmaceutical industry.

We have given our maximum effort to prepare the business plan with relevant topic that was assigned by our honorable course teacher Professor Md.Shahid Uddin Ahmed. But there are some limitations that we had to face during making it. We got relevant time to prepare the assignment but we couldn’t make our report thoroughly.

In spite of having some limitations, we were sedulous to prepare the report fairly. We hope that we will get your clemency.

  

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Letter of Transmittal

December 15, 2011

Sohid Uddin Ahmed

Professor,

Department of Management Studies

Faculty of Business Studies

University of Dhaka

Subject: Submission of business plan on Commercial starch production for

pharmaceutical industry.

Dear Sir,

We are very happy to state that the report on Commercial starch production for pharmaceutical industry asked by you to prepare, is completed and ready for your viewing. We are glad to submit it as part of completion of the requirements for our Entrepreneurship Development (MGT-307) course with you.

We have tried our best to put up a good plan with as much information as we could gather during the short time span allotted for writing this business plan. We are begging pardon for any kind of mistake.

Thank you for your kind support and help throughout the course, we remain.

We hope you will appreciate this sincere effort.

Very sincerely yours,

...........................………..

On behalf of the (Enliven)

Roll: 10, 36, 38, 41, and 70

Sec: A, 15TH Batch (BBA)

Department of Management

University of Dhaka

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Table of Contents

Chapter Particulars Page no

1.0 Executive Summary 5

2.0 Company Overview 6

3.0 Product Offered 6

4.04.14.24.34.4

Market AnalysisDemandCompetitionMarketing StrategySWOT Analysis

77789

5.05.15.2

Business StructureManagement & OwnershipKey objectives

9910

6.06.1

Operations PlanProduction and Processing

1010

7.0 Sales And Promotions 12

8.08.18.28.38.48.5

Other Functional PlansPersonnel PlanPurchasing ProcedureInventory Management ProcedureQuality Management ProcedureAction Plan

121212131313

9.09.1

Contingency Plan & Risk ManagementExit Plan

1414

10.010.110.210.3

Financial ProjectionsStart up CostsSources of FundsCapital Budgeting Indicators

15151516

11.0 Future Plans 17

12.0 Conclusion 17

13.0 Appendix 18

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1.0 EXECUTIVE SUMMARY

R-Tech, the first large scale pharmaceutical grade starch producer, aims to utilize a widely available agro crop of Bangladesh, potato in order to establish a backward linkage element of the expanding pharmaceutical industry. A major portion of the products in this sector is in the form of tablets. And about 45%-80% of material used in tablets is starch. A market of BDT 40.4 crore exists in Bangladesh, where there are no domestic suppliers present. For a developing country like Bangladesh, this results in a huge import burden. Furthermore, high price in the international arena and transport costs cause the pharmaceutical industry to lose on the grounds of cost.

Potato is a widely grown vegetable in the country with very high starch content. Specially the breeds grown in Bangladesh are known to have less protein and more starch making them ideal for starch production. A starch production facility built on this will most definitely enjoy benefits in terms of cost and quality.

R-Tech will establish a state of the art manufacturing plant at Rajshahi, one of the districts where highest quality potato is grown in mass. The company will enter contractual farming with farmers of the area to ensure a smooth supply of raw materials. In addition, bulk of the required potato will be collected during the peak season when the cost is lowest. With 920 tons of initial production, the company plans to supply 15 pharmaceutical companies with its products. Later on, the company plans to expand the production and capture 25% of the market in 5 years of initial production.

R-Tech will target the local pharmaceutical companies and through cost leadership, the company will be able to attain the competitive advantage. A state of the art manufacturing facility will consistently deliver high quality product to the pharmaceutical companies on time at a lower price. Installation of IT solution, which includes production, inventory management, HR, accounting, and CSR modules, will help increase the overall efficiency of the firm.

In addition, the venture will have a NPV of BDT 3,17,81,319.14 and an IRR of 24.19%. Such an NPV and IRR indicate the bright prospect of the investment. A payback period of 4.04 years also indicates a reasonable time by which the initial investment can be recovered.

R-Tech will pave the way to the development and expansion of backward linkage sector in the pharmaceutical industry. Such an initiative will not only save foreign currency, but also make the pharmaceutical industry more competitive in terms of price by supplying them with quality raw materials, far cheaper.

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2.0 COMPANY OVERVIEW

Name R-Tech Public Limited

Vision To develop the backward linkage sector based on potato starch

Mission Provide high quality pharmaceutical grade potato starch at a competitive price to the pharmaceutical companies of Bangladesh

Location Rajshahi

Products 1. Pharmaceutical Grade Potato Starch2. Animal Feed

As the country’s first commercial pharmaceutical grade starch producer, R-Tech Public Ltd. will produce pharmaceutical grade starch in a controlled process with all the necessary certification for use in pharmaceutical companies in Bangladesh. The company will be using fully automated machinery with high grade potatoes. Full control over every step of the process will ensure production of high grade starch and cost effective production. R-Tech will only target the domestic market consisting of 240 pharmaceutical companies.

