ContentsEXECUTIVE SUMMARY.................................................................................................................................3

BACKGROUND.............................................................................................................................................4

MARKET ANALYSIS.......................................................................................................................................5

1.1 COLLECTION OF SECONDARY INFORMATION.......................................................................................5

1.2 CONDUCT OF MARKET SURVEY.............................................................................................................5

1.3 MARKET OVERVIEW:............................................................................................................................7

1.4 MARKET SEGMENTATION......................................................................................................................8

1.5 DEMAND FORECASTING........................................................................................................................8

1.6 MARKETING PLAN..................................................................................................................................9

1.6.1Market Entry Timing.....................................................................................................................9

1.6.2 Existing Competition....................................................................................................................9

1.6.3 Consumer demand......................................................................................................................10

1.6.4 Target Market..............................................................................................................................10

1.6.5 Market Size and trends.................................................................................................................10

1.6.6 Chocolate Distributors..................................................................................................................10

1.6.7 Advertising /Promotional Activities and Demand Creation..........................................................11

TECHNICAL ANALYSIS................................................................................................................................12

2.1 Proposed Chocolate Manufacturing Plant Capacity............................................................................12

2.2 Project Cost.........................................................................................................................................12

2.3 Project Investment..............................................................................................................................12

2.4 Raw Material / Inventory.....................................................................................................................12

2.5 PROCESS FLOW OF MANUFACTURING CHOCOLATE............................................................................14

2.6 Technology Options.............................................................................................................................15

2.7 Product Mix and Innovation Parameters.............................................................................................15

2.8 Proposed Location...............................................................................................................................16

2.9 Land Requirement...............................................................................................................................16

2.10 MANPOWER REQUIREMENT.............................................................................................................16

FINANCIAL ANALYSIS.................................................................................................................................19

3.1 COST OF PROJECT................................................................................................................................19

3..1.1 LAND & BUILDING.......................................................................................................................19

3.1.2 Overall Factory & Office Renovation............................................................................................20

3.1.3 PLANT & MACHINERY...................................................................................................................20

3.1.4 Maintenance Requirement...........................................................................................................21

3.1.5 FACTORY & OFFICE EQUIPMENT...................................................................................................22

3.1.6 OFFICE VEHICLE............................................................................................................................22

3.2 COST OF PRODUCTION........................................................................................................................23

3.2.1 UTILITIES.......................................................................................................................................23

3.2.2 WORKING CAPITAL REQUIREMNET..............................................................................................23

3.2.3 PRELIMINARY & MACHINERY TRANSPORTATION EXPENSES........................................................24

3.2.4 FACTORY OVERHEAD COST...........................................................................................................24

3.2.5 RAW MATERIALS INVENTORY.......................................................................................................24

3.2.6 FINISHED GOODS INVENTORY......................................................................................................24

3.2.7 REVENUE PROJECTIONS................................................................................................................24

3.2.8 ACCOUNTS RECIEVABLES..............................................................................................................25

3.2.9 ACCOUNT PAYABLES.....................................................................................................................25

3.2.10 FINANCIAL CHARGES...................................................................................................................25

3.2.11 TAXATION...................................................................................................................................25

3.2.12 COST OF CAPITAL........................................................................................................................25

3.2.13 OWNER’S WITHDRAWAL............................................................................................................25

3.3 FINANCIAL SUMMARY.........................................................................................................................26

3.3.1 EVALUATION OF FINANCIAL SUMMARY................................................................................26

SOCIO- ECONOMIC ANALYSIS...........................................................................................................28

4.1 ENVIRONMENTAL SUSTAINABILITY.........................................................................................28

4.2 MANAGERIAL POLICY...................................................................................................................28

CONCLUSION.............................................................................................................................................28

ANNEXURES...............................................................................................................................................29

REFERNCE..................................................................................................................................................29

EXECUTIVE SUMMARY

This pre-feasibility report is prepared for the course of PROJECT MANAGEMENT, fully

guided by Professor A. R. ZAKI. This is a comprehensive report on the establishment of a

