smeda upvc pipes manufacturing unit

Pre-Feasibility Study

UPVC PIPES MANUFACTURING UNIT

Small and Medium Enterprises Development Authority

Government of Pakistan www.smeda.org.pk

HEAD OFFICE 6th Floor LDA Plaza Egerton Road, Lahore

Tel (042)111 111 456, Fax: 36304926-7

[email protected]

REGIONAL OFFICE PUNJAB

REGIONAL OFFICE SINDH

REGIONAL OFFICE KHYBER PAKTUNKHWA

REGIONAL OFFICE BALOCHISTAN

8th Floor LDA Plaza,

Egerton Road, Lahore.

Tel: (042) 111 111 456, Fax: (042) 36370474

[email protected]

5TH Floor, Bahria Complex II,

M.T. Khan Road, Karachi.

Tel: (021) 111-111-456 Fax: (021) 5610572

[email protected]

Ground Floor

State Life Building The Mall, Peshawar.

Tel: (091)111 111 456, 9213046-7 Fax: (091) 286908

[email protected]

Bungalow No. 15-A Chamn

Housing Scheme Airport Road, Quetta.

Tel: (081) 2831623, 2831702 Fax: (081) 2831922

[email protected]

June, 2010

Pre-Feasibility Study UPVC pipes manufacturing unit

DISCLAIMER The purpose and scope of this information memorandum is to introduce the subject matter

and provide a general idea and information on the said area. All the material included in

this document is based on data/information gathered from various sources and is based on

certain assumptions. Although, due care and diligence has been taken 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 does not assume any liability for any financial or other loss resulting from this

memorandum in consequence of undertaking this activity. Therefore, the content of this

memorandum should not be relied upon for making any decision, investment or otherwise.

The prospective user of this memorandum is encouraged to carry out his/her own due

diligence and gather any information he/she considers necessary for making an informed

decision.

The content of the information memorandum does not bind SMEDA in any legal or other

form.

DOCUMENT CONTROL Document No. PREF-113

Prepared by SMEDA-Punjab

Issue Date May, 2010

Issued by Library Officer

PREF-113/June, 2010


Table of Contents 1 EXECUTIVE SUMMARY............................................................................................ 2 2 INTRODUCTION ......................................................................................................... 3

2.1 Project Brief ...........................................................................................................3 2.2 Opportunity Rationale............................................................................................3 2.3 Installed Capacity...................................................................................................3 2.4 Project Cost ............................................................................................................3

3 CRUCIAL FACTORS AND STEPS IN DECISION MAKING FOR INVESTMENT 4 3.1 Strengths.................................................................................................................4 3.2 Weaknesses ............................................................................................................4 3.3 Opportunities..........................................................................................................4 3.4 Threats....................................................................................................................5 3.5 Properties of UPVC Pipes......................................................................................5 3.6 Application of UPVC Pipes ...................................................................................5

4 INDUSTRY STRUCTURE ........................................................................................... 6 4.1 Pakistan UPVC Pipes Manufacturing Industry......................................................6 4.2 Pakistan UPVC Market Outlook............................................................................7 4.3 Market of Pipe Industry in Pakistan.......................................................................7 4.4 Products and Uses ..................................................................................................8 4.5 UPVC Growth potential in Pakistan ......................................................................9

5 GLOBAL MARKET OF UPVC.................................................................................... 9 5.1 UPVC pipes manufacturing Industry, Global scenario........................................10

6 MARKETING.............................................................................................................. 11 7 PRODUCTS OFFERED .............................................................................................. 11

7.1 Production Mix ....................................................................................................11 8 PROJECT INPUTS...................................................................................................... 12

8.1 Land & Building Requirement.............................................................................12 8.2 Recommended mode............................................................................................12 8.3 Machinery & Equipment......................................................................................12 8.4 Office Furniture & Fixture and Equipments ........................................................13 8.5 Office Vehicles.....................................................................................................14 8.6 Human Resource Requirement ............................................................................14

9 PROJECT ECONOMICS ............................................................................................ 16 10 FINANCIAL ANALYSIS ........................................................................................... 17