R-Tech is starting operations with a production of 960 tons of starch using 4800 tons of potatoes every year and within 5 years of operations, is aiming to capture 25% of the domestic market that stands at 4000 tons per year (2010). The company will reach this goal by increasing production by 15% annually.

3.0 PRODUCT OFFERED

There are no specific kinds of starch available. Differentiation is done based on the source of the starch and the level of purity. There are mainly 3 sources of starch: potato, corn, and cassava. Based on the level of purity, there are 3 grades of starch. The basic starch that we get straight from production is called general grade starch. It is used for industrial purposes. Food grade starch is moderately purified starch. It is used in an increasing number of food items. Pharmacy grade is the most purified form of starch. It is widely used in pharmaceutical products, namely in tablets. Apart from these grades, there are different kinds of modified starch products used in different fields.

R-Tech chose pharma grade starch. The main reason behind this is the huge demand in the domestic market. And the reason behind choosing potato as a source is the fact that it is widely available in the local market. Furthermore, the domestically produced potato is of the highest quality and with high starch content making it specifically suitable for starch production.

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4.0 MARKET ANALYSIS

4.1 DEMAND

In 2010, the total demand of pharmaceutical grade starch in Bangladesh was 4000 tons. All of this was imported from countries like China, France, and South Korea. The use of starch around the world is growing at a rapid rate. In today’s world, starch is one of the premier binding and dissolving medium as well as an expedient in tablets. It constitutes about 45% to 80% of the weight of tablets. Currently, there are 240 pharmaceutical companies operating in Bangladesh. All of them need a substantial amount of starch every month. Square Pharmaceuticals, the leading pharmaceutical company in Bangladesh, alone uses about 150 tons of starch every month. Furthermore, the industry is expanding at a rate of 13%to take the advantage of patent protection by LDCs. Consequently, the industry has a projected demand of about 4500 tons in the year 2012. This clearly shows that there is an established market of starch in Bangladesh. In fact, the Bangladesh starch market is worth about TK 40.8 crore per year.

R-Tech is not intending to reach the global starch market as a whole, but rather the markets that offer the greatest value in return. That is why the company is offering only one product. It is targeted towards the domestic pharmaceutical companies of Bangladesh. R-Tech will not face any domestic competitors but foreign competitors.

Currently, the average price of imported pharma grade starch is TK 102,000 per ton. Addition of import duty of 15% and other charges results in an increase in 40% over initial pricing. Consequently, the pharmaceutical companies are importing starch at TK 102 per kg. On the other hand, R-Tech will supply starch at TK 95 per kg. Considering a pharmaceutical company that uses 100 ton starch annually, it is seen that the company can save TK 700,000 every year. As a result, the demand for R-Tech starch will surely be very high.

4.2 COMPETITION

4.2.1 Domestic Competitors

Though there are a number of companies operating in the starch industry in Bangladesh. However, they only produce food grade starch. On the other hand, there is a huge market for pharma grade starch in Bangladesh at the moment. But currently no Bangladeshi company is operating to supply the market with pharma grade starch. Being the first domestic supplier here, R-Tech will primarily have to compete with foreign companies.

4.2.2 Foreign Competitors

The major suppliers of pharma grade starch include China, France, and South Korea. Among these countries, France can be considered to be the major competitor of R-Tech as it is internationally famous for pharma grade starch. In addition, China is providing starch at a very competitive price in the market.

4.2.3 Competitive Advantage

Cost leadership is the main competitive advantage of R-Tech. During peak seasons, the price of potato is TK 6000 per ton, far lower than the price in the international market. Lower

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price of raw material together with the availability of cheap labor will enable R-Tech to produce starch at a lower cost. Therefore, R-tech will enjoy a huge advantage in final cost of product. Consequently, R-Tech will be able to supply high quality starch at a lower price to the pharmaceutical industry.

4.3 MARKETING STRATEGY

4.3.1 Market Segmentation

R-Tech will follow demographic segmentation and focus only the pharmaceutical industry of Bangladesh. The registered 240 pharmaceutical companies operating in Bangladesh will be the target market of the company. Nevertheless, R-Tech will initially target the smaller pharmaceutical companies so that it can supply them efficiently. Later, with the increase of production capacity, R-Tech will target the bigger companies in the industry.

As pharmacy grade starch is a standardized ingredient by all the pharmaceutical companies, R-Tech will prude only one widely used variant. However, as the production increases, the company will supply its customers with specified variants in bulk (order of over 50 tons a month).

4.3.2 Pricing Approach

Potato starch will be priced based on cost based pricing approach. The company will charge 37% mark up on the cost price to sell the starch at BDT 95 per kg. The customers will be willing to buy the product as it offers higher value in terms of cost and quality. This in fact is the main competitive advantage R-Tech: quality products at a lower price.

4.3.3 Marketing Communication and Promotion

R-Tech will undertake personal selling and direct marketing as the principal modes of marketing communication and promotion. Personal selling will play a vital role in marketing since R-Tech is in a B2B trade. 5 sales executives under the marketing manager will be in charge of the personal selling process. Furthermore, R-Tech will build a website through which orders will be taken from the clients. A database will also be maintained for the clients through which R-Tech will undertake direct marketing efforts by sending e-mails and e-brochures. Telephone and fax will also be used for direct marketing.

R-Tech will emphasize on customer relationship management (CSR) as a strategic tool to build a long term profitable relationship with its clients. This will be handled by the marketing manager with the help of CSR software. Personalized e-mails and greeting cards will be sent during various festivals like Eid, Pohela Boishakh, etc. As a business promotion tool, R-Tech will attend trade exhibitions organized for pharmaceutical industry.

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4.3.4 BRANDING

Branding will be an important element in sales promotion. As the first mover in the industry, the company will capitalize on a brand image of consistent quality which will help R-Tech retain its market share.

4.4 SWOT Analysis

Strength

State of the art production facility Continual supply of raw materials

through contractual farming Strict quality control. Availability of cheap raw materials and

labor Head start Shorter Lead time

Weakness

Limited production capability. Starch production is completely

dependent on the local harvest of potato

Threats

Low entry barrier Natural disasters

Opportunities

Opportunity to expand into the domestic food and textile industry

Opportunity for export Enter modified starch market Incorporating newer and better

technologies in our processes

5.0 BUSINESS STRUCTURE

Due to high capital requirement, R-Tech is going to start out as a public limited company. The growth prospect and the high profitability of the company will attract potential investors. R-Tech will be authorized to issue 100,000 shares.

5.1 MANAGEMENT & OWNERSHIP

As R-Tech is a public limited company, its management will be controlled by the Board of Directors. As do all other companies registered in Dhaka Stock Exchange (DSE) are, R-Tech too will be under complete control of the Company Law’1994. Its decision regarding administration and regulations will follow the clauses of the Article and Memoranda of Association and if these two basic sources fail to resolve any situation, Board of Directors can take usual legal actions under the Company Law’1994. For the ownership, annual meeting and all other regular activities, regulations set by DSE will be followed.

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5.2 KEY OBJECTIVES

Department Objective

Production Increase production from 920 tons per year with an annual sales growth of 15%.

Reach annual production of 1600 tons by the end of year 5.

Sales and marketing To start selling at the end of the gestation period

To achieve sales in the third quarter of TK 75,00,000

To achieve 25% market share in the domestic market at the end of the 5th year

6.0 OPERATIONS PLAN

Business process is comprised of three basic components including production, processing and sales and promotion.

6.1 PRODUCTION & PROCESSING

In the first step of the process, the potatoes are washed. Cleaned potatoes then slip over a gravity chute into the potato rasp. The potatoes are converted into a mash in which the cells are completely disrupted. This particular process liberates the starch granules. The mash is diluted with water and then lead over a centrisieve for separation of skin fragments and cell debris. In this step the starch milk passes through the rotating sieve while skin fragments, which are referred to as pulp, remain on it.

Afterwards, the pulp is leached out several times in order to wash out as much starch as possible. The obtained starch milk is still very thin. It passes on to the hydro-cyclone plant for concentration. The plant not only serves for concentration of desired components but also for the refining, i.e. the separation of dissolved components from the starch milk.

The concentrated and purified starch milk is then dewatered by means of a rotary vacuum filter. In this process step a starch film disposes on the interior of a rotating and evacuated drum and is continuously removed by a scraper knife. In the final processing step the purified starch cake is dried by means of a flash dryer to obtain the end product: dry starch, a white-colored powder. The starch is then packed into 25 kg bags and ready for delivery.

The total process is computer controlled. The required percentage of the components in the starch can be preprogrammed into the central computer and with this method; a range of

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grades can be achieved to suit individual purposes. The specifications for the pharmaceutical grade starch will be programmed to achieve high quality product.

The potato pulp, a highly produced byproduct is vastly used in animal feed production. It is collected during the production process and stored for the animal feed company under contract to collect at their convenience.

Figure: A schematic illustration of the plant for potato starch extraction

The process starts on the upper left side of the image and then proceeds to bottom right.

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7.0 SALES AND PROMOTION

As mentioned earlier, both personal selling and direct marketing will be used as modes of selling under the marketing department. By undertaking direct marketing channel that eliminates all the intermediaries, R-Tech will enjoy a competitive edge. Trucks will be used to transport the starch directly to the pharmaceutical companies by road. On the other hand, the animal feed companies will send their trucks to procure the by-product of starch.

8.0 OTHER FUNCTIONAL PLANS

8.1 PERSONNEL PLAN

There will be two departments working in R-Tech: Production Department and Sales and Promotion Department. The CEO is the one who manages both the departments. Under the production manager, there will also be the engineering and accounting department. The floor manager will be in charge of the labors. The labors have to be hard-working. Similarly, under the sales and promotion manager, there will be another accounts department.

Position Number Position Number

CEO

Production Dept Sales & Promotion Dept

Production Manager 1 Manager 1

Chief Engineer 1 Promotion Officer 5

Assistant Engineer 2 Accountant 2

Technician 15 Assistant Accountant 4

Floor Manager 1 Staff 6

Labor 50

Security 10

Sub Total 80 Sub Total 18

Table: Personnel requirement chart

8.2 PURCHASING PROCEDURE

The only direct material involved in the production process is potatoes. The price of potato shows seasonal fluctuations and price is lowest during the harvesting season in the month of February. To ensure a consistent supply of raw materials, R-Tech will undertake contractual potato farming in the region. The company will enter contracts with farmers in order to procure 20,000 tons of potatoes per year. In order to make the endeavor

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sustainable, R-Tech will provide upto 25% of the price of the potatoes in advance. This will not only help farmers buy the necessary seed and fertilizers but also help create a loyal supplier base for R-Tech.

8.3 INVENTORY MANAGEMENT PROCEDURE

R-Tech will construct a cold storage facility and a warehouse beside the production plant for raw material storage. All the acquired potatoes will be stored here and they will leave for the plant in a FIFO basis for optimal quality. An emergency stock of 60 days will always be ensured. The inventory management module of the IT solution will enhance inventory management procedure of the company.

The packed starch will be stored in the warehouse beside the production plant. The cold storage, production plant, and the warehouse will be situated in this sequence to ensure efficient flow of materials from cold storage to production plant and then to the warehouse.

8.4 QUALITY MANAGEMENT PROCEDURE

Strict steps are taken to ensure highest possible quality of the product every step of the process. 15 Technicians working under the Chief Engineer and his 2 assistants will be in charge of constantly monitoring quality. The size of starch granules, moisture content, viscosity, color, and other aspects will be maintained carefully. Samples will be taken at random from batches and tested. If any inconsistency is found, the entire batch will be subjected to re-processing. These measures will ensure a consistent production of high quality starch.

8.5 ACTION PLAN

Due to the fact that R-Tech's projected plan over the next five years is to capture 25% of the Bangladesh pharma grade starch market, the company’s main growth problem will be the limited abilities to supply the potential demand.

Key Objective

Task By When

ProductionCheck up of all the machinery and start procurement of raw materials

Day 1

Preparation of samples for certification Day 15Sending samples to the authorities Day 18Approval of authorities ( i.e. BSTI) Day 108Start full procurement for commercial production Day 109Start commercial production Day 180

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Sales & MarketingInauguration of promotional activities Day 110Buyer contact & quotation Day 110-

140Receive orders from buyer Day 120-

160Stock ready for delivery Day 190

9.0 CONTINGENCY PLAN & RISK MANAGEMENT

The major risk associated with the R-Tech is the seasonal variability of potato prices. If the starch production is completely dependent on the availability of potatoes in the market, it will be impossible to maintain a constant price level. In order to minimize this risk and to ensure a consistent supply of raw material, R-Tech will practice contractual farming with the potato growers. And a major portion of the years raw materials will be acquired during the harvesting season.

Another major risk involved is inflation. The price at which an agreement has been signed may change over time due to inflation. To counter this risk, a provision will be placed in the contracts stating ranges and terms.

A backup generator along with a regulator generator will be in place to handle the electricity crisis in the cold storage. The backup generator will be needed in the occasion of major electricity failure. This way, R-Tech plans to minimize the spoilage of potato due to electricity failure. In addition, 2 generators will be in place in the manufacturing plant to ensure smooth production of starch.

In case of the occurrence of any natural disasters, 60 days stock of potatoes will always be kept to act as a buffer.

There is also a threat of new entrants due to low entry barriers. To counter this situation, R-Tech will emphasize on strong branding. The company plans to build up a brand image of consistent quality.

9.1 EXIT PLAN

“Begin with the end in mind,” says Stephen Covey in his book, “The Seven Habits of Successful Living.” Due to the bright prospect of R-Tech, the company may diversify and enter new market in future. R-Tech has the option to enter the food, textile, and modified starch market.

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In case of dissolution of R-Tech, a valuation of the business will be carried out by calculating the market price of the assets. The payables will be resolved and the resulting gains or losses will be shared among the stockholders.

10.0 FINANCIAL PROJECTIONS

10.1 START UP COSTS

A total of BDT 170,600,000 is required to start the business. BDT 1,930,000 of this amount is the start up expenses and BDT 168,670,000 account for the total required asset:

Requirements Quantity Price Total

Utility Setup 25,000.00 Web Development 5,000.00 Underwriting Charges 300,000.00 Legal Fees 600,000.00 Other Establishment Charges 1,000,000.00 Total Expenditure 1,930,000.00

Current AssetsCash & Current A/C 10,000,000.00 Prepaid Rent 50,000.00 Prepaid Insurances 3,210,000.00 Prepaid Utility 10,000.00 Total Current Assets 13,270,000.00

Long Term AssetsLand 10 acre 250,000.00 2,500,000.00 Building Dhaka & Rajshahi Office 15,000,000.00 Machine Full Package including Training 130,000,000.00 Furniture & Decoration Including Dhaka & Rajshahi Office 6,000,000.00 Computers 10 40,000.00 400,000.00 Software Development 2 1,500,000.00

Total Long Term Assets 155,400,000.00 Total Requirements 170,600,000.00

Start-Up Expenses

Start-Up Assets

10.2 SOURCES OF FUND

BDT 10 crore of the required BDT 170,600,000 will be raised will be raised through issuing 10,000 shares as IPO at BDT 100 per share. The rest will come from long-term loan from 3 banks at an annual interest rate of 14.3%.

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Requirements Quantity Price Total

Short-Term LiabilitiesAccounts Payable 600,000.00

Long-Term LiabilitiesLoan 70,000,000.00

Total Liabilities 70,600,000.00

CapitalAuthorized - - 1,000,000,000.00 Issued & Distributed 1,000,000.00 100.00 100,000,000.00

Total Owner's Equity 100,000,000.00

Total Liabilities & Capitals 170,600,000.00

Start-Up Capital & Funds

10.3 CAPITAL BUDGETING INDICATORS

Capital Budgeting Indicators

Initial Investment

(170,000,000.00)WAAC 16.48%NPV 31,882,065.31IRR 24.19%Payback Period 4.04

Since the NPV is a large positive value, it shows that the present value of future cash flows from R-Tech is much higher than cost of investment. Therefore, investing in R-Tech will be a very good investment.

The payback period implies that the investors can retrieve their initial investment in just over 4 years. This is a very reasonable period considering the large size of the investment required in the business.

The internal rate of return (IRR) of 24.19% is reasonably higher than the required rate of return of 16.48%. This again shows that R-Tech is a very good investment.

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Main Ratios Year 01Current Ratio 2.45Quick Ratio 2.11 Total Debt to Total Assets 0.33Return on Equity (ROE) 20.87%Accounts Receivable Turnover 16.54 Accounts Payable Turnover 10.00 Interest Coverage Ratio/Times Interest Earned 3.64 Return on Assets (ROA) 19.46%

The current ratio shows that R-Tech will be successfully able to meet the short-term obligations. Exclusion of inventories will slightly decrease the quick ratio and this may convince the short-term creditors to provide short-term loans. R-Tech will make a profit of 37% over 1 year of operation. The debt to asset ratio shows 33% of the investment is financed by debt, and this will have a positive image in the minds of the creditors. High accounts receivable turnover reflects R-Tech’s strict credit policies. The high value of ROA reflects a very efficient use of assets to generate sales. The interest coverage ratio implies that R-Tech has a good margin of safety.

For detailed financial references please refer to appendix.

11.0 FUTURE PLANS

On 7th years of operation, R-Tech plans to expand and increase its production capacity to increase its market share. New machineries, latest technologies and practices will be incorporated in order to remain competitive in the market. Furthermore, R-Tech plans to enter the food grade starch industry by supplying high quality starch to the food processing industry of the country. Hence R-Tech will be gradually moving towards its vision—developing the backward linkage sector regarding potato starch.

12.0 CONCLUSION

R-Tech will efficiently utilize the prospect of establishing a backward linkage sector in the pharmaceutical industry through careful production, use of promotion tools and financing to achieve an optimum mix of cost and quality using agriculture as the base. With consistent quality and timely delivery, the company aims to pave the way for the backward linkage industry in the field of starch in Bangladesh.

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13.0 APPENDIX

INDEX

13.1 ASSUMPTIONS13.2 PERSONNEL13.3 SALES FORECAST13.4 COST OF GOODS SOLD13.5 INCOME STATEMENT13.6 BALANCE SHEET13.7 CASH FLOW STATEMENT13.8 DEPRICIATION13.9 LOAN AMMORTIZATION SHEDULE

13.10 RAW MATERIALS13.11 RATIOS

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13.1 ASSUMPTIONS

Year 1 Year 2 Year 3 Year 4 Year 5

Market Growth (in KG) 13% 4,000,000.00 4,520,000.00 5,107,600.00 5,771,588.00 6,521,894.44Market Share Growth (initially 20% of the Market

15% 920,000.00

1,058,000.00

1,216,700.00

1,399,205.00

1,609,085.75

Tax Holiday (7 years) 0.00% 0.00% 0.00% 0.00% 0.00%Salary Growth 11.00% 11.00% 11.00% 11.00% 11.00%Wastage (Optimum 7%) 10.00% 9.00% 8.00% 7.00% 7.00%Inflation (Assumed to Be Steady)

10.00% 10.00% 10.00% 10.00% 10.00%

Interest Rate 15.00% 15.00% 15.00% 15.00% 15.00%Change in Currency Exchange Rate 4.76% 4.76% 4.76% 4.76% 4.76%Change In Price 4.00% 4.00% 4.00% 4.00% 4.00%By Product (Almost Equal to Mainstream Product)

80.00% 85.00% 87.00% 90.00% 90.00%

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13.2 PERSONNEL REQUIREMENTS

Position Number Salary Total

CEO 1 30,000.00

30,000.00

Production Dept

Production Manager 1 25,000.00

25,000.00

Chief Engineer 1 20,000.00

20,000.00

Assistant Engineer 2 15,000.00

30,000.00

Technician 15 10,000.00

150,000.00

Floor Manager 1 10,000.00

10,000.00

Labor 50 50.00 2500.00

Security 8 2,500.00

20,000.00

Sub Total 29 287,500.00

Position Number Salary Total

Sales & Promotion Dept

Manager 1 25,000.00

25,000.00

Promotion Officer 5 10,000.00

50,000.00

Accountant 2 10,000.00

20,000.00

Assistant Accountant 4 7,000.00

28,000.00

Staff 6 7,000.00

42,000.00

Sub Total 18 165,000.00

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13.3 SALES FORECAST

Year 1 Year 2 Year 3 Year 4 Year 5

Unit Sales (In KG) 920,000.00 1,058,000.00 1,216,700.00 1,399,205.00 1,609,085.75 Unit Price (In KG) 95.00 98.80 102.75 106.86 111.14

Total Revenue 87,400,000.00 104,530,400.00 125,018,358.40 149,521,956.65 178,828,260.15

Unit Sales 736,000.00 899,300.00 1,058,529.00 1,259,284.50 1,448,177.18 Unit Price 4.0 4.6 5.4 6.2 7.2

Total Revenue 2,944,000.00 4,172,752.00 5,697,426.49 7,862,448.56 10,488,506.37

TOTAL 90,344,000.00 108,703,152.00 130,715,784.89 157,384,405.20 189,316,766.52

STARCH

BY PRODUCT

13.4 COST OF GOODS SOLD

DIRECT MATERIALPotato 27,600,000.00 34,914,000.00 44,166,210.00 55,870,255.65 70,675,873.40 DIRECT LABOR 330,000.00 MANUFACTURING OVERHEAD - Salary 3,420,000.00 3,796,200.00 4,213,782.00 4,677,298.02 5,191,800.80 Utility(Electricity, Telephone Bills) 90,000.00 99,000.00 108,900.00 119,790.00 131,769.00 Depreciation - Packaging 1,380,000.00 1,587,000.00 1,825,050.00 2,098,807.50 2,413,628.63 Insurance 2,400,000.00 2,400,000.00 2,400,000.00 2,400,000.00 2,400,000.00 Maintenance 240,000.00 240,000.00 240,000.00 240,000.00 240,000.00 Other 156,000.00 171,600.00 188,760.00 207,636.00 228,399.60 Fuel 96,000.00 105,600.00 116,160.00 127,776.00 140,553.60

- -

COST OF GOODS SOLD 35,712,000.00 43,313,400.00 53,258,862.00 65,741,563.17 81,422,025.02

Year 5Particulars Year 2 Year 3 Year 4Year 1

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13.5 INCOME STATEMENT

SALESStarch 87,400,000.00 104,530,400.00 125,018,358.40 149,521,956.65 178,828,260.15 By Product 2,944,000.00 4,172,752.00 5,697,426.49 7,862,448.56 10,488,506.37 Total Sales 90,344,000.00 108,703,152.00 130,715,784.89 157,384,405.20 189,316,766.52 COST OF GOODS SOLD 35,712,000.00 43,313,400.00 53,258,862.00 65,741,563.17 81,422,025.02 GROSS PROFIT 54,632,000.00 65,389,752.00 77,456,922.89 91,642,842.03 107,894,741.50

OPERATING EXPENSEOffice Rent 330,000.00 363,000.00 399,300.00 439,230.00 483,153.00 Marketing Expenses 550,000.00 605,000.00 665,500.00 732,050.00 805,255.00 Salaries 1,815,000.00 2,014,650.00 2,236,261.50 2,482,250.27 2,755,297.79 Utilities & Other 300,000.00 330,000.00 363,000.00 399,300.00 439,230.00 Transport 460,000.00 506,000.00 556,600.00 612,260.00 673,486.00 Web Maintenance 13,200.00 1,320.00 132.00 13.20 1.32 Depreciation 5,778,666.67 5,778,666.67 5,778,666.67 5,778,666.67 5,778,666.67 Interest 10,010,000.00 9,499,857.82 8,916,765.30 8,250,290.55 7,488,509.92 Miscellaneous 2,400,000.00 240,000.00 24,000.00 2,400.00 240.00 Provisions for Taxes (20%) 6,595,026.67 9,210,251.50 11,703,339.48 14,589,276.27 17,894,180.36

- Total Operating Expenses 28,251,893.33 28,548,745.99 30,643,564.95 33,285,736.95 36,318,020.06 NET PROFIT BEFORE TAXES 26,380,106.67 36,841,006.01 46,813,357.94 58,357,105.08 71,576,721.44 (LESS) TAXES (7 year tax holiday) - - - - -

- NET PROFIT AFTER TAXES 26,380,106.67 36,841,006.01 46,813,357.94 58,357,105.08 71,576,721.44

Year 5Particulars Year 2 Year 3 Year 4Year 1

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

1 2 3 4 5

Net Income in Million BDT

Year

Series1

1 2 3 4 5 -

10,000,000.00

20,000,000.00

30,000,000.00

40,000,000.00

50,000,000.00

60,000,000.00

70,000,000.00

80,000,000.00

Series1

Year

Figure: Net Income over time

21

13.6 BALANCE SHEET

22

Start Up Year 01 Year 02 Year 03 Year 04 Year 05

Current AssetsCash 10,000,000.00 35,824,629.71 72,239,456.38 119,638,967.22 177,831,163.53 248,209,055.94 Accounts Receivables 5,462,500.00 6,533,150.00 7,813,647.40 9,345,122.29 11,176,766.26 Inventory 7,283,333.33 8,710,866.67 10,418,196.53 12,460,163.05 14,902,355.01 Prepaid Utility 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 Prepaid Rents 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00 Prepaid Insurances 3,210,000.00 3,210,000.00 3,210,000.00 3,210,000.00 3,210,000.00 3,210,000.00 Total Current Assets 13,270,000.00 51,840,463.04 90,753,473.04 141,140,811.15 202,906,448.87 277,558,177.22 Fixed AssetsBuilding 15,000,000.00 15,000,000.00 14,000,000.00 13,000,000.00 12,000,000.00 11,000,000.00 (Less) Accumulated Depreciation 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 Total 15,000,000.00 14,000,000.00 13,000,000.00 12,000,000.00 11,000,000.00 10,000,000.00

Land 2,500,000.00 2,500,000.00 2,500,000.00 2,500,000.00 2,500,000.00 2,500,000.00 Machine 130,000,000.00 130,000,000.00 126,000,000.00 122,000,000.00 118,000,000.00 114,000,000.00 (Less) Accumulated Depreciation 4,000,000.00 4,000,000.00 4,000,000.00 4,000,000.00 4,000,000.00 Total 130,000,000.00 126,000,000.00 122,000,000.00 118,000,000.00 114,000,000.00 110,000,000.00

Furniture 6,000,000.00 6,000,000.00 5,520,000.00 5,040,000.00 4,660,000.00 4,180,000.00 (Less) Accumulated Depreciation 480,000.00 480,000.00 480,000.00 480,000.00 480,000.00 Total 6,000,000.00 5,520,000.00 5,040,000.00 4,560,000.00 4,180,000.00 3,700,000.00

Computers 400,000.00 400,000.00 380,000.00 360,000.00 340,000.00 320,000.00 (Less) Accumulated Depreciation 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 Total 400,000.00 380,000.00 360,000.00 340,000.00 320,000.00 300,000.00

Software Development 1,500,000.00 1,500,000.00 1,350,000.00 1,200,000.00 1,050,000.00 900,000.00 (Less) Accumulated Depreciation 150,000.00 150,000.00 150,000.00 150,000.00 150,000.00 Total 1,500,000.00 1,350,000.00 1,200,000.00 1,050,000.00 900,000.00 750,000.00

Organization Cost 1,930,000.00 1,930,000.00 1,801,333.33 1,672,666.67 1,544,000.00 1,415,333.33 (Less) Amortization 128,666.67 128,666.67 128,666.67 128,666.67 128,666.67 Total 1,930,000.00 1,801,333.33 1,672,666.67 1,544,000.00 1,415,333.33 1,286,666.67 TOTAL ASSETS 170,600,000.00 203,391,796.38 236,526,139.71 281,134,811.15 337,221,782.21 406,094,843.88

Short-Term LiabilitiesAccounts Payable 600,000.00 2,760,000.00 529,000.00 608,350.00 699,602.50 804,542.88 Office Rent Payable 30,000.00 33,000.00 36,300.00 39,930.00 43,923.00 Marketing Expenses Payable 50,000.00 55,000.00 60,500.00 66,550.00 73,205.00 Salaries Payable 165,000.00 183,150.00 203,296.50 225,659.12 250,481.62 Utilities & Other Payable 27,272.73 30,000.00 33,000.00 36,300.00 39,930.00 Transport Payable 41,818.18 46,000.00 50,600.00 55,660.00 61,226.00 Interest Payable 910,000.00 863,623.44 810,615.03 750,026.41 680,773.63 Total Short-Term Liabilities 600,000.00 3,984,090.91 1,739,773.44 1,802,661.53 1,873,728.03 1,954,082.12

Long-Term LiabilitiesLoan 70,000,000.00 66,432,572.14 62,355,002.09 57,694,339.52 52,367,202.21 46,278,284.26 Provision for Taxes 6,595,026.67 9,210,251.50 11,703,339.48 14,589,276.27 17,894,180.36 Total Long-Term Liabilities 70,000,000.00 73,027,598.80 71,565,253.59 69,397,679.01 66,956,478.48 64,172,464.62

Owner's EquityAuthorized Capital 1,000,000,000.00 1,000,000,000.00 1,000,000,000.00 1,000,000,000.00 1,000,000,000.00 1,000,000,000.00 Share Issued & Distributed 100,000,000.00 100,000,000.00 100,000,000.00 100,000,000.00 100,000,000.00 100,000,000.00 Retained Earnings 26,380,106.67 63,221,112.68 110,034,470.62 168,391,575.70 239,968,297.14

Total Owner's Equity 100,000,000.00 126,380,106.67 163,221,112.68 210,034,470.62 268,391,575.70 339,968,297.14 TOTAL LIABILITIES & OWNER'S EQUITY 170,600,000.00 203,391,796.38 236,526,139.71 281,234,811.15 337,221,782.21 406,094,843.88

ASSETS

LIABILITIES & OWNER'S EQUITY

13.7 WAAC CALCULATION

Equity 100,000,000.00 Debt 70,000,000.00 Total Fund 170,000,000.00 Cost of Equity 18.00%Cost of Debt (Interest Rate) 14.30%Tax Rate (Tax holiday for 7 years) 0.00%

WAAC 16.48%

Debt / TF (Cost of Debt)(1-Tax)+ Equity/ TF (Cost of Equity)

13.8 RAW MATERIAL ESTIMATION

Inflation Rate 10%Raw Materials Year 01 Year 02 Year 03 Year 04 Year 05PotatoRequirement 4,600,000.00 5,290,000.00 6,083,500.00 6,996,025.00 8,045,428.75 Price/Unit 6 6.60 7.26 7.99 8.78Total Price 27,600,000.00 34,914,000.00 44,166,210.00 55,870,255.65 70,675,873.40

23

13.9 CASH FLOW STATEMENT

Year 01 Year 02 Year 03 Year 04 Year 05

Net Income 26,380,106.67 36,841,006.01 46,813,357.94 58,357,105.08 71,576,721.44

Changes in Operating ActivityAccumulated Depreciation Machine 4,000,000.00 4,000,000.00 4,000,000.00 4,000,000.00 4,000,000.00 Building 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 Computer 20,000.00 20,000.00 20,000.00 20,000.00 20,000.00 Software Development 150,000.00 150,000.00 150,000.00 150,000.00 150,000.00 Furniture 480,000.00 480,000.00 480,000.00 480,000.00 480,000.00 Inventory (7,283,333.33) (1,427,533.33) (1,707,329.87) (2,041,966.52) (2,442,191.96) Amortization of Organization Cost 128,666.67 128,666.67 128,666.67 128,666.67 128,666.67 Accounts Receivables (5,462,500.00) (1,070,650.00) (1,280,497.40) (1,531,474.89) (1,831,643.97) Accounts Payables 2,160,000.00 (2,231,000.00) 79,350.00 91,252.50 104,940.38 Office Rent Payable 30,000.00 3,000.00 3,300.00 3,630.00 3,993.00 Marketing Expenses Payable 50,000.00 5,000.00 5,500.00 6,050.00 6,655.00 Salaries Payable 165,000.00 18,150.00 20,146.50 22,362.62 24,822.50 Utilities & Other Payable 27,272.73 2,727.27 3,000.00 3,300.00 3,630.00 Transport Payable 41,818.18 4,181.82 4,600.00 5,060.00 5,566.00 Interest Payable 910,000.00 (46,376.56) (53,008.41) (60,588.61) (69,252.79)

Changes in Investment Activity

Purchase of Land - - - - - Purchase of Machine - - - - - Purchase of Furniture - - (100,000.00) - -

Changes in Financing Activity

Loans Paid Up (3,567,427.86) (4,077,570.05) (4,660,662.57) (5,327,137.31) (6,088,917.95) Issuance of IPO - - - - - Special Provisions (taxes) 6,595,026.67 2,615,224.84 2,493,087.98 2,885,936.78 3,304,904.09

Cash Flow 25,824,629.71 36,414,826.66 47,399,510.84 58,192,196.31 70,377,892.41 Net Cash Flow (144,175,370.29) (107,760,543.62) (60,361,032.78) (2,168,836.47) 68,209,055.94

24

13.10 LOAN REPAYMENTAmount 70,000,000.00 Interest Rate 14.30%

Year Annual Payment Interest Principal Balance1 13,577,427.86 10,010,000.00 3,567,427.86 122,196,850.78 2 13,577,427.86 9,499,857.82 4,077,570.05 108,619,422.91 3 13,577,427.86 8,916,765.30 4,660,662.57 95,041,995.05 4 13,577,427.86 8,250,290.55 5,327,137.31 81,464,567.19 5 13,577,427.86 7,488,509.92 6,088,917.95 67,887,139.32 6 13,577,427.86 6,617,794.65 6,959,633.21 54,309,711.46 7 13,577,427.86 5,622,567.10 7,954,860.76 40,732,283.59 8 13,577,427.86 4,485,022.01 9,092,405.85 27,154,855.73 9 13,577,427.86 3,184,807.97 10,392,619.89 13,577,427.86

10 13,577,427.86 1,698,663.33 11,878,764.54 - Total 135,774,278.64 65,774,278.64 70,000,000.00

25

Year 1 Year 2 Year 3 Year 4 Year 5

Building 10.00 5,000,000.00 Straight Line 15,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00 Machine 10.00 50,000,000.00 Straight Line 130,000,000.00 8,000,000.00 8,000,000.00 8,000,000.00 8,000,000.00 8,000,000.00 Furniture & Decoration 10.00 1,200,000.00 Straight Line 6,000,000.00 480,000.00 480,000.00 480,000.00 480,000.00 480,000.00 Computers 5.00 200,000.00 Straight Line 400,000.00 40,000.00 40,000.00 40,000.00 40,000.00 40,000.00 Software Development 5.00 - Straight Line 1,500,000.00 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00

DepriciationAsset Life Salvage Value Method Historical Price