Chocolate Company. A complete analysis of manufacturing of chocolate is given which includes

marketing analysis, technical analysis, financial analysis & socio-economic analysis. The

chocolate which will be manufactured is segmented into different flavors like dark chocolate ,

milk chocolate and white chocolate. First the market survey was conducted through

questionnaires which was filled mostly by young generation. The marketing and promotion will

be accomplished by placement of bill boards and advertisement in television . The target market

is chosen upper middle and middle classes. All the machinery will be procured from Pakistan but

some of the equipments which are not available in Pakistan can be imported. The basic raw

material required for making chocolate is Sugar, Full Cream or Skimmed Cream, Skimmed Milk

Powder, Cocoa Butter, Cocoa Mass, Vegetable Fat, Emulsifiers and Flavors. For our chocolate

we will import high quality cocoa from Asian Countries. A complete organizational setup has

been defined. Building will be rented and it will be in industrial area of Karachi. The project cost

is 13.94 million. The business is based on partnership, there will be 2 partners. Debt to equity

ratio is 50:50 so 50% of investment will be done by both partners & 50% loan will be taken. So a

loan has been applied from bank for 3 years payback period at 16% interest rate. Finally, 5 year

projections of income statements cash flows and balance sheet has been performed. Then some

financial ratios have also been calculated to evaluate the financial position of company for 5

years. Internal rate of return calculated is 35% Net present value is Rs, 14,385,386. The thorough

and comprehensive projections along with income statement and balance sheet assumptions and

other financial summary show that project is a viable and practical business to be run

BACKGROUND

Products like candies, toffees, chew jellies, fudges, lollypops, chocolates and bubble gums are

considered to be the part of confectionery industry which also includes all kind of biscuits,

cookies and sweet meats. However, this pre-feasibility provides details on chocolate, its

manufacturing, packaging, marketing and distribution.

Chocolate is loved by every age group & chocolate industry is growing day by day. Chocolate

enjoys about 30% of total candy market and its manufacturing is easy and could be done using

home recipes. Many industrial producers of chocolate and other confections are manufacturing

chocolates on large scale for the local market and export purposes. This project envisages the

production of chocolate using local plant and machinery. We are starting a business of

manufacturing chocolates. Our company name is “FRIVOLOUS” which means (made or done

with extreme care & accuracy) & with respect to the meaning our company objective is similar

to it’s name. The objective of our industry would be to manufacture & provide our customers

with the quality products to the best interest of the customers. To create price competitive

products, To ensure hygiene & clean working environment. Our target market would be all

people of all age group & we will be launching chocolate of three types

Frivolous Plain Chocolate

Frivolous Milk Chocolate

Frivolous Fruit & Nut Chocolate

MARKET ANALYSIS1.1 COLLECTION OF SECONDARY INFORMATIONInformation may be obtained from secondary or primary sources. Secondary information is some

information that has been gathered with some context. Secondary source of our project is the

annual report on “CHOCOLATE INDUSTRY ANALYSIS 2015 – Cost & Trends”.

Chocolate Industry in 2015 at a Glance:

The chocolate industry offers a wide variety of opportunities for the small business owner,

weathers economic recession well and is growing despite increased health-consciousness and

calorie counting. Growth will be driven by population growth as well as expansion into new

markets, product innovation and rising disposable income levels leading to greater purchasing of

premium offerings.

Chocolate is wildly popular for individual consumption, gift giving and cooking. Due to the

dominance of large-scale production dynasties, franchises and small businesses tend to focus on

unique or specialty items or services. Unique chocolates may be from a region famous for a

particular technique, baked on-site or offer a different take on tradition, while specialty services

tend to focus on gift-packaging or delivery

1.2 CONDUCT OF MARKET SURVEYSecondary information though useful but do not provide a comprehensive basis for market

analysis. It needs to be supplemented with primary information gathered through a market

survey.

We have done a sample survey to collect the primary information. Our target population was

young generation as chocolate is eaten most by the young ones we selected the sample size of 30

& developed a questionnaire which is given in the last. Then the questionnaire was scrutinized

properly in order to gather the information.

Key Findings:

The information gathered through questionnaire is discussed below:

We wanted to know that what kind of chocolate people prefer to eat now days. We came

to know that most of the people like milk chocolate.

An average people buy chocolate twice in a week which gives us the idea about demand

of chocolate.

The filling people want in chocolates is caramel & nuts

Due to high prices of other brands chocolates, people find chocolates as luxury.

People are becoming health conscious so they want sugar free chocolate to be introduced

People are not influenced with any celebrity all they want is quality and taste in a

economical price

Above area the main points which are gathered through questionnaire & this information is very

useful for making decisions while starting a new business.

So based on the information gathered we came to know that, demand of chocolate is increased.

Most of the brands are selling chocolates in high prices. People do not need big celebrities to

influence them. Chocolates are highly consumed on special occasions.

1.3 MARKET OVERVIEW:The global chocolate market is characterized by aggressive growth in developing regions and

maturity and innovation in developed regions. Chocolate, a food preparation that has cocoa as

the key ingredient, is a popular sweet across the world in a myriad of forms. The chocolate

market has reported substantial growth in the last decade and market experts anticipate it to grow

at an even faster rate in the current decade. The global chocolate market is primarily driven by a

surging demand for dark chocolate and cocoa chocolates, and their established health benefits.

The demand for new varieties and flavors continues to drive this market ahead. However,

unfavorable factors such as an unstable supply of cocoa, spike in raw material prices, and labor

becoming costlier are likely to inhibit growth in this market. Striking a balance between quality

and pricing, however, remains a looming challenge for chocolate manufacturer.

1.4 MARKET SEGMENTATION

Dark chocolate 

Milk chocolate 

White chocolate

1.5 DEMAND FORECASTINGOne of the primary demand drivers for chocolate and other sweets is consumer taste, and

consumers continue to love chocolate! Long a beloved treat in the western world, a recent study

in Great Britain showed that 91% of females and 87% of males consume chocolate products. But

the taste for chocolate is now expanding into highly populated nations with a growing middle

class, such as China and India. Rising disposable incomes and changing tastes will continue to

drive growth in the industry overseas, just as improving domestic economic conditions increase

sales at home.

Chocolate is a marketable product and its demand is stable through out the years. Population

demographic analysis indicate that more than half of the current population of Pakistan falls

under the age of 15 years1, who is, luckily, the target consumer group of confectionery products.

Considering the current population which is estimated around 161 million (United Nations

Estimates, 2014), population growth rate and percentage of under 15 age group, increase in per

capita income, reduction in poverty rate etc. opportunity for the confectionery products and its

demand appears to be attractive and growing.

The candy and confection industry remained strong through the recent recession, with the

chocolate industry in particular having strong sales despite belt tightening. Considered a luxury,

chocolate surprised many industry observers with continued sales strength over the last several

years. Though people spent less on big ticket items like vacations, consumers refused to give up

the little ways they spoil themselves at home. A chocolate bar is often considered an “affordable

luxury.”

1.6 MARKETING PLAN

1.6.1Market Entry Timing

To take entry into Chocolate business, beginning of winter is supposed to be the best time.

The reason is that in winter children and teenagers are more inclined to have food more rich in

starch/sugar; secondly confectionery remains safe from melting and de-shaping.

During summer, children prefer to have Ice cream, Flavored Ice bowls due to hot weather.

1.6.2 Existing Competition

When starting up a new business of chocolate manufacturing, direct competition will mainly be

with un-organized or informal sector which is mostly involved in producing ‘me-too’ products.

Due to the simplicity of producing Chocolates, almost every confectionery manufacturer is

producing Milk Chocolate which increases the level of difficulty of competing with existing

players. To assess existing competition, the factors to consider would be the number of

competitors, variety of products they offer, promotional schemes they offer etc. Besides the

informal sector, following medium and small scale business units might be tough competitors.

1. Cadbury Pakistan

2. Nestle Pakistan

3. DANPAK Foods Industries (Pvt) Ltd

1.6.3 Consumer demandIn Pakistan confectioneries have always been used as gifts on weddings and other occasions

however now there is a higher demand for chocolate confectioneries on not only weddings

but also on Eid and birthdays. There is a high and an increasing corporate demand for such

confectionery items as now people want to deviate from the traditional sweets.

1.6.4 Target Market Our major target market will be the corporate clients of Karachi mainly and other adjacent

cities as well. The trends in the corporations of Pakistan are now changing; corporations

often present gifts in the form of chocolates to their consumer as well as their business

clients. This trend is on an increase in the country. We will also cater for weddings in large

packaging and other occasions such as birthdays and Eid. However this will be targeted

towards the upper and the upper middle class of the country. Our target market will also

largely include walk in clients who will purchase chocolate in small quantities as compared

to the corporate clients or those catered for weddings. There is no age limit to the target

market as Chocolate is a certain product that is liked by everyone.

1.6.5 Market Size and trendsThe market size of our target market includes all of the upper and middle class of Karachi

and adjacent cities, all of the upper middle class and any person who could be a walk in

customer. Apart from this we are serving to corporate clients who include banks and other

multinational organizations as well as the local ones.

1.6.6 Chocolate Distributors

CHOCOLATE MANUFACTURING SALES FORCE

Designated Wholesalers Distribution Agents

Secondary Wholesalers

Retailers1. Departmental Stores 3. Supermarkets

2. Convenience/Town Shops 4. Bakeries/Staple food stores

1.6.7 Advertising /Promotional Activities and Demand Creation

Promotional activities play a key role in driving sales. It is very important to focus on promotional

activities to ensure a constant stream of business. Most of the confectionery producers offer variety

of the same brand with different price mix to attract customers, which do not give them the desired

results though to some extent it works especially in low income areas. The primary focus should be

to introduce promotional activities in the concerned locality to attract a larger volume of retail shops.

Although majority of the confectionery items producers bank on the promotional activities of the

confectionery brands for attracting business, self initiated promotional activities that are specifically

tailored to meet the requirements of the concerned localities are of vital importance to the

confectionery business. For example, a Chocolate Specialty shop decorated colorfully might want to

capitalize on the opportunity of attracting children with discounted prices.

TECHNICAL ANALYSIS2.1 Proposed Chocolate Manufacturing Plant Capacity

Locally manufactured Chocolate manufacturing plant with 10 k.g./hr. production capacity would

be an economical size for starting chocolate business. However, due to the time required in

developing market reputation and running of the unit, it is expected that the plant would achieve

100% efficiency in the last year of the projected period.

2.2 Project Cost

Total project cost of the chocolate business is approximately Rs.13.94 million. Out of this,

capital cost of the project is around Rs. 9.9 million and remaining will be the working capital.

2.3 Project Investment

A total of Rs. 13.94 million will be required to setup and operate the proposed chocolate business

Table 1: Project investment

CAPACITY HUMAN TECHNOLOGY/ LOCATION RESOURCE MACHINERY

80 kg /day 14

local machinery Medium Cost

industrial area

2.4 Raw Material / InventoryThe basic raw material required for making chocolate is Sugar, Full Cream or Skimmed Cream,

Skimmed Milk Powder, Cocoa Butter, Cocoa Mass, Vegetable Fat, Emulsifiers and Flavors.

Most of the world's cocoa is grown in a narrow belt 10 degrees either side of the Equator because

cocoa trees grow well in humid tropical climates with regular rains and a short dry season. The

trees need even temperatures between 21-23 degrees Celsius, with a fairly constant rainfall of

1000-2500mm per year.

Many countries now grow cocoa. The main producers outside the main central American

producers, Brazil and Ecuador, are:

WestAfrica

Ghana, which grows some of the best quality cocoa in the world, Nigeria and Cote D'Ivore.

Cocoa was first planted in Ghana, now a major producer, in 1879 and as in the rest of West

Africa, cocoa is grown almost entirely on small family farms. Cocoa farming is a small

unsophisticated business as the current planting patterns of cocoa trees make mechanisation

impractical.

Asia

In Asia, public and private plantations have been developed as well as small farms.

Malaysia and Indonesia, where the cocoa is a relatively new crop, are becoming increasingly

important growing areas.

For our chocolate we will import high quality cocoa from Asian Countries.

2.5 PROCESS FLOW OF MANUFACTURING CHOCOLATE

2.6 Technology Options

The type of technology to be employed largely depends on the market to be captured. The

proposed business setup is based on the assumption to cover both local and export markets.

Currently in Pakistan export oriented confectionery manufacturers are also using local plants and

machinery. However, for the purpose of high volume, manufacturers are also using imported

plant and machinery to obtain economy of scale and volume based market leadership. Hilal is

using this strategy and enjoying leadership in local chocolate industry Available technology

options are as follows:

1. Full European Plant – New

2. Full European Plant – Used

3. Full Chinese Plant with local Wrapping machine

4. Locally Manufactured Plant with Wrapping and bagging Machine

Beside technology options a few things should also be taken into account before deciding on

setting up a chocolate manufacturing unit. Normally chocolate Plants are not readily available in

Pakistani market. Therefore entrepreneur will have to place order to the local plant and

machinery manufacturer well in advance. Normally the delivery period is 1 ½ to 2 months for

wrapping and bagging machines and 6 months for production plant/machinery

2.7 Product Mix and Innovation ParametersProposed product mix for the chocolate manufacturing business should be:

Introduce unconventional but somewhat known flavors with eye catching colors &

shapes.

Innovative packaging and designs should be given importance.

Place emphasis on new products development and shift gradually towards a good

mix of different chocolate types.

Revitalize your product by introducing new flavors, colors and distributor schemes

etc.

2.8 Proposed Location

Location for setting up a chocolate plant has imperial implications on fixed costs, operational

costs and procedures. Generally locations where labor and skilled manpower is easily available

and population density is also reasonable are preferred, however availability of utilities like

Power, Water, Gas, Telephone, Roads and Sewerage should also be considered when deciding

where to setup the business. In addition, a location should be chosen from where business

operations like production and distribution can be performed quickly with low operational cost.

For chocolate business, it is suggested to locate the manufacturing facility in North

Karachi Industrial Area, Federal B Industrial Area Karachi,. For the purpose of this study, it is

assumed that the project will be setup in a medium cost industrial location.

2.9 Land RequirementThe workspace required to setup the assumed chocolate plant is a 2250 sq. ft. (250 yards plot),

which will serve for the office, storage godown and manufacturing plant. It is normally available

for Rs. 3 – 4 million in a medium cost industrial location.

2.10 MANPOWER REQUIREMENT15 persons can handle the operations of a chocolate manufacturing business unit. The business

unit will work on one shift basis. Technical staff with secondary school education is sufficient to

look after specific tasks at the plant while trained staff will be required for operating production

plant and wrapping/bagging machines. Such staff is available in the local market. Total estimated

manpower required for the business operations along with their respective salaries is given in the

table

Table 2 :Technical Manpower Required

TYPE OF NUMBER MONTHLY ANNUALMANPOWER SALARY SALARY Trained Plant Operator 1 40,000 480,000Trained Wrapping and Bag Making 3 15000 540000Machine Operator Packers 2 6000 144000Helper / Loader 2 6000 144000Store Keeper 1 8000 96000Total 9 1404000

Table 3:General Management / Administrative & Selling Staff

TYPE OF NUMBER MONTHLY ANNUALMANPOWER SALARY SALRY OWNER 1 Admin/Account officer 1 25000 300000Sales Co-ordinator 2 8000 192000Office driver 1 5000 60000Security Guard 1 5000 60000Total 6 612000

The owner is required to manage the following jobs:

Overall business operations including general administration.

Procurement of new orders

Distribution

Customer handling

Product quality

Ensuring adequate cash flow to meet working capital requirements etc.

2. The plant operator is required to operate production plant, checking and managing raw

material/production quantity/quality and mixing ingredients; and testing output quality etc.

3. Wrapping and Bagging machines Operators are required to operate the wrapping and

bagging machines. They are also responsible for machine’s timely maintenance, oiling, etc.

Further, they will also be responsible for providing necessary support and assistance to the plant

operator.

4. Packer & Helper are required to facilitate in packing process and shifting of produced

material to store room etc.

5. Sales Coordinators are responsible for day to day coordination with distribution and

production functions. They are also responsible to carry out field surveys and ensuring product

availability in the immediate market.

6. Admin. / Accounts Officer is mainly responsible for carrying out day to day administrative

activities of the overall business including facilitation provided to the owner as and when

required.

FINANCIAL ANALYSISThe project cost estimates for the proposed “Chocolate Production Business” have been

formulated on the basis of discussions with relevant stakeholders and experts. The projections

cover the cost of land, machinery and equipment including office equipment, fixtures etc. The

specific assumptions relating to individual cost components are given as under.

3.1 COST OF PROJECT

3..1.1 LAND & BUILDINGTable 1: Cost of land & building

SIZE LOCATION TOTAL COST (RS)RENT PER MONTH (RS)

EXPECTED ANNUAL

INCREASE IN RENT

250 yards Medium cost 3 to 4 200yards Industrial Area million 40,000 10%Construction Cost

Office & warehouse 600,000

(approximate) Production Facility 800,000

This pre-feasibility assumes that the space will be acquired on rental basis. Initial contract would

be for two years with 6 month deposit and 6 month advance rent after which the rent will be

payable on a monthly basis. In addition construction and renovation will cost around Rs.

1,400,000/- which will depreciate at 10% per annum using diminishing balance method. Total

initial cash outflow for acquisition of land would be as follows:

Table 2: Rent Charges

Months RentSecurity Deposit 6 240,000Advance Rent 6 240,000Total 480,000

Land & Building will include:

General Management Office / Storage Area

Production Facility

The proposed business unit will be based in a medium cost industrial locality in a metropolitan

area like North Karachi or Federal B. Area as the business highly depends on a good distribution

network and quick access to the prospects market with less distribution cost. The expected area

required for the set up would be a single story building with two storage godown of 15ft. x 15ft.

each. One for raw material storage and other will be used for finished products. It is assumed that

all activities will be undertaken under one roof and the factory be acquired on a rental basis at

Rs. 40,000 per month for the projected period. This rent is expected to increase at a rate of 10%

per year. It is further assumed that there will be no addition or deletion during the projected

period. Furthermore, it is assumed that Rs. 480,000 will be paid in advance before possession of

premises. This will include advance rent for six months and six months security deposit.

3.1.2 Overall Factory & Office RenovationIt is expected that a total of Rs.500,000 would be incurred to renovate the factory / office

premises in Year 5 and Year 10.

In the following lines we are providing a break up of other assets required for setting up Chocolate Business

3.1.3 PLANT & MACHINERYConsidering factors like tough competition in the industry, technology advancement, machinery

used by the competitors, desired volume of production and the minimum cost in which

machinery is easily available in the local market, we have assumed that local machinery will be

used for the proposed set-up.

The production capacity of the machine would depend on the amount of business expected to be

generated. Capacities vary from brand to brand but on a general scale they can be segregated into

three categories as follows:

1. Machines having a production capacity of 350 k.g. of chocolate per hour

2. Machines having a production capacity of 750 k.g. of chocolate per hour

3. Machines having a production capacity of more than 1000 k.g. of chocolate per hour

The cost implications would depend on the capacity of the machine. For this prefeasibility, local

machinery with expected capacity of 600 k.g. per hour is assumed to be sufficient which cost

around Rs. 7.3 million. The detailed specification of the machinery will be as follows:

Table 3: Plant & Machinery Cost

sr no. unit local/foreign cost(rs) capacity in kg

1 Weighing & mixing pot local 20,000 600/hr

Chocolate making plant Man powerrequired 2

1 Warm Mix local 875,000 600 kg/hr2 Press Whip local 2,000,000 Works Synchronically3 Cooling Drum Conveyer local 700,000 Works Synchronically4 Extruder local 350,000 Works Synchronically5 Cooling Tunnel local 800,000 Works Synchronically6 Rope Sizer local 250,000 Works Synchronically7 Forming Machine local 700,000 Works Synchronically8 Liquid powder Filler local 200,000 Works Synchronically9 Pan lifting jel local 50,000 Works Synchronically

TOTAL COST OF PLANT 5,925,000 10 Wrapping Machines 2 local 1,000,000 250 chocolate/min11 Chocolate bags making machine local 400,000 1000 bags / hr

Total Cost of Wrapping and Bagging machines

Local 1,400,000

Total cost of the machinery 7,345.000

3.1.4 Maintenance RequirementThe local machine is expected to be serviced on an annual basis, for the projected period, costing

around 1.5% of the cost of machine for first five years and 2.5% for the coming years.

Depreciation Treatment

The treatment of depreciation would be on a diminishing balance method at the rate of 10% per

annum. This method is also expected to provide accurate tax treatment.

3.1.5 FACTORY & OFFICE EQUIPMENTA lump sum provision of Rs. 150,000 for procurement of office furniture and factory equipment

is assumed. This would include table, desk, chairs, office stationery and plant & machinery

equipment. The breakup of Factory Office Furniture & Fixtures is as follows:

Table 4: Factory & Office Equipment Cost

ITEM NUMBER COSTTable & Chair for Owner 1 7,000Tables & Chairs for Staff 4 20,000

Carpet for Office 1 10,000Air Conditioner 1 30,000Waiting Chairs 6 9,000

Sofa Set 1 10,000Curtains & Interior Decoration 10,000

Electrical Fittings & Fancy Lights 40,000Others 14,000Total … 150,000

Depreciation Treatment

Factory/Office equipment and furniture is expected to depreciate at a constant rate of 10% per

annum according to the diminishing balance depreciation method.

3.1.6 OFFICE VEHICLEThe proposed setup would require an office vehicle (a delivery van) to carryout all office

activities and to cater urgent delivery requirements, if any. The cost of vehicle is assumed to be

Rs. 400,000.

Depreciation Treatment

The office vehicle is expected to depreciate at a constant rate of 10% according to the

diminishing balance method.

3.2 COST OF PRODUCTION

3.2.1 UTILITIESThe proposed Chocolate making machinery will operate using electricity for chocolate

production. This would draw considerable amount of electricity. The cost of the utilities

including electricity, telephone, and water is estimated to be Rs. 960,000 per annum. The utility

expenses are assumed to increase at 10% per annum.

Table 5: Utilities Cost

Utilities MONTHLY COSTWater & Gas 5,000

Telephones (2) 10,000Electricity 65,000

Total 80,000

3.2.2 WORKING CAPITAL REQUIREMNETIt is estimated that an additional amount of approximately Rs. 3.5 million will be required as

cash in hand to meet the working capital requirements / contingency cash for the initial stages.

This provision has been estimated based on the salaries of the staff and utilities charges for first

three months of operations of the proposed Chocolate business.

Table 6: Working Capital Requirement

Working CapitalAmount in

RsFirst Three Months Salary 504,000

First Three Months Utilities Charges 450,000First Three Months Misc. Expenses 75,000

Inventory (Raw Material-One Month) 2,994,871Total 4,023,871

3.2.3 PRELIMINARY & MACHINERY TRANSPORTATION EXPENSESA lump sum provision of Rs. 50,000 is assumed to cover all preliminary expenses like

registration, documentation charges etc. which will be amortized over the 5 year period.There

has been a provision of Rs. 100,000 for plant and machinery transportation. Machinery

installation and trial run production services are generally provided by the machinery suppliers;

therefore no cost has been assumed for this purpose.

3.2.4 FACTORY OVERHEAD COSTMiscellaneous expenses of running the business are assumed to be Rs. 25,000 per month. These

expenses include various items like office stationery, daily consumables, fuel expenses, traveling

allowances etc. and are assumed to increase at a nominal rate of 10% per annum.

3.2.5 RAW MATERIALS INVENTORYIt is assumed that an initial raw material inventory for one month would be purchased the total

cost of which would be around Rs. 3 million. The cost of raw materials is expected to increase at

the rate of 10% per annum for the projected period.

3.2.6 FINISHED GOODS INVENTORYThe proposed setup is assumed to maintain a Finished Goods Inventory of at least 15 days.

3.2.7 REVENUE PROJECTIONSKey assumptions for the revenue projections are as following:

Chocolate Weight 20 gms.

1 chocolate bar cost of Rs 10

Box of chocolate which contain 30 bars will cost Rs 300

Sales price of confectionery items are generally revised after every 3 to 5 years.

However, for the purpose of this pre-feasibility we have assumed 10% price growth

annually.

It has been assumed that it will take some time for the business to reach the optimal

capacity utilization point for the projected period. Therefore the first year sales are

assumed to be based on 30% capacity utilization and an annual increase of 8% in

capacity utilization is expected for the projection period. Provision for raw material

wastage is assumed to be 1% of the daily production.

3.2.8 ACCOUNTS RECIEVABLESA collection period of 45 days is assumed for sales. A provision for bad debts has been assumed

equivalent to 2% of the annual gross sales.

3.2.9 ACCOUNT PAYABLESA payable period of 45 days is assumed for raw material purchases.

3.2.10 FINANCIAL CHARGESIt is assumed that long-term financing for 5 years will be obtained in order to finance the project

investment cost. This leasing facility would be required at a rate of 15% (including 1% insurance

premium) per annum with 60 monthly installments over a period of five years. The installments

are assumed to be paid at the end of every month.

3.2.11 TAXATIONThe business is assumed to be run as a sole proprietorship; therefore, tax rates applicable on non-

salaried individual are used for income tax calculation of the business.

3.2.12 COST OF CAPITALThe cost of capital is explained in the following table:

Table 7: Cost of Capital

Particulars RateRequired return on equity 20%Cost of finance 15%Weighted Average Cost of Capital 17.5%

The weighted average cost of capital is based on the debt/equity ratio of 50:50.

3.2.13 OWNER’S WITHDRAWALIt is assumed that the owner will draw funds from the business once the desired profitability is

reached from the start of operations. The amount would depend on business sustainability and

availability of funds for future growth.

3.3 FINANCIAL SUMMARY

Table 8: Finance of the company

PROJECT COST IRR NPV(RS)PAY BACK PERIOD

COST OF CAPITAL

RS. 13.94 million 35% 14,385,386

3years 10 months 17.50%

Table 9: FINANCIAL RATIOS

2015 2016 2017 2018 2019 2020

LIQUIDITY RATIOS WORKING CAPITAL 3267054 4157453 4425884 6046073 8089308 11021439CURRENT RATIO 3.64 1.92 1.83 1.95 2.07 2.23

PROFITABILITY RATIO OPERATING INCOME MARGIN 2% 3.10% 4.98% 5.67% 6.24%RETURN ON INVESTMENT 9.31% 9.77% 23.30% 30.02% 34.82%RETURN ON EQUITY 3.09% 16.21% 31.72% 34.31% 34.80%GROSS PROFIT MARGIN 36.01% 35.82% 37.13% 38.21% 38.52%

FINANCIAL LEVERAGE RATIO DEBT TO EQUITY RATIO 1.17 1.56 1.39 1.03 0.72 0.51DEBT TO ASSET RATIO 58.86% 61% 58.24% 50.78% 42.11% 33.88%

3.3.1 EVALUATION OF FINANCIAL SUMMARY

Working capital compares current assets to current liabilities, and serves as the liquid reserve

available to satisfy contingencies and uncertainties. A high working capital balance is mandated

if the entity is unable to borrow on short notice. As we can see that working capital amount is

increasing every year that means the company is more likely able to make its payment on time.

Current Ratio provides an indication of the liquidity of the business by comparing the amount of

current assets to current liabilities. In general, businesses prefer to have at least one dollar of

current assets for every dollar of current liabilities. So, every year in projection it has 1 dollar of

current assets to current liabilities. For eg, in year 2015 it has a ratio of 3:1.

In 2015 our working capital is 3,267,054 and as our operating income margin will increase in

preceding years and debt to equity ratio decreases so our working capital is increasing in

preceding years as well. Our profitability ratios are increasing every year that means the

company profit will also increase. So we can evaluate through our financial analysis that our

business will be more stabilize in preceding years .

SOCIO- ECONOMIC ANALYSIS

4.1 ENVIRONMENTAL SUSTAINABILITY

We commit ourselves to environmentally sustainable business practices. At all stages of product

life cycle we strive to use natural resources efficiently, favor the use of sustainably managed

renewable resources, and target zero waste.

WATER

We are committed to sustainable use of water and continuous improvement in water

management. We recognize that the world faces a growing water challenge and that responsible

management of the world’s resources by all water users is an absolute necessity.

POLLUTION

As our factory will be build in industrial area & it is a chocolate factory so we will be very

careful about environmental aspect such as pollution, noise may occur in the area due to these

reasons company have clear policies and proper drainage system of waste materials so that no

pollution must be created

4.2 MANAGERIAL POLICY

Our managerial policy guidelines are made in consultation with senior executives of our

company. If any changes are made regarding policy and procedures, it is the responsibility of

Human Resource Manager to convey the change to all employees of company or to the line

managers. Apart from the policies, managerial styles vary from person to person.

CONCLUSION

This business plan was given in order to get a loan to start a business for chocolate

manufacturing company. The whole report gives a clear view about marketing, technological,

financial and socio-economical aspects. Financial ratios are being calculated and evaluated.

Projections of income statement, balance sheet and cash flow statement shows that this project is

viable and practical for business to run.

ANNEXURES

REFERNCE

Dr. Prasanna Chandra. Projects. 7th edition. Tata McGraw Hill Education Private limited,

New Delhi.

CHOCOLATE INDUSTRY ANALYSIS 2015 – Cost & Trends

www.euromonitor.com/chocolate-confectionery-in-pakistan/report