A Business Plan OnPalm Oil Production

Submitted To:

Dewan Mahboob HossainAssistant ProfessorDepartment Of Accounting & Information SystemsUniversity of Dhaka

Submitted By: Roll

Ibrahim Khan 13090Md.Faruk Hossain 13061 Md.Aslam Hossain 13010Ripon Biswas 13070Azizul Hoque 13048Monirul Islam 13029

13th Batch,Sec:ADepartment Of Accounting & Information SystemsUniversity of Dhaka

Date of Submission: 2nd July, 2010

EXECUTIVE SUMMARY

Palmo’s product line comprises one basic category of oil which is four bottle size of 500ml, 1 litre,3 litres and 5 litres. A new generation of edible oil with Palmo, is a delicious-tasting, fat free, cholesterol free, that can be used as edible. Palm fruit based Palmo is an excellent source of bio available calcium and least allergic of all edible oil available on today's world.

The total demand of edible oil is 16,570,000 tonnes (per head 1120 ml) and supply is 13,326,000 tonnes including the imported edible oil. Among the edible oil producers Rupchanda is the biggest by holding 20% of demand so it grabs almost 40% of total supply. Teer, Fresh, are holding sizeable portion of the market. Palmo uses cost leadership and differentiation strategies to gain competitive edge over its competitors. It gets the first mover advantage over all potential edible oil brands.

Palmo is not only an entrepreneurship venture but also an ecopreneurship endeavor. The production process is eco-friendly because there are no chemical or harmful particles used in the production and the disposal system is safe. The company also emphasizes safety and hygiene issue of the human resources.

The firm has a marketing strategy of positioning its product on the basis of low price and quality. The objective of its marketing campaign is to make people aware about palm oil concept and its benefits over ordinary edible oil. To reach the segmented portion of buyers in Dhaka Palmo uses all the four means of marketing mix and marketing tools like TVC, FM radio ads, newspaper ads, campus campaign, assurance program and 24/7 help desk.

The production of Palmo is done in the own operational plant in Narayanganj because of the convenient transport and communication. The operation of Palmo consists of three phases— procurement and storage, production and packaging phase. The finished products are distributed by the help of local distributor.

The project is associated with risks like demand risk, supply risk, economic risk, political risk etc. which is reflected in the discount rate (20%). The estimated project cost is BDT 8,493,500 in FY 2011-12 which is financed by 69% equity from partners and 31% debt from lenders. The ratio analysis shows net profit margin of 3%, 16.8%, 20.2%, 20.8% and 21.2% in FY 2011-12, 2012-13, 2013-14, 2014-15, and 2015-16 respectively. The projected financial statements also portray liquidity and solvency of the firm. The NPV of the project from 5-year financial projection is positive by BDT 113,979,595. The IRR of the project is 52%. The payback period is 2.10 years and discounted payback period is 2.54 years. The stress testing shows positive NPV in all the three cases— base (BDT 113,979,595), best (BDT 120,053,800) and worst (BDT 14,275,886). The social cost-benefit analysis also reveals positive social NPV of BDT 123,024,450 at 25% discount rate and the social IRR of the project is 56%.

TABLE OF CONTENTS

SERIAL NO

PARTICULARS PAGE NO

1 Chapter 1:

Business Idea, Product offering, Business Model 01

SWOT analysis 02

Goals and Objectives, Market potential 03

Competitor analysis, Competitive forces analysis 04

Risk assessment, Exit strategy 05

02 Chapter 2:

Operation Plan 06

Implementation Plan 07

03 Chapter 3:

Marketing Plan 08

04 Chapter 4:

Organizational Plan 10

05 Chapter 5:

Legal Plan, Accounting Plan 13

Insurance Plan, Computer Plan 14

06 Chapter 6:

Financial Plan 15

07 Conclusion 18

08 Appendices 19

C HAPTER : 01

1.1 BUSINESS IDEA

Palmo is the vegetable oil brand which is produced from high quality palm fruits imported from Malaysia.Palmo is an option for the edible consumers of Bangladesh and it is also an innovative value added product of palm fruits. The edible oil industry of Bangladesh has encountered problem due to huge shortage of supply. Also the price and the quality of the edible oil are not reasonable enough. Palmo identifies these top problems as opportunity and combines solutions into one direction which is producing edible oil from palm fruits to introduce vegetable oil in Bangladesh market as an offering.

1.2 PRODUCT OFFERING

Palmo original— Original vegetable oil.Palmo markets its products in 4 bottle sizes: 500ml, 1 Liter, 3 Liters and 5 Liters

1.3 FEATURES AND UNIQUE SELLING PROPOSITION

Palmo palm oil is world’s new edible oil innovation. Palmo palm oil is commercially and technically viable edible oil option for Bangladesh

which is best taste comparing to Soyabean. Cholesterol and lactose free oil which is helpful for lactose intolerant people and also free

from allergy. No artificial sweetener, color and flavor and no animal ingredients, preservative used in

Palmo. Palmo is vegan friendly and Non-GMO (Genetically Modified Organism) product.

1.4 BUSINESS MODEL

Palmo’s business model is entirely production or manufacturing-based. Palmo’s production process transforms and adds value to the quality palm fruits and produces edible oil. Palmo will:

Produce oil in its own operational plant using eco-friendly production process. Sell oil in 4 bottle sizes in the local market.