10.1 Projected Income Statement.................................................................................17 10.2 Projected Balance Sheet.......................................................................................18 10.3 Projected Cash Flow Statement ...........................................................................19

11 KEY ASSUMPTION................................................................................................... 20 12 ANNEXTURE ............................................................................................................. 22

12.1 Machinery Supplier..............................................................................................22 12.2 Raw Material Supplier .........................................................................................22

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1 EXECUTIVE SUMMARY The manufacturing of UPVC pipes through extrusion process is a viable business provided that it is operated with a good business acumen that involves having a thorough knowledge and experience of the product range, technical requirements, operational procedures and also managing the jobs with the right type of technical manpower. When these factors combine with good and effective business development skills, the business is expected to give considerable profits which are expected to grow over the years. Piping systems are the most indispensable elements to civilized living from individual life to industry activities i.e., they are a basic infrastructure for urban environments. In Pakistan per capita PVC consumption in Pakistan was only 0.28 Kg compared to 7.75 Kg in USA and 5.11 Kg in Japan. This highlights the growth potential of the PVC Pipe manufacturing sector in Pakistan. According to Industry sources the PVC pipe manufacturing industry has presence in all major industrial cities of Pakistan (i.e. Karachi, Multan, Burewala, Lahore, Sialkot, Narrowal, Faisalabad, Gujranwala, Gujrat, Jhelum, Rawalpindi & Peshawar) which consists of around 400 manufacturing units and production of 180,000 tons per annum. A UPVC pipes manufacturing unit needs a capital investment estimated at Rs. 20.503 million for construction and purchasing machinery & equipment. In addition to this, a sum of Rs. 4.208 million is required as working capital, which should be used for purchasing raw material and other inputs. The total project cost is estimated at Rs. 24.712 million. The project has an IRR, Payback and NPV of 46%, 3.78 years and Rs. 90.074 million.

In this pre-feasibility study, all the calculations have been based on a unit with 2 Extruder Machines with a capacity of manufacturing 3,680 kgs per day.

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2 INTRODUCTION

22..11 PPrroojjeecctt BBrriieeff Un Plasticized Polyvinyl Chloride (abbreviated as UPVC) was first developed in the 1930's and came to be used in pressure pipelines from the 1950's, firstly in Europe, followed by the United States and then Australia in the 1960's. The product has now developed to a mature status with known and respected performance history in pipeline applications. UPVC is a low maintenance material. It is used in the agriculture, chemical and construction industry. It is available in a variety of colors and finishes. The photo-effect wood finish of unplasticised polyvinylchloride is also used in window frames and window sills as a substitute for painted wood.

22..22 OOppppoorrttuunniittyy RRaattiioonnaallee

UPVC is a versatile material for piping and has replaced conventional pipes made from conventional materials such as Galvanized Iron (GI), Cast Iron, Asbestos Cement and Concrete Cement. Its compatibility with most fluids, lower cost of material handling and installation, unique combination of properties and availability of highly reliable jointing system makes it an excellent competitor in the piping world, resulting in a product that is a viable competitor to pipes made from other materials in dimensions up to 20 inches.

The most common use of UPVC is to make pipes. The pipes are most commonly used for the purposes of drainage and for protecting or containing the cables in the buildings.

22..33 IInnssttaalllleedd CCaappaacciittyy This feasibility is based on a unit with 2 Twin Extruder Machines with a capacity of approximately manufacturing 3,680 kgs/day.

22..44 PPrroojjeecctt CCoosstt A UPVC pipes manufacturing unit needs a capital investment estimated at Rs. 20.503 million for constructing factory and purchasing machinery & equipment. In addition to this, a sum of Rs. 4.208 million is required as working capital, which will be used for purchasing raw material and other inputs. The total project cost is estimated at Rs. 24.712 million.

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3 CRUCIAL FACTORS AND STEPS IN DECISION MAKING FOR INVESTMENT

33..11 SSttrreennggtthhss

• Presence of pipes manufacturing cluster in Pakistan. • The raw material supplier (Engro Asahi) assists in different issues relating to pipe

production. • The local machine manufacturers are present , and also assist the manufacturing units

in setting up new lines • Cooperation exists between the local machinery suppliers and the small manufacturing

units • Existence of basic knowledge and technology involved in manufacturing of UPVC

pipes. • Availability of basic infrastructure/network • Presence of few recognized brands from top-end manufacturers

33..22 WWeeaakknneesssseess

• Volatility of raw material prices • Constants break down in local made machines or obsolete machines and irregular

supplies of electricity and water etc leading to high level of wastage • Unchecked use of scrap material in pipes production which leads to inferior and

hazardous pipes • Extreme price pressures and low margins at all levels of market leading to continuous

price wars among stakeholders to catch new customers. • Lack of design guides and standards • Products only manufactured by large and medium units are according to safety and

quality standards • There is no pressure or demand from consumers to uplift and maintain quality of

products • Unskilled labor and machine operators • No technical expert in the field of PVC extrusion to help with machine fabrication • No research and development in areas of development of competitive technologies.

Understanding of new technology is low. • Supply of products is limited to small local market with limited purchasing power,

leading to manufacturing below full capacity

33..33 OOppppoorrttuunniittiieess

• Diversified product range • Strong future domestic market demand for quality products • Scope of increased penetration in other sectors as a result of awareness about its

advantages and different uses • Possibility of market penetration (export) to neighboring countries • Increasing interest of foreign and local investors

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• Benchmarking of market leaders for small units to up-grade their technology base • Establishment of an information sharing/dissemination mechanism among UPVC

industry to keep them updated on international trends

33..44 TThhrreeaattss

• The market of UPVC remains under pressure from high energy and feed stock costs • Irregular availability of high quality raw materials especially before a price hike • Pakistan products do not have a good quality image • Increasing availability of international brands in local market – aggressive competition

especially from China, Malaysia, Iran, Indonesia and India. • Environmental legislation and other restrictions concerning the proper way to recycle

and dispose PVC products • No training institutes at national level to guide the industry towards new technology

and product line

33..55 PPrrooppeerrttiieess ooff UUPPVVCC PPiippeess

• Chemical resistance • Lightness • Resistance to corrosion • Moisture resistance • Temperature resistance • Non toxic • Non flammable • Easy to be bend

33..66 AApppplliiccaattiioonn ooff UUPPVVCC PPiippeess

• Underground Water Supply • Chemical Industries • Ventilation • Sewerage Systems • Cable Conduits • Agriculture

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4 INDUSTRY STRUCTURE

44..11 PPaakkiissttaann UUPPVVCC PPiippeess MMaannuuffaaccttuurriinngg IInndduussttrryy The UPVC pipes manufacturing industry has presence in all major industrial cities of Pakistan (i.e. Karachi, Multan, Burewala, Lahore, Sialkot, Narrowal, Faisalabad, Gujranwala, Gujrat, Jhelum, Rawalpindi & Peshawar) which consists of around 400 manufacturing units manufacturing 45,000 metric tones annually. Major characteristics of this industry are:

• There are in around 350-400 units in Pakistan scattered all over the country. • Major cluster of PVC Pipes manufacturing industry is in Lahore (250 units). • Second largest cluster is in Gujrat (around 25 units). • UPVC pipes industry has an obsolete technology base having 75% units quipped

with local single screw-extrusion machines. Rest 25% units are sing twin-screw type refurbished old machinery of 80’s imported Western Europe.

• Few top line units are also using modern machines imported from China, Korea and Germany.

• Total number of people directly employed in this sector is 5,000. Most of these individuals are uneducated and acquire hands on training in the factory.

o Large Units: 25+ people o Medium Units: 10-15 people o Small Units: 5-7 people

• The educational level of most of the workers is under matriculation. • Plastic pipes are the main products produced by this industry used for Water

supply, drainage, conduits and ventilation. • The installed capacity of these units is 75,000 metric tons per year. • Estimated production of these units is 45,000 metric tons per year. • Total production capacity of this industry is 89.11 million kilo grams per year. • The capacity being utilized by this industry is only 68%. • There still exists a huge potential of more than 41,000 Metric tons usage of UPVC

pipes to serve as replacement of other products over the next five years. • These top level manufacturers account for only 25% of the industry capacity. • Machinery used by these processors is mainly of European origin (Refurbished). • Unorganized sector accounts for the rest of industry capacity which are

manufacturing pipe from recycled UPVC and those who are even making pipe from virgin UPVC resin are using exorbitant amount of filler (Calcium Carbonate) which makes a very low quality pipe. The pipes produced by this unorganized sector adhere to no specific standards and compete on price, sacrificing heavily on quality.

• Industry is playing an important role in the construction, agriculture sector and especially for transport of portable drinking water. By a large the industry is catering to the upcoming needs of agricultural sector for irrigation.

• It has 95% penetration in the conduit sector, 65% in tube well sector and 15% and 20% in drainage and water supply sector.

• Current per capita UPVC consumption in Pakistan is only 0.28 Kg.

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• The consumption-production gap is currently around 50% of the current rate of production. The potential major players in the public sector are the Public Health Engineering Departments (PHED), WASA, Military Engineering Supplies and various Housing Societies. The estimated total incremented potential for the next five years in these sectors is approximately 12,000 metric tons (statistics 2000).

• The major reasons for the slow growth of the UPVC industry are the unawareness of consumer about quality consciousness, and not being able to introduce innovation in their production lines. Due to the lack of quality awareness on part of consumer, cottage sector has really flourished in last decade or so.

• Lack of awareness of modern technology among the industry stakeholders. • There are low levels of operational and managerial skills within the industry. • Some manufacturers are also using international standards like ASTM, DIN & ISO

certification. There is a need to introduce ISO 9000 in the industry. • Manufacturers supplying to the Public Sector are required to get them-selves

approved and registered with respective departments. Compared to 7.75 Kg in USA and 5.11 Kg in Japan, current per capita UPVC consumption in Pakistan was only 0.28 Kg. This highlights the growth potential of the UPVC Pipe manufacturing sector in Pakistan. However due to unawareness in Pakistan the use of UPVC pipes is limited to the water supply, drainage, conduits, and tube wells. The current rate of utilization of these pipes in Pakistan is quiet low.

Table 4-1: Per Capita Consumption of UPVC pipes (Kgs)1 USA 7.75China 0.66Japan 5.11India 0.42Pakistan 0.28

44..22 PPaakkiissttaann UUPPVVCC MMaarrkkeett OOuuttllooookk The UPVC pipes manufacturing industry has presence in all major industrial cities of Pakistan (i.e. Karachi, Multan, Burewala, Lahore, Sialkot, Narrowal, Faisalabad, Gujranwala, Gujrat, Jehlum, Rawalpindi & Peshawar) which consists of around 400 manufacturing units and manufactures 45,000 metric tones annually.

44..33 MMaarrkkeett ooff PPiippee IInndduussttrryy iinn PPaakkiissttaann

There are different types of materials used for piping in Pakistan such as Asbestos Cement (AC), Mild Steel (MS), Galvanized Iron (GI), Poly Vinyl Chloride (PVC), Cast Iron (CI),

71 EAPCL (Engro Asahi Polymer and Chemical Ltd)

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Reinforced Concrete Cement (RCC) and Ductile Iron (DI). Majority of piping applications used in Pakistan range from 0.5" to 60" dia sizes. Table 4-2: Usage of Pipes in different Services

ABS – Acrylonitrile butadiene styrene

Water HDPE, Concrete, Copper, PEX Sewer Concrete, HDPE Conduit & Ducting HDPE, Steel, Aluminum Drain Waste and Vent (DVM) Cast Iron, Copper, ABS, PEX Agriculture & Drainage HDPE, Concrete

HDPE – High Density Polyethylene

44..44 PPrroodduuccttss aanndd UUsseess22

In Pakistan, the UPVC Pipes are being used in four major areas: Water supply, drainage, conduits and tube wells. The main products produced in Pakistan constitute of Polyvinyl Chloride and UPVC Un-plasticized Polyvinyl Chloride. UPVC is used in the drinking water supply system. PVC is used in agriculture, drainage and sanitation. These pipes usually fall in four categories as per their composition are:

• Scrap based • Resin based • Scrap resin mix • Compact type

Their sizes vary from range ½ to 16 inch diameter and PS. 3051 Standard. However, pipes can also be divided in two categories as following: a) Pressure pipes (Used for Water Distribution & in Tube wells) b) Non Pressure pipes (Used for drainage/sewerage and as Conduits)

Water Distribution Water supply can be for the purpose of household or for municipal sector. Water supply segment can be divided into internal and external applications. The size of pipes used for water distribution range from 0.5" to more than 60". These pipelines are commonly known as External Water Supply lines, and are usually of AC (60%), PVC (20%), and MS (20%). PVC has a lot of growth potential in this segment as AC pipes are now becoming extinct in international arena and MS pipes are much expensive than PVC pipes. Usually inside the house GI pipe are used and these lines are called Internal Water Supply lines.

8

2 APPMA (All Pakistan PVC Pipes Manufacturers Association)

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http://www.appma-pk.com/


Tube Well Pakistan being an agricultural country needs the use of PVC Pipes in large quantities for the irrigation purposes, due to their inherent characteristics. Tube wells are used for water supply or to drop the sub soil water level. Material used for this application is PVC and MS ranging from 4" to 12" dia. PVC enjoying 65% market share due to its longer life span in sub soil conditions dominates this segment. MS has 25% market share followed by Fiberglas with 10% share.

44..55 UUPPVVCC GGrroowwtthh ppootteennttiiaall iinn PPaakkiissttaann

At present only the most basic UPVC applications are being made in Pakistan and that also of low quality. Reasons being:

- Lack of exposure in international markets - Lack of information about UPVC processing and its versatility

If Pakistan’s per capita consumption (presently around 0.5 kg/person) becomes at par with world average UPVC per capital consumption of around 4.5 kg/person, then Pakistan would need 585,000 tons of UPVC per annum at present population level.

Promoting UPVC in agriculture sector would help: - In utilizing far flung areas for cultivation through drip irrigation In salinity

control and land reclamation

5 GLOBAL MARKET OF UPVC Vinyl’s low cost, versatility, unique set of properties and performance makes it the material of choice for dozens of industries such as health care, communications, aerospace, automotive, retailing, textiles and construction. In the product form it can be as rigid as a pipe or as pliable as a plastic wrap. Over the past few years the market for UPVC is on a steady rise. The major driver for the growth is the increased penetration of UPVC in insulation cables and pipes. However, the building and construction industries are the basic marketplaces for pipes and the pipes industry usually finds itself firmly ensconced among those boom and bust industries which ride the coattails of our nation's economic fortunes. Another factor of growth in UPVC pipes is innovations in pipe resins, pipe structures and pipe processing technology. In the global market UPVC pipes and fittings constitute the largest volume application at 36% of the marketplace. Worldwide demand for these pipes is forecasted to increase more than four percent per year through 2007. In the European pipe market, plastic pipes rank first among other materials and globally plastic pipes are used at about 54% of the total pipes used. Polyvinyl chloride (PVC) takes the lion's share at around 62% of the global market. Polyethylene (PE) has 33.5%, while polypropylene (PP) takes about 4.5%. In Europe, 1.5 million tons of UPVC was used in 2002 to make pipes. Similarly in case of USA pipe demand is projected to grow 2.5% annually to 15.5 billion feet in 2007.

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55..11 UUPPVVCC ppiippeess mmaannuuffaaccttuurriinngg IInndduussttrryy,, GGlloobbaall sscceennaarriioo

Table 5-1: Major Importing Countries of UPVC Pipe3 Value in US $ "000"

Top Importers 2004 2005

France 120,662 120,663 USA 83,360 92,950 Mexico 76,411 82,760 Ireland 44,415 49,911 Canada 38,370 41,831 UK 38,043 37,533 Belgium 37,127 33,181 Spain 34,699 38,432 Germany 24,991 20,395 Austria 22,296 19,261

France, USA and Mexico have been the top importers of UPVC pipes over the past few years, contributing to approximately 35% of world imports. Table 5-2: Major Exporting Countries of UPVC Pipe4 Value in US $ "000"

Top Exporters 2004 2005

USA 136,505 139,214 Germany 88,082 85,168 Canada 72,313 79,031 UK 76,687 76,446 Italy 79,173 72,891 Netherlands 31,505 70,086 Spain 53,684 51,461 China 25,992 50,720 Ireland 25,782 29,277 Denmark 23,744 26,195 USA, Germany and Canada are the top three exporters of UPVC pipes, contributing to 32% of world exports. 3 Source PCTAS, HS Code 391723

104 Source PCTAS, HS Code 391723

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6 MARKETING Almost 40-50% of the total industry production was purchased by institutional buyers including government departments and remaining 50-55% was sold through conventional market channels. Manufacturers generally distribute pipes using a network of wholesalers who then sell to retailers and large customers. The higher quality manufacturers usually appoint two or three well-reputed entities with past experience and sound financial position as their wholesalers in larger cities, who also serve adjacent rural areas. However, these top tier manufacturers service large volume orders from the public sector directly. The unorganized sector manufacturers on the other hand appoint a host of relatively small dealers. Wholesalers generally operate on a manufacturer margin calculated as a percentage of gross prices. Margins are pegged to the off take volumes and larger orders attract higher margins. Most of the small units tend to be established close to the market to reduce freight costs. In an endeavor to boost sales in a non-differentiation market, manufacturers generally resort to credit sale. This phenomenon is especially very common in the unorganized sector. The organized sector manufacturers are more selective while forwarding credit and limit this facility for larger orders and selective customers. Due to restricted quality product being available in the market, higher quality producers can place their pipes without offering significant credit terms and cash on delivery basis. 40% of all sales are on payment on delivery basis while 60% on some form of credit basis ranging from 7 – 30 days. Some producers may also move product on order basis, where product is pre sold at the time of being manufactured, but these types of sales exists in high turnover periods only. Pricing of UPVC pipes is on the basis of resin content and a distinct pattern emerges when higher quality product prices are studied closely - across all dia ranges, the price per kilogram will remain constant for any one producer. As the cost of resin increases or decreases, the price per kilogram of pipe also moves accordingly, showing that manufacturers are content with such pricing basis and are not sensitive to actual production processes.

7 PRODUCTS OFFERED The proposed project will be capable of making UPVC pipes of different sizes. Commonly manufactured sizes shall be 3", 4"and 6".

77..11 PPrroodduuccttiioonn MMiixx Keeping in view the demand of the product mix the production is divided into the below proportion.

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Table 7-1: Product Mix Description No. of Pipes

Manufactured Annually Production Ratio

Production Line 1 3" pipe 164,904 100%

Production Line 2 4" pipe 89,407 70%6" pipe 16,602 30%

Total Production (Nos.) 270,913

8 PROJECT INPUTS Following inputs are required:

88..11 LLaanndd && BBuuiillddiinngg RReeqquuiirreemmeenntt The land requirement is around 8,200 Sq. feet in any area where all utilities and facilities are properly available. The plot will easily allow the accommodation of the recommended machines and also allow space for material and finished goods storage. The detailed allocation of space and approximate construction cost estimations have been provided in the following table: Table 8-1: Detail of Civil Works

Details Size (Sq. feet)

(Cost in Rs/square feet)

Total construction cost (Rs)

Production Hall 3,700 800 2,960,000

Management Building 1,000 1,100 1,100,000

Warehouse 2,000 800 1,600,000

Loading/Unloading Area 500 400 200,000

Total 7,200 5,860,000

88..22 RReeccoommmmeennddeedd mmooddee

Land for the proposed production facility will be purchased as relocation of installed machinery will be difficult in case of rental premises.

88..33 MMaacchhiinneerryy && EEqquuiippmmeenntt Based on the number and type of UPVC pipes to be produced by the proposed setup, the following machinery will be required:

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Table 8-2: Detail of Machinery Items Number Rate (Rs)

Per Unit Estimated Cost

(Rs) UPVC Pipe Production Line: 1) Powder auto-loader 2) Twin screw extruder 3) Mould 4) Calibration tank 5) Haul-Off machine 6) Automatic cutting machine 7) Stacker

2 2,600,000 5,200,000

Oil- Ink Printer 1 45,000 45,000

Compressor 2 40,000 80,000Chiller unit 1 90,000 90,000Generator (300 KVA) 1 3,500,000 3,500,000Total Machinery & Equipments 8,915,000Contingencies @ 5% of Total Machinery & Equipments

445,750

Total Cost of Machinery 9,360,750 The above table gives the details of the machinery required along with their cost for each commodity to be produced. For machinery purchase, following supplier can be contacted.

88..44 OOffffiiccee FFuurrnniittuurree && FFiixxttuurree aanndd EEqquuiippmmeennttss A total of Rs. 381,500 is estimated for purchase of office furniture and related equipments. The following tables give the assumed breakup: Table 8-3: Furniture & Fixture Items Number Estimated Cost (Rs) Furniture Set 1 100,000Curtains Set 1 20,000Air Conditioner (1.5 ton split) 2 70,000Total 190,000 Table 8-4: Office Equipment Items Qty Cost Total Cost (Rs.)Computers + UPS 5 32,500 162,500Computer Printer 1 15,000 15,000Telephone set 2 1,000 2,000Fax Machine 1 12,000 12,000Total 191,500

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88..55 OOffffiiccee VVeehhiicclleess One small (second hand) trucks acting as light carrier vehicle would also be needed for transporting raw materials and finished goods. For this purpose Rs. 400,000/- has been assumed. The vehicle will depreciate at a rate of 20% annually.

88..66 HHuummaann RReessoouurrccee RReeqquuiirreemmeenntt The human resource requirement for the general and management staff would be as follows: Table 8-5: Human Resource Requirement Designation/Type Number Monthly

Salary (Rs) Total Annual

Salary (Rs)CEO 1 50,000 600,000Accountant 1 12,000 144,000Purchaser 1 12,000 144,000Office Assistant 1 10,000 120,000Store/ Warehouse keeper 1 10,000 120,000Driver 1 8,500 102,000Guard (24 Hour) 2 8,000 192,000Total 8 118,500 1,422,000 Considering the size of the proposed establishment it is assumed that the owner would be managing the overall affairs of the pipes manufacturing setup. An accountant is required to process and check bills, invoices, receivables management, maintain accounts, etc. for external and internal reporting. The accountant is required to update records and ensure safe custody of store keys. The purchaser would be primarily responsible for making daily purchases; raw material purchases and other purchases as and when required. The purchaser would also assist the accountant in the safe custody of all inventories in the storeroom. The office assistant would be responsible for handling customers & complaints, follow-up on bills and managing all day to day activities. Two round the clock security guards would be required for ensuring security for the overall premises.

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The following table gives the details for the proposed technical labor that forms the integral part of the total employee payroll: Table 8-6: Technical Manpower Requirement Designation/Type Number Monthly

Salary (Rs) Total Annual Salary (Rs)

Production Manager 1 30,000 360,000Shift supervisor 1 15,000 180,000Color Operator 1 8,000 96,000Electrician 1 8,000 96,000Hydraulic Technician 1 10,000 120,000Machine Operators 6 8,000 576,000Helpers 10 7,500 900,000Total 21 194,000 2,328,000

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Pre-Fea

PREF-113/J

sibility Study UPVC pipes manufacturing unit

une, 2010

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9 PROJECT ECONOMICS

Capital Investment Rs. in actualsLand 3,280,000 Building/Infrastructure 5,860,000 Machinery & equipment 9,360,750 Furniture & fixtures 190,000 Office vehicles 400,000 Office equipment 191,500 Pre-operating costs 1,221,286 Total Capital Costs 20,503,536

Working Capital Rs. in actualsEquipment spare part inventory 19,502 Raw material inventory 3,200,493 Upfront insurance payment 488,038 Cash 500,000 Total Working Capital 4,208,032

Total Investment 24,711,568

Initial Financing Rs. in actualsDebt 50% 12,355,784 Equity 50% 12,355,784

Equity ProjectInternal Rate of Return (IRR) 59% 46%Payback Period (yrs) 3.40 3.78 Net Present Value (NPV) 52,979,229 90,074,431


10 FINANCIAL ANALYSIS

1100..11 PPrroojjeecctteