Salt Products Manufacturing Unit

8/13/2019 Salt Products Manufacturing Unit

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Pre-Feasibility Study

(Salt Products Manufacturing Unit)

Small and Medium Enterprises Development Authority

Ministry of Industries & ProductionGovernment of Pakistan

www.smeda.org.pk

HEAD OFFICE

4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road,

LahoreTel: (92 42) 111 111 456, Fax: (92 42) 36304926-7

[email protected]

REGIONAL OFFICE

PunjabREGIONAL OFFICE

SindhREGIONAL OFFICE

Khyber PakhtunkhwaREGIONAL OFFICE

Balochistan3rdFloor, Building No. 3,

Aiwan-e-Iqbal Complex,

Egerton Road Lahore,

Tel: (042) 111-111-456

Fax: (042) [email protected]

5TH Floor, Bahria

Complex II, M.T. Khan Road,

Karachi.

Tel: (021) 111-111-456


Ground Floor

State Life Building

The Mall, Peshawar.

Tel: (091) 111-111-456


Bungalow No. 15-A

Chaman Housing Scheme

Airport Road, Quetta.

Tel: (081) 2831623, 2831702


Note: All SMEDA Services / information related to PM's Youth Business Loan areFree of Cost

December, 2013


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Pre-Feasibility Study Salt Products Manufacturing Unit

SMEDA Services / Information related to PMs Youth Business Loan areFREE OF COST - 1

Table of Contents

1.DISCLAIMER .............................................................................................................................. 22.PURPOSE OF THE DOCUMENT ............................................................................................. 33.INTRODUCTION TO SMEDA .................................................................................................. 34.INTRODUCTION TO SCHEME ............................................................................................... 45.EXECUTIVE SUMMARY .......................................................................................................... 46.BRIEF DESCRIPTION OF PROJECT & PRODUCT ............................................................ 57.CRITICAL FACTORS ................................................................................................................ 58.INSTALLED & OPERATIONAL CAPACITIES ..................................................................... 59.GEOGRAPHICAL POTENTIAL FOR INVESTMENT ......................................................... 610. POTENTIAL TARGET MARKETS ................................................................................... 611.

PROJECT COST SUMMARY ............................................................................................. 6

11.1. PROJECT ECONOMICS ........................................................................................................... 611.2. PROJECT FINANCING ............................................................................................................ 711.3. PROJECT COST ..................................................................................................................... 711.4. SPACE REQUIREMENT .......................................................................................................... 711.5. MACHINERY AND EQUIPMENT.............................................................................................. 811.6. OFFICE EQUIPMENT .............................................................................................................. 811.7. RAW MATERIAL REQUIREMENTS ......................................................................................... 911.8. HUMAN RESOURCE REQUIREMENT ...................................................................................... 911.9. REVENUE GENERATION ...................................................................................................... 1011.10. OTHER COSTS .................................................................................................................... 1012. CONTACT DETAILS OF SUPPLIERS, EXPERTS / CONSULTANTS ....................... 1013. ANNEXURE ......................................................................................................................... 1113.1. INCOME STATEMENT .......................................................................................................... 1113.2. STATEMENT OF CASH FLOW ............................................................................................... 1213.3. BALANCE SHEET ................................................................................................................ 1314. 1314.1. USEFULPROJECTMANAGEMENTTIPS .................................................................... 1414.2. USEFUL LINKS .................................................................................................................... 1415. KEY ASSUMPTIONS ......................................................................................................... 15


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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 maydiffer 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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2. PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential

entrepreneurs in project identification for investment. The project pre-feasibility

may form the basis of an important investment decision and in order to serve

this objective, the document / study covers various aspects of project conceptdevelopment, start-up, production, marketing, finance and business

management.

The purpose of this document is to facilitate potential investors in Salt

Products Manufacturing Unit by providing them with a general

understanding of the business with the intention of supporting potential

investors in crucial investment decisions.

The need to come up with pre-feasibility reports for undocumented or

minimally documented sectors attains greater imminence as the research that

precedes such reports reveal certain thumb rules; best practices developed byexisting enterprises by trial and error, and certain industrial norms that become

a guiding source regarding various aspects of business set-up and its

successful management.

Apart from carefully studying the whole document one must consider critical

aspects provided later on, which form basis of any investment decision.

3. INTRODUCTION TO SMEDA

The Small and Medium Enterprises Development Authority (SMEDA) was

established in October 1998 with an objective to provide fresh impetus to theeconomy 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 through National Bank of Pakistan (NBP) and First Women Bank Ltd.

(FWBL).

Loans from 0.1 million to 2.0 million with tenure upto 8 years (1 year grace

period inclusive) with one year grace period and a debt : equity of 90 : 10 will

be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh,

Khyber Pakhtunkhwa, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir

and Federally Administered Tribal Areas (FATA).

5. EXECUTIVE SUMMARY

This pre-feasibility is regarding Salt Products Manufacturing Unit. The salt

products manufacturing project entails production of rock salt crystal products

ranging from lamps, tiles, candle stands, salt soaps and various decorative

shapes / pieces. Salt products are known for their therapeutic / healing effects

on body and mind. There is an increasing trend and preference for organic

quality products for their natural curative properties. Salt products are equally

sought for decorative purposes due to their distinctive colors and composition.

There is growing demand of salt products in western countries due to its

healing properties for a number of ailments.

Pakistans salt products are well known all over the world for their distinctive

composition and craftsmanship. Pakistan holds one of the largest reserves of

salt deposits in the world. Growing international demand for salt products,

availability of cheap and skilled labor coupled with abundant raw material

offers new start-ups a very promising opportunity to venture into salt products

manufacturing.

Salt products manufacturing business venture entails a total investment of

about Rs. 1.55 million. This includes capital investment of Rs.1.00 million and

a sum of Rs.0.55 million as initial working capital. The project is financed

through 90% debt and 10% equity. The Net Present Value (NPV) of the projectis around Rs. 11.69 million with an Internal Rate of Return (IRR) of 64% and a

payback period of 2.35 years. The project will generate employment

opportunity for 11 persons including owner manager.

Higher return on investment and a steady growth of business is closely

associated with the entrepreneur having some prior experience or education in


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the related field of business. This pre-feasibility encompasses essential

information regarding various aspects of starting a salt products manufacturing

unit business in Pakistan.

6. BRIEF DESCRIPTION OF PROJECT & PRODUCT

This Pre-feasibility provides information on Salt Products Manufacturing Unit in

Pakistan. There are a number of factors for which salt products are sought

worldwide, however, therapeutic and decorative, are two distinct reasons salt

products are bought all over the world.

The Pre-feasibility provides information on key aspects of starting a salt

products manufacturing unit.

This pre-feasibility details information about investment opportunities for the

production of salt products such as salt lamps, candle stand, salt soap, salt

spa products, salt inhalers, salt bricks, tiles and blocks etc. Salt products

manufacturing unit will primarily focus on indirect export (middlemen / traders).

Salt products manufacturing unit requires an investment estimated at Rs.1.55

million. This pre-feasibility is based on a unit with 2 lathe machines (5ft

capacity), 1 cutter (24 length), grinder, drill and blowers with a capacity of

manufacturing 120,000 units (salt products) per anum. Total employment

required for this unit would be 11 persons including owner manager. Total area

required for salt products manufacturing would be approximately 1.5 kanals

that would be acquired on rent. Estimated rent for such an area is Rs. 30,000/-

per month.

7. CRITICAL FACTORS

Awareness / knowledge of international markets and the demand trends

for salt products.

Regular training and capacity building of the entrepreneur.

Prior experience / education in the related field of business.

Strict management / supervision controls to minimize wastage.

Availability of skilled labor and good quality raw material.

Ventilation and adequate safety measures.

8. INSTALLED & OPERATIONAL CAPACITIES

This pre-feasibility is based on 2 lathe machines and 1 cutting machine with a

capacity of manufacturing 400 salt products per 8 hours shift. The total

employment required for this unit would be 11 persons. Total number of salt

products produced in year 1 would be 60,000 reaching 50% of the total


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installed capacity, while maximum capacity (95%) will be achieved with

production reaching at 114,000 pieces in year 10 of the project.

9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT

The said project can be started in any adjoining industrial areas of Khewra,

district Jhelum, Warcha, District Mianwali, Kalabagh, District Mianwali. These

areas are preferred due to their proximity to raw material and availability of

skilled labor.

10. POTENTIAL TARGET MARKETS

Salt products manufactured in this unit will be primarily exported to European

countries such as UK, Germany, France, Italy, and Spain. In addition to these

countries, Korea, Japan and Australia are also potential markets of salt

products.

11. PROJECT COST SUMMARY

A detailed financial model has been developed to analyze the commercial

viability of Salt Products Manufacturing Unit under the Prime Ministers Youth

Business Loans scheme. Various cost and revenue related assumptions

along with results of the analysis are outlined in this section.

The projected Income Statement, Cash Flow Statement and Balance Sheet

are attached as appendices.

11.1. Project Economics

The installed production capacity of the project is 120,000 salt products peryear. However during the first year of operations it will operate at 50% of the

installed capacity producing 60,000 salt products.

The following table shows internal rate of return, payback period and net

present value;

Table 1: Project Economics

Description Details

Internal Rate of Return (IRR) 64%

Payback Period (yrs) 2.35Net Present Value (NPV) Rs. 11,694,781

Returns on the project and its profitability are highly dependent on acquiring

and maintaining regular orders, prudent procurement of salt and timely


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deliveries. Skilled labor plays an important role in the manufacturing

operations for quality products.

11.2. Project Financing

Following table provides details of the equity required and variables related to

bank loan;

Table 2: Project Financing

Description Details

Total Equity (10%) Rs.155,290

Bank Loan (90%) Rs.1,397,610

Markup to the Borrower (%age/annum) 8%

Tenure of the Loan (Years) 8

Grace Period (Year) 1

11.3. Project Cost

Following requirements have been identified for operations of the proposed

business. A rented premises for the unit has been recommended.

Table 3: Capital Investment for the Project

Capital Investment Amount (Rs.)

Machinery 849,000

Furniture & Office Equipment 117,000

Pre Operational Expenses 32,000

Total Capital Cost 998,000

Initial Working Capital 554,900

Total Project Cost 1,552,900

11.4. Space Requirement

The area has been calculated on the basis of space requirement for

production, management and storage. However, the units operating in the

industry do not follow any set pattern. Following table shows calculations for

project space requirement.

Table 4: Space Requirement

Space Requirement Sqft

Management building 150

Production area 1,200

Store 4,500


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Open area 900

Total Area 6,750

Premises will be obtained on rent @ Rs. 30,000 per month.

11.5. Machinery and Equipment

Following table provides list of machinery and equipment required for an

average salt products manufacturing unit.

Table 5: Machinery & Equipment

Description Quantity Cost

Rs/unit

Total Cost

Rs.

Cutter 24 1 60,000 60,000

Lathe machine 5 2 300,000 600,000

Grinder 4 10,000 40,000

Drill machine 5 with special bit 1 20,000 20,000

Hand drill 4 3,000 12,000

Blower 2 8,500 17,000

Electrification, installation, tools, etc 1 100,000 100,000

Total 15 849,000

Following is a brief description of the process flow; blocks of salt are cut into

small pieces by cutters. Lathe machines are used to shape and size salt

pieces into lamps and candle stands etc. Finishing operations are carried out

on a grinder and drill machine. Natural profile products (natural shape) are

made on grinders and hand drills.

11.6. Office Equipment

Following are details of necessary office equipment.

Table 6: Office Equipment

Quantity Cost Amount

Computer desktop (used) 1 20,000 20,000

UPS 1 7,500 7,500Computer printer 1 10,000 10,000

Telephone set 1 1,000 1,000

Total 38,500


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11.7. Raw Material Requirements

Salt mined from Khewra, Kalabagh and Warcha mines will be used primarily.

Raw materials requirements have been calculated on the basis of 4 product

categories which the unit will be producing.

Table 7: Cost o f Materials

Unit Rate

(Rs)

Quantity

(Kg)

Cost

Rs./Unit

Salt lamp (24 kg)

Salt Kg 5 3.90 19.50

Candle stand (12 kg)

Salt Kg 5 1.95 9.75

Salt soap (0.40.6 kg)Salt Kg 5 0.65 3.25

Natural profile (34 kg)

Salt Kg 5 4.55 22.75

11.8. Human Resource Requirement

Following table provides details of human resource required for this project:

Table 8: Human Resource Requirement

Description No. of

Employees

Salary per

Employee per

Month (Rs.)

Owner Manager 1 20,000

Accountant 1 12,000

Machinist 3 12,000

Helper 6 10,000

Total Staff 11 54,000

The owner will focus on acquiring orders, purchase of salt and overall

management of the unit. The unit is capable of producing approximately 400

products in an 8 hour shift. Salaries of all employees are estimated to increase

at 10% annually.


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11.9. Revenue Generation

Following table provides details of the revenue generated by the project in the

first year;

Table 9: Revenue Generation

Product UnitSalesPrice

(Rs./Unit)

First Year

Production

First Year

Sales

Revenue

(Rs)

Salt lamp (24 kg) No. 78.00 12,000 936,000

Candle stand (12 kg) No. 39.00 12,000 468,000

Salt Soap (0.40.6 kg) No 13.00 12,000 156,000

Natural Profile (34 kg) No 91.00 24,000 2,184,000

Total Sales Revenue 3,744,000

11.10. Other CostsOther essential costs to be borne by the company are electricity and

communication expenses.

12. CONTACT DETAILS OF SUPPLIERS, EXPERTS /

CONSULTANTS

Director General

Mines and Mineral DepartmentGovt. of the PunjabPoonch House, Multan Road, LahorePhone: (+92-42) 99213313


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14.1. USEFUL PROJECT MANAGEMENT TIPS

Technology

Required Spare Parts & Consumables:Preventive maintenance of machines

should be carried out. Availability of the machinery spare parts and

consumables must be ensured.

Energy Requirement: Generator has not been recommended for the project

as it will increase the cost of production.

Machinery Suppliers: Multiple machinery suppliers should be contacted and

purchase should be made after thorough inspection. The availability of spare

parts should also be considered. Such machinery is easily available in local

markets of Lahore, Gujranwala, Faisalabad & Peshawar.

Quality Assurance Equipment & Standards: The finished products should

be according to the design specifications of buyers. Compliance should be

ensured for dimensions, weight and especially for the electrical fitting fixtures

as the buyers inspect before exporting the products.

Marketing

Sales & Distr ibution Network: The owner should establish long term contacts

with the buyers to ensure continuous flow of orders. Moreover he should have

links with the suppliers of salt from major salt mines of the country.

Human Resources

Adequacy & Competencies: Skilled and experienced staff is necessary forthe unit. Staff having requisite experience should be preferred.

14.2. Useful Links

Prime Ministers Office, www.pmo.gov.pk

Small and Medium Enterprise Development Authority, www.smeda.org.pk

National Bank of Pakistan (NBP), www.nbp.com.pk

First Women Bank Limited (FWBL), www.fwbl.com.pk Government of Pakistan, 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


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Government of Sindh, www.sindh.gov.pk

Government of Khyber Pakhtunkhwa, www.khyberpakhtunkhwa.gov.pk

Government of Balochistan, www.balochistan.gov.pk

Government of Gilgit Baltistan, www.gilgitbaltistan.gov.pk Government of Azad Jamu 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

Punjab Mineral Development Corporation (PMDC) www.punjmin.com

15. KEY ASSUMPTIONS

Table 14-1 Machinery Assumpt ions

Number of machines installed 6

Capacity utilization (Year 1) 50%

Maximum capacity utilization 95%

Total production of the unit per 8 hour shift 300Table 14-2 Operating Assumpt ions

Annual production capacity 120,000

Hours operational per day 8

Days operational per month 25

No. of shifts 1

Days operational per year 300

Table 14-3 Economy-Related Assumptions

Cost of electricity & fuel growth rate 10%

Wage growth rate 10%Table 14-4 Cash Flow Assumpt ions

Accounts receivable cycle (in days) 30

Accounts payable cycle (in days) 30

Raw material inventory (in day) 30

Equipment and spare part inventory (in days) 30

Table 14-5 Revenue Assumpt ions


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SMEDA S i / I f ti l t d t PM Y th B i L FREE OF COST 16

Production capacity of the unit 120,000

Sale price growth rate 10%

Local sales 100%

Table 14-6 Expense Assumpt ions

Pre-paid building rent (months) 6

Rent growth rate 10%

Raw material price growth rate 10%

Communication expense (%of Sales) 0.50%

Promotional expense (% of Sales) 1.00%

Table 14-7 Financial Assumptions

Project life (Years) 10

Debt 90%

Equity 10%

Interest rate on long-term debt 8%Debt tenure (Years) with 1 year grace period 8

Debt payments per year 12

Salt Products Manufacturing Unit

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