1.5 SWOT ANALYSIS:

STREANGTH1. Healthy vegetable oil2. Low cost edible oil3. High quality edible oil4. Strong management

team 5. Palmo’s main raw

material is abundant in the foreign market at a cheap price

WEAKNESS1. High dependency on

import of raw material2. High dependency on

other ingredients3. Interruption of any sub

system may cause disruption of total production process

4. Return on assets and return on equity show increasing in assets and equity is proportionally higher than increasing in net profit.

OPPORTUNITIES1. Market growth rate

25%2. Going to be the thrust

sector3. Government and

customers encouragement

4. The value added palm products’ demand is increasing all over the world.

SO SRATEGIES1. To attract customers

by focusing on price to increase market share (S2, O1)

2. To create foreign market by using natural advantage(S5,O4)

WO STRATEGIES1. To spend marketing

budget efficiently to attract segmented customers

2. To utilize government encouragement for uninterrupted other ingredients’ supply (W2, O3)

THREATS1. Threat from the

popular substitute2. Potential competition

from the other vegetable oil

3. Level of acceptance by people is not reasonably certain

4. Economic recession may lessen the purchase power of potential customers

WT STRATEGIES1. To use low price

strategy for protecting from substitute and acceptability threats(S2,T3)

2. To get an edge over potential edible oil competitors, utilize first mover, low cost and viability strength(S2,3,T2)

WT STRATEGIES1. To provide low price

oil for greater range of customers because with low price still the firm produce sizable net profit(W4,T4)

1 .6 GOALS AND OBJECTIVES

1.6.1 Vision statement: Palmo’s vision is to make a safe oil consumption platform to create a healthy nation.

1.6.2 Mission statement: Palmo’s mission is to be the most successful edible oil producing company in the Bangladesh at delivering the best customer experience in markets we serve. In doing so, Palmo will meet customer expectation of highest quality; leading technology; competitive pricing; individual and company accountability; best-in-class service and support; flexible customization capability; superior corporate citizenship; financial stability. We seek to produce healthy financial rewards for investors as we provide opportunities for growth and enrichment to our employees.

1.6.3 Short-term goals: To offer quality products at a competitively lower price to capture market share. To create a demand for edible oil as a best taste option. To persuade the target customers regarding the benefits of palm oil that will bring

familiarity among customers.

1.6.4 Long-term goals: To expand its operation beyond Dhaka in the year 2015 and further goes for export. To set up new industrial unit in the west region of Bangladesh by the year 2018. To ensure sustainable development of the nation by creating newer utility of quality palm

fruits.

1.6.5 Objectives: To attain 20% growth rate by the year 2014. To attain net profit margin of 25% in year 2017. To achieve BDT 20,000,000 free cash flow by the year 2015 to setup another operational

plant by the year 2018. To utilize 1200 tonnes of palm fruits by the year 2018. To repay loans by the year 2020 and lever up the firm with 25% debt by the year 2025.

1.7 MARKET POTENTIAL

As there is 49% gap between the demand and supply of edible oil in Bangladesh this sector needs more supply of edible oil. The total demand of edible oil is 16,570,000 tonnes (per head 1120 ml) and supply is 13,326,000 tonnes including the imported edible oil. Whereas the present and projected scenario of Dhaka Metropolitan City estimated by Palmo is:

2011 2012 2013 2014Edible Oil Demand (tonnes) 1302,728 1307,572 1312,493 1317,493Edible Oil Demand Supply (tonnes) 1148,337 1150,710 1153,122 1155,572Demand-Supply Gap (tonnes) 154,391 156,862 159,371 161,921

1.7.1 Palm oil emergence Factors: Palm oil—

can be introduced to fulfill the demand-supply gap is more affordable for greater range of consumers can also serve the heart, diabetics and allergic patients which is big portion in the demand

but vulnerable soya bean oil with different flavors is cheap and better quality than available flavored oil

1.7.2 Growth prospect:

The edible oil market growth rate is 20% according to industry analysis. We are happy that private companies are coming up with big plans in this sector. There is

still a huge scope for growth for every player as together we are only catering to one-fifth of the market.

Edible oil industry is going to be a thrust sector. The government is encouraging agro-processed business. According to FAO all over the

world value added oil products’ consumption is increasing.

1.8 COMPETITOR ANALYSIS

Palmo offers edible oil in Bangladesh market in first phase. The domestic market of edible oil is less competitive but the firm faces huge competition from the existing edible oil brands which are offering the substitute product.

Rupchanda is the largest edible oil brand of Bangladesh. The daily demand of oil is 37.5 million and the company can meet only 20% of it. So it grabs about 40% of total supply.

Teer is the second largest edible oil plant in Bangladesh. The market share of Teer had increased to 35% from 20%.

Fresh is the third largest edible oil producer in Bangladesh has a daily processing capacity of 1 lakh litres of oil although it only processes 40,000 litres daily.

1.9 COMPETITIVE FORCE ANALYSIS

Porter’s five forces analysis has been conducted to evaluate competitive edge of Palmo from its existing and potential competitors (see Appendix A12). The analysis shows:

Bargaining power of suppliers (palm fruits and other ingredients) is low. Bargaining power of buyers is high because the consumers get several options. Threat of new entrants domestically is high as the market is quite lucrative and oil

demand– supply gap is huge. Threat of substitute although very high. The intra-industry rivalry is domestically low because the demand is quite high than the

supply.

1.10 ASSESSMENT

Among the competitors Rupchanda is the biggest by holding 20% of demand so it grabs almost 40% of total supply. Teer and Fresh are holding sizeable portion of the market. Palmo has competitive edge in price and taste. It gets the first mover advantage over all potential edible oil brands. Besides, competitive analysis reveals the market is lucrative in all terms of forces that indicate opportunity, profitability and sustainability. The competition among competitors is fair because all operate to make Bangladesh edible oil industry a self sufficient one which is still a gigantic task.

1.11 RISK ASSESSMENT

General risks: The project is associated with following general risks:

Demand risk— the price of substitute and other options’ production cost lowering may shiver the demand of edible oil.

Supply risk— the main raw material of palm oil is not abundant in Bangladesh and that’s why raw materials have to be imported. Also the other ingredients’ supply may impede the production.

Regulatory risk— the standard testing of the product and business approval is highly regulated by our government but the sector is going to be the thrust sector so regulatory risks are going to be lessened.

Risk from PEST analysis: The project is associated with following risks analyzed from PEST analysis:

Political risks—the political variables hamper are strikes, terrorism, instability etc. Economic risks— the project is affected by economic parameters such as inflation rate,

consumer price index, recession etc. Socio-psychological risks— Palm oil is compartively a new addition in people’s lifestyle

so it may have setback regarding people’s acceptance. Technological risks— technological changes, invention of new alternative oil may cause

problem

1.12 EXIT STRATEGY (Contingency Plan)

In the exporting phase the firm may apply for government assistance and tax benefits as an exporting agro-processor.

Firm’s primary exit strategy is converted into private limited company from partnership firm to reduce capital problem (if occurs) and skill managing.

Firm’s secondary exit strategy will be merged with another oil company to lessen the risk of being dissolute.

C HAPTER : 02

2. 0 OPERATION PLAN

2.1 Production:

We will import raw materials from Malayasia. The production of Palmo will be done in the own operational plant in Narayanganj because of the convenient transport and communication. The operation of Palmo would consist of three phases— procurement and storage, production and packaging phase.

Procurement and storage— The pre-production is run by the procurement and storage unit. The procurement unit is responsible for purchasing 200 tones of palm fruits and other ingredients in FY 2010-11, 500 tonnes of palm fruits and other ingredients in FY 2010-11 and adds 50 tonnes each succeeding years. The storage unit stores the raw-materials in own 500-ton capacity cold storage.

Production phase— The production phase transforms the palm fruits into palm oil which is the finished product. The production unit produces 500 tonnes oil in FY 2011-12.

Packaging— In this phase produced palm oil is packed in bottle of 500 ml, 1 litre, 3 litres and 5 litres.

2.2 Placement of order:The distributors and dealers can place orders by using order form or through internet. The customers can place orders only through the website.

2.3 Delivery: Palm oil is delivered in 1 dozen retail pack or 50 bottles wholesale pack. The local dealers are responsible for home delivery with extra commission.

2.4 Billing: Palm oil distributors are required to make payment within 45 days. Accounts payable would be paid within next year.

2.5 Quality control: Internal quality control is closely monitored by the production manager and supervisors and low quality outputs are disposed. The weight of each bottle is automatically checked.

2.6 IMPLEMENTATION PLAN

Project implementation schedule: The project starts at January, 2011 and the commercial launch is on July, 2011. The 6-month project implementation schedule is as follows:

Resource ramp-up: With a view to implement the project, resource ramp-up is very vital. The financial resources (equity and debt) and human resources are the key elements. Financial resources are vital for uplifting capital investments and working capital. Human resources are significant throughout the entire business process.

Product roll out plan:

NO WAREHOUSE

YES

C HAPTER : 03

MIXER

PURCHASE PALM FRUITS

DISPOSEGRINDER

PACKAGINGQUALITY?STARCHER

WATER & OTHER INGERDIENTS

3.0 MARKETING PLAN

3.1 Marketing goals and objectives: To meet the growing needs of the target market and to evaluate the competitive

environment and Continue to establish a differential advantage.

To establish an effective and profitable marketing mix of product, place, price and promotion.

To establish a customer base of 50% of the defined target market within 2015 To exceed break-even selling point at FY 2011-12

3.2 Marketing strategies: Making people aware about palm oil, its nutritious value, taste and benefits. Focusing price, taste and unique selling propositions while developing marketing

campaign. Building brand proposition to different consumers according to their perception. Creating customer loyalty and making customer delight by proper quality assurance

campaign.

3.3 Target customer: Geographic location: Dhaka city for first 5 years (see Appendix A5). Demographic: Social class—middle class and high end consumer.

Prospective buyers: Around 2,500,000 (75% of total Dhaka city population fall under

Palmo’s target customer segments).

3.4 Market positioning:

Palmo positions itself in the market on the basis of low price and high quality edible oil. The product positioning map shows the unique positioning of Palmo relative to its competitors.

3.5 Marketing mix:

Palmos combination of product, price, promotion and distribution and other marketing activities needed to meet the marketing objectives is:

Product— Palmo offers only one basic type of product line. And the pack sizes of Palmo are 500 ml, 1 litre, 3 liters and 5 litres. Palmo uses state-of-the-art tetra pack technology for packing its offers. The shelf life of Palmo is 15 months.Distribution Channels:

— Palmo uses a simple distribution channel with zone-wise distributors. The Dhaka city has divided into 9 different zones covering 19 areas (see Appendix A5). Finished Palmo products come directly to a Dhaka city warehouse from the plant. Sales team uses firm’s covered van to

distribute the product to the dealers. It uses different specific day for specific zone. Then the secondary distribution channel leads by the dealers distribute the product by using their own resources. Palmo also make strategic alliance with super stores and restaurant to sell Palmo.

Integrated marketing communication

— Palmo’s marketing communication mix or promotion mix includes all the typical elements like advertising, sales promotion, public relations, personal selling and direct marketing to activate pull strategy (see Appendix A7). Some of the tools are—

TVC FM radio ads Newspaper ads Buzz Marketing “Palmo’s quality assurance campaign” SMS contest Point of purchase ads

3.6 Marketing budget:

The five year allocation of marketing budget at affordable method shown below:2011-12 2012-13 2013-14 2014-15 2015-16

Advertising 2,983,200 5,146,400 5,146,400 5,146,400 5,146,400Sales promotion 150,000 200,000 200,000 200,000 200,000PR and personal selling

1,146,800 933,600 1,233,600 1,333,600 1,533,600

Direct marketing 20,000 20,000 20,000 20,000 20,000Total 4,300,000 6,300,000 6,600,000 6,700,000 6,900,000

3.7 Customer service and control:

24/7 call center always and retailer survey quarterly conducted by the marketing team to know the first hand information of the consumers. The total marketing plan is flexible and open for any required contingencies.

C HAPTER : 04

4.0 ORGANIZATIONAL PLAN:

4.1 ORGANIZATIONAL STRUCTURE

4.2 STAFFING NEEDS

Palmo Firm

Head of procurement and storage

Manager

Supervisor

Staff

Head of production

Manager

Supervisor

Staff

Head of sales and administration

Sales Manager

Assistant

Marketing Manager

Assistant

Finance Manager

Assistant

At the initial phase, the operation of Palmo is monitored by three department heads. One is head of procurement and storage, another is head of production and the other is head of sales and administration. The needs of staffs can be illustrated below based on the organizational structure:

2010-11 2011-12 2012-13 2013-14 2014-15Procurement and storage unitHead 1 1 1 1 1Manager 1 1 1 1 1Supervisor 2 2 2 2 2Staff 7 8 8 8 8Production UnitHead 1 1 1 1 1Manager 1 1 1 1 1Supervisor 4 4 4 4 4Staff 17 19 21 24 28Sales Admin. UnitHead 1 1 1 1 1Manager 3 3 3 3 3Assistant 6 6 7 7 7

4.3 STAFFING BAS I S

2010-11 2011-12 2012-13 2013-14 2014-15Cold storage staff 2 3 3 3 3Material clerk 1 1 1 1 1Premise Maitainer 3 3 3 3 3Security staff 4 4 4 4 4Grinding staff 4 5 6 7 8Stracher staff 3 3 3 4 4Mixing staff 3 4 5 6 7Packing staff 4 4 4 4 5Office staff 3 3 3 3 3Customer staff 3 3 4 4 4Tatal staff requirement 30 33 36 39 42

C HAPTER : 05

5.1 OWNERSHIP FORM AND MANAGEMENT TEAM

Palmo firm is a partnership of three capital provider. Palmo’s organization structure is top-down hierarchical structure with same authority

among peers. Palmo’s management team consists of 14 executives.

Position No. of ManagersDepartment Head 3Manager 5Supervisor 6

5.2 ACCOUNTING PLAN:

1. Depreciation policy:

Straight-line method. Depreciation rate is 5% for long term assets.

2. Inventory valuation

FIFO method. Inventory holding time is maximum 6 months

3. Tax rate

Assumed to be 40% on net income before tax which is payable annually.

5.3 INSURANCE PLAN:

Declaration policy: We will take this type of policy for our inventory.

Blanket policy: This policy will be taken for same type of plant, machinery and buildings.

Employee group life insurance: The life of all the employees of our organization will be covered under this insurance.

5.4 COMPUTER PLAN:

Need for information: For every information we will take help of internet that is why we will have to set up an efficient computer information system.

Benefits taken from computer systems: We will give all the import order through online.Recommended computer systems: We will have the computer systems equipped with high speed internet facility.

C HAPTER : 06 6.0 FINANCIAL PLAN

6.1 Project Evaluation

Initial Investment BDT 8,493,500Net Present Value (NPV) at 20% discount rate BDT 13,979,595Internal Rate of Return (IRR) 52%Pay Back Period (PB) 2.10 yearsDiscounted Pay Back Period 2.54 years

6.2 Income Statement (summarized)

2011-12 2012-13 2013-14 2014-15 2015-16

Sales revenue 15,200,000 41,800,000 51,300,000

57,525,000 64,000,000

Less: Cost of goods sold 8,232,000 20,739,500 24,166,100

27,527,800 31,034,600

Gross Margin 6,968,000 21,060,500 27,133,900

29,997,200 32,965,400

Less: Total operating expenses

5,820,445 8,997,445 9,494,445 9,718,245 10,068,445

Income From Operations 1,147,555 12,063,055 17,639,455

20,278,955 22,896,955

Less: Interest expense @ 15%

393,409 374,033 351,750 326,125 296,656

Net Income Before Tax 754,146 11,689,022 17,287,705

19,952,830 22,600,299

Less: Income tax @ 40% 301,659 4,675,609 6,915,082 7,981,132 9,040,119Net Income After Tax 452,488 7,013,413 10,372,62

311,971,698 13,560,179

6.3 Balance Sheet (summarized)

2011-12 2012-13 2013-14 2014-15 2015-16Total current assets 7,470,779 21,615,287 34,011,41

847,944,655 63,518,160

Total long term assets 5,955,955 5,680,510 5,405,065 5,129,620 4,854,175Total assets 13,426,734 27,295,797 39,416,48

353,074,275 68,372,335

Total current liabilities 4,609,920 11,614,120 13,533,016

15,415,568 17,379,376

Long term liabilities 2,493,551 2,345,000 2,174,167 1,977,710 1,751,783Total equity 6,323,263 13,336,676 23,709,29

935,680,997 49,241,176

Total liability and equity 13,426,734 27,295,797 39,416,483

53,074,275 68,372,335

6.4 Statement of Cash Flows (summarized)

2011-12 2012-13 2013-14 2014-15 2015-16Net cash provided by operating activities

(792,067) 3,108,858 5,518,068 6,494,643 7,435,624

Net cash provided by investing activities

(6,794,900) 0 0 0 0

Net cash provided by financing activities

7,970,917 (522,583) (522,583) (522,583) (522,583)

Net increase in cash 383,950 2,586,275 4,995,485 5,972,060 6,913,041Cash balance at the beginning of year

1,698,600 2,082,550 4,668,825 9,664,310 15,636,370

Cash balance at the end of the year

2,082,550 4,668,825 9,664,310 15,636,370 22,549,411

6.5 Initial investment

Particulars Amounts in Taka

Total startup expenses 513,500Total startup assets 7,980,000Total Requirement 8,493,500

6.6 Ratio Analysis

2011-12 2012-13 2013-14 2014-15 2015-16

Current ratio 1.62 1.86 2.51 3.11 3.65Quick ratio 0.80 1.04 1.74 2.37 2.94Net working capital (Tk.) 2,860,859 10,001,167 20,478,40

232,529,087 46,138,784

Total asset turnover ratio 1.13 1.53 1.30 1.08 0.94Debt-equity ratio 0.39 0.18 0.09 0.06 0.04Debt-total asset ratio 0.19 0.09 0.06 0.04 0.03Interest burden 0.34 0.03 0.02 0.02 0.01Gross margin 45.8% 50.4% 52.9% 52.1% 51.5%Net profit margin 3.0% 16.8% 20.2% 20.8% 21.2%Return on asset 3.4% 25.7% 26.3% 22.6% 19.8%Return on equity 7.2% 52.6% 43.7% 33.6% 27.5%

6.7 Break Even Analysis

2011-12 2012-13 2013-14 2014-15 2015-16

Total costs (BDT) 14,445,854 30,110,978 34,012,295

37,572,170 41,399,701

Selling price/litre (BDT) 38 38 38 38 38Break even selling unit (in litre)

380,154 792,394 895,060 988,741 1,089,466

6.8 Stress Testing

0 1 2 3 4 5 NAVBase Case

(8,493,500) 377,073 4,870,426 6,002,675 5,773,388 5,449,532 13,979,595

Best Case

(8,493,500) 377,073 3,381,597 5,612,017 7,671,861 11,504,752 20,053,800

Worst Case

(8,493,500) 377,073 1,529,412 2,435,555 3,542,028 4,885,318 4,275,886

Notes: Base case values represent the values of 5 year projection. Best case’s sales growth is 25% and cost growth is 5%. Worst case’s sales growth is 15% and cost growth is 10%.

6.9 Social Cost-Benefit Analysis

2011-12 2012-13 2013-14 2014-15 2015-16

Total social benefits 17,204,200 46,508,200 56,732,200

63,525,450 70,573,200

Less: Total social cost 14,747,512 34,786,587 40,927,377

45,553,302 50,439,821

Social profit 2,456,688 11,721,613 15,804,823

17,972,148 20,133,379

Social discount rate 25%Discounted social profit 1,965,350 7,501,833 8,092,069 7,361,392 6,597,306Social PV 31,517,950

Less: Opportunity cost (8,493,500)

Social NPV 23,024,450

Social IRR 56%

Conclusion:

Palmo is not only an entrepreneurship venture but also an ecopreneurship endeavor. The production process is eco-friendly because there are no chemical or harmful particles used in the production and the disposal system is safe. The company also emphasizes safety and hygiene issue of the human resources.

The firm has a marketing strategy of positioning its product on the basis of low price and quality. The objective of its marketing campaign is to make people aware about palm oil concept and its benefits over ordinary edible oil. To reach the segmented portion of buyers in Dhaka Palmo uses all the four means of marketing mix and marketing tools like TVC, FM radio ads, newspaper ads, campus campaign, assurance program and 24/7 help desk.

APPENDICES:

PORTER’S FIVE FORCES ANALYSIS

Porter’s five forces analysis has been conducted to evaluate competitive edge of Palmo from its existing and potential competitors. The analysis shows:

Rivalry among competing firms:

Rivalry among competing firms is moderate as they are operating in edible oil sector that is our substitute product.

Comment:The intra-industry rivalry is domestically low because the demand is quite high than the supply.

Potential entry of new competitors:

Due to unavailability of raw-materials and the high profitability of this sector no firm can easily enter into this sector.

As there is huge supply-demand gap of edible oil in Bangladesh so it attracts any firm highly to enter in this sector.

Comment:Threat of new entrants domestically is high as the market is quite lucrative and oil demand–supply gap is huge.

Potential development of substitute products:

As several companies’ edible oil products are available in market and people are habituate to consume those so it’s a threat for Palmo

Edible oil market may encourage other vegetable oil as a potential substitute of PalmSo’s offerings.

Comment:Threat of substitute although very high

Bargaining power of suppliers:

The bargaining power of suppliers is very high because of the scarcity of palm fruits and other raw materials.

The price provided by Palmo to its suppliers of palm fruits is quite high and increase of that price yearly so the raw material producers are loyal to make supply uninterrupted.

Comment:Bargaining power of suppliers is high.Bargaining power of customers:

Bargaining power of customers is very high as they have several options to choose. Relatively low price may attract the customers and lessen the risk of switching from

Palmo’s product.Comment:Bargaining power of customers is high because the consumers get several options.

FINANCIAL PROJECTION

Income Statement

2011-12 2012-13 2013-14 2014-15 2015-16Operating Revenues:Sales revenue 15,200,000 41,800,000 51,300,00

057,525,000 64,000,000

Less: Cost of goods sold 8,232,000 20,739,500 24,166,100

27,527,800 31,034,600

GROSS MARGIN 6,968,000 21,060,500 27,133,900

29,997,200 32,965,400

Less: Operating expenses:Salaries 825,000 1,782,000 1,914,000 2,032,800 2,178,000Marketing expenses 4,300,000 6,300,000 6,600,000 6,700,000 6,900,000Office rent & utilities 210,000 420,000 480,000 480,000 480,000Depreciation 275,445 275,445 275,445 275,445 275,445Insurance & others 210,000 220,000 225,000 230,000 235,000Total operating expenses 5,820,445 8,997,445 9,494,445 9,718,245 10,068,445INCOME FROM OPERATIONS

1,147,555 12,063,055 12,063,055

20,278,955 22,896,955

Less: Interest expense @ 15%

393,409 374,033 351,750 326,125 296,656

NET INCOME BEFORE TAX

754,146 11,689,022 17,287,705

19,952,830 22,600,299

Less: Income tax @ 40% 301,659 4,675,609 6,915,082 7,981,132 9,040,119NET INCOME AFTER TAX

452,488 7,013,413 10,372,623

11,971,698 13,560,179

Estimation of Sales Revenue:

2011-12 2012-13 2013-14 2014-15 2015-16Palmo:Beginning inventory (In Ltr.)

0 50,000 125,000 137,500 150,000

Add: Finished product (In Ltr.)

250,000 625,000 687,500 750,000 812,500

Less: Ending inventory (20% of finished pro.)

50,000 125,000 137,500 150,000 162,500

No. of unit available for sales

200,000 550,00 675,000 737,500 800,000

Unit price/Ltr. 36 36 36 37 38Sales revenue palmo 7,200,000 19,800,000 24,300,00

027,287,500 30,400,000

Estimation of Cost of Goods Sold:

2011-12 2012-13 2013-14 2014-15 2015-16Purchase of palm Oil 1,600,000 4,500,000 5,500,000 6,600,000 7,800,000Purchase of other ingredients

1,360,000 3,600,000 4,400,000 4,950,000 5,460,000

Transportation cost 1,360,000 3,000,000 3,200,000 3,400,000 3,600,000Packaging cost 2,000,000 5,000,000 5,500,000 6,000,000 6,500,000Wages 756,000 1,782,000 2,073,600 2,386,800 2,721,600Utility 960,000 2,700,000 3,300,000 3,960,000 4,680,000Others direct expenses 56,000 157,500 192,500 231,000 273,000Cost of goods sold 8,232,000 20,739,500 24,166,10

027,527,800 31,034,600

Balance sheet:

2011-12 2012-13 2013-14 2014-15 2015-16Cash 2,082,550 4,668,825 9,664,310 15,636,370 22,549,411Accounts receivable 1,520,000 4,180,000 5,130,000 5,752,500 6,400,000Inventory 3,800,000 9,500,000 10,450,00

011,400,000 12,350,000

Other current assets 68,229 3,266,461 8,767,107 15,155,785 22,218,749Total current assets 7,470,779 21,615,287 34,011,41

847,944,655 63,518,160

Long term assets 6,231,400 6,231,400 6,231,400 6,231,400 6,231,400Accumulated depreciation 275,445 550,890 826,335 1,101,780 1,377,225Total long term assets 5,955,955 5,680,510 5,405,065 5,129,620 4,854,175Total assets 13,426,734 27,295,797 39,416,48

353,074,275 68,372,335

Accounts payable 2,881,200 7,258,825 8,458,135 9,634,730 10,862,110Other current liabilities 1,728,720 4,355,295 5,074,881 5,780,838 6,517,266Total current liabilities 4,609,920 11,614,120 13,533,01

615,415,568 17,379,376

Long term liabilities 2,493,551 2,345,000 2,174,167 1,977,710 1,751,783Total liabilities 7,103,471 13,959,120 15,707,18

317,393,278 19,131,159

Paid-up capital 5,870,775 5,870,775 5,870,775 5,870,775 5,870,775

Retained earnings 452,488 7,465,901 17,838,524

29,810,222 43,370,401

Total equity 6,323,263 13,336,676 23,709,299

35,680,997 49,241,176

Total liability and equity 13,426,734 27,295,797 39,416,483

53,074,275 68,372,335

Statements of Cash Flows:

2011-12 2012-13 2013-14 2014-15 2015-16Cash flow from operating activitiesCash received from buyers

13,680,000 37,620,000 46,170,000 51,772,500 57,600,000

Cash paid for cost of sales

(8,232,000) (20,739,500) (24,166,100)

(27,527,800) (31,034,600)

Cash paid to employees

(825,000) (1,782,000) (1,914,000) (2,032,800) (2,178,000)

Cash paid for promotion

(4,300,000) (6,300,000) (6,600,000) (6,700,000) (6,900,000)

Cash paid for rent and utilities

(210,000) (420,000) (480,000) (480,000) (480,000)

Cash paid for other purposes

(210,000) (220,000) (225,000) (230,000) (235,000)

Cash paid for interest (393,409) (374,033) (351,750) (326,125) (296,656)Cash paid for income tax

(301,659) (4,675,609) (6,915,082) (7,981,132) (9,040,119)

Net cash provided by operating activities

(792,067) 3,108,858 5,518,068 6,494,643 7,435,624

Cash flow from investing activitiesCash paid for start-up assets

(6,281,400) 0 0 0 0

Cash paid for start-up assets expenses

(513,500) 0 0 0 0

Net cash provided by investing activities

(6,794,900) 0 0 0 0

Cash flow from

financing activitiesCash received from long term loan

2,622,725 0 0 0 0

Cash received from paid-up capital

5,870,775 0 0 0 0

Cash paid for loan repayment

(522,583) (522,583) (522,583) (522,583) (522,583)

Net cash provided by financing activities

7,970,917 (522,583) (522,583) (522,583) (522,583)

Net increase in cash 383,950 2,586,275 4,995,485 5,972,060 6,913,041Cash balance at the beginning of year

1,698,600 2,082,550 4,668,825 9,664,310 15,636,370

Cash balance at the end of the year

2,082,550 4,668,825 9,664,310 15,636,370 22,549,411

3-Month Cash Flow Statement of FY 2010-11:

Jul-sep Oct-Dec Jan-Mar Apr-JunCash flow from operating activitiesCash received from buyers 0 0 6,840,000 6,840,000Cash paid for cost of sales 0 0 (4,116,000) (4,116,000)Cash paid to employees 0 0 (412,500) (412,500)Cash paid for promotion 0 (1,000,000

)(1,800,000) (1,500,000)

Cash paid for rent and utilities 0 0 (105,000) (105,000)Cash paid for other purposes (2,000) (3,000) (204,000) (1,000)Cash paid for interest 0 0 0 (393,409)Cash paid for income tax 0 0 0 (301,659)Net cash provided by operating activities

(2,000) (1,003,000)

202,500 10,433

Cash flow from investing activitiesCash paid for start-up assets (2,078,800) (4,202,600

)0 0

Cash paid for start-up assets expenses (368,500) (145,000) 0 0Net cash provided by investing activities (2,447,300) (4,347,600

)0 0

Cash flow from financing activitiesCash received from long term loan 2,622,725 0 0 0 Cash received from paid-up capital 5,870,775 0 0 0Cash paid for loan repayment 0 0 0 (522,583)Net cash provided by financing activities

8,493,500 0 0 (522,583)

Net increase in cash 6,044,200 (5,350,600)

202,500 (512,150)

Cash balance at the beginning of period 1,698,600 7,742,800 2,392,200 2,594,700Cash balance at the end of the period 7,742,800 2,392,200 2,594,700 2,082,550

INITIAL INVESTMENTS

Amounts in BDTStartup Expenses:

License & approval 52,000Patent & trademarks 25,000Product development cost 64,000Infrastructure development 327,500Others 45,000Total startup expenses 513,500Startup Assets:Land & registration 722,500Building 600,000Machinery & equipment 4,302,600Vehicle 606,300Cash requirement 1,698,600Other short-term assets 50,000Total startup assets 7,980,000

Total Requirement 8,493,500

REQIUREMENT DISTRIBUTION

Means of finance Amount in BDT % of TotalEquity 5,870,775 69%Debt 2,622,725 31%

LOAN REPAYMENT SCHEDULE

Loan taken (Million Tk.) 2,622,725Date of loan taken July 1,2009Repayment years 10No. of installment per year 1Interest rate 15%Periodic loan repayment 522,583

Period Beginning Balance

Loan Repayment

Interest Principal Ending Balance

1 2,622,725 522,583 393,409 129,174 2,493,5512 2,493,551 522,583 374,033 148,550 2,345,0003 2,345,000 522,583 351,750 170,833 2,174,1674 2,174,167 522,583 326,125 196,458 1,977,7105 1,977,710 522,583 296,656 225,927 1,751,783

NET PRESENT VALUE CALCULATION

Year Net Income After Tax Present Value Factor of 20% Present Value1 452,488 0.8333 377,0732 7,013,413 0.6944 4,870,4263 10,372,623 0.5787 6,002,6754 11,971,698 0.4823 5,773,3885 13,560,179 0.4019 5,449,532

Present Value of Net cash inflow

22,473,095

Present Value of cash outlay 8,493,500Net Present Value 13,979,595

INTERNAL RATE OF RETURN CALCULATION

Year Investment Cash Inflow Net0 8,493,500 0 (8,493,500)1 0 452,488 452,4882 0 7,013,413 7,013,4133 0 10,372,623 10,372,6234 0 11,971,698 11,971,6985 0 13,620,179 13,620,179

Internal Rate of Return (IRR) = 52%

PAYBACK PERIOD

Year Investment Discounted CFAT Cumulative CFAT

Remaining Amount

0 8,493,500 - 0 8,493,5001 8,493,500 452,488 452,488 8,041,0122 8,493,500 7,013,413 7,465,901 1,027,5993 8,493,500 10,372,623 17,838,5244 8,493,500 11,971,698 29,810,2225 8,493,500 13,620,179 43,430,401

Payback Period = 2.10 years

DISCOUNTED PAYBACK PERIOD

Year Investment Discounted CFAT Cumulative CFAT Remaining Amount0 8,493,500 - 0 8,493,500

1 8,493,500 377,073 377,073 8,116,427

2 8,493,500 4,870,426 5,247,499 3,246,001

3 8,493,500 6,002,675 11,250,174

4 8,493,500 5,773,388 17,023,563

5 8,493,500 5,473,645 22,497,207

Discounted Payback Period = 2.54 years

BREAK EVEN ANALYSIS

2011-12 2012-13 2013-14 2014-15 2015-16Total costs 14,445,854 30,110,978 34,012,295 37,572,170 41,399,701Per unit selling price (Tk.)

38 38 38 38 38

Break even selling unit 380154 792394 895060 988741 1089466

RATIO ANALYSIS

2011-12 2012-13 2013-14 2014-15 2015-16Current ratio 1.62 1.86 2.51 3.11 3.65Quick ratio 0.80 1.04 1.74 2.37 2.94Net working capital (Tk.)

2,860,859 10,001,167 20,478,402 32,529,087 46,138,784

Total asset turnover ratio 1.13 1.53 1.30 1.08 0.94Debt-equity ratio 0.39 0.18 0.09 0.06 0.04Debt-total asset ratio 0.19 0.09 0.06 0.04 0.03Interest burden 0.34 0.03 0.02 0.02 0.01Gross margin 45.8% 50.4% 52.9% 52.1% 51.5%Net profit margin 3.0% 16.8% 20.2% 20.8% 21.2%Return on asset 3.4% 25.7% 26.3% 22.6% 19.8%Return on equity 7.2% 52.6% 43.7% 33.6% 27.5%

STRESS TESTING (BASE CASE)

2011-12 2012-13 2013-14 2014-15 2015-16Sales revenue 15,200,000 41,800,000 51,300,000 57,525,000 64,000,000Cost (14,052,445) (29,736,945) (33,660,545 (37,246,045) (41,103,045)

)Profit before interest & tax

1,147,555 12,063,055 17,639,455 20,278, 955 22,896,955

Interest (393,409) (374,033) (351,750) (326,125) (296,656)Profit before tax 754,146 11,689,022 17,287,705 19,952,830 22,600,299Income tax @ 40% (301,659) (4,675,609) (6,915,082) (7,981,132) (9,040,119)Net income after tax 452,488 7,013,413 10,372,623 11,971,698 13,560,179Discount rate 20% 20% 20% 20% 20%Present value 377,073 4,870,426 6,002,675 5,773,388 5,449,532

STRESS TESTING (BEST CASE)

2011-12 2012-13 2013-14 2014-15 2015-16Sales revenue (25% growth)

15,200,000 38,000,000 47,500,000 59,375,000 74,218,750

Cost (5% growth) (14,052,445) (29,510,135) (30,985,641)

(32,534,923) (34,161,669)

Profit before interest & tax

1,147,555 8,489,866 16,514,359 26,840,077 40,057,081

Interest (393,409) (374,033) (351,750) (326,125) (296,656)Profit before tax 754,146 8,115,833 16,162,609 26,513,952 39,760,424Income tax @ 40% (301,659) (3,246,333) (6,465,043 (10,605,581) (15,904,170)Net income after tax 452,488 4,869,500 9,697,565 15,908,371 23,856,254Discount rate 20% 20% 20% 20% 20%Present value 377,073 3,381,597 5,612,017 7,671,861 11,504,752

STRESS TESTING (WORST CASE)

2011-12 2012-13 2013-14 2014-15 2015-16Sales revenue (15% growth)

15,200,000 34,960,000 40,204,000 46,234,600 53,169,790

Cost (10% growth) (14,052,445)

(30,915,379) (34,006,917)

(37,407,609) (41,148,369)

Profit before interest & tax

1,147,555 4,044,621 6,197,083 8,826,991 12,021,421

Interest (393,409) (374,033) (351,750) (326,125) (296,656)Profit before tax 754,146 3,670,588 5,845,333 8,500,866 11,724,764Income tax @ 40% (301,659) (1,468,235) (2,338,133) (3,400,347) (4,689,906)

Net income after tax 452,488 2,202,353 3,507,200 5,100,520 7,034,858Discount rate 20% 20% 20% 20% 20%Present value 377,073 1,529,412 2,435,555 3,542,028 4,885,318

TESTING SCENARIO

0 1 2 3 4 5 NPVBase case

(8,493,500) 377,073 4,870,426 6,002,675 5,773,388 5,449,532 13,979,595

Best case

(8,493,500) 377,073 3,381,597 5,612,017 7,671,861 11,504,752 20,053,800

Worst case

(8,493,500) 377,073 1,529,412 2,435,555 3,542,028 4,885,318 4,275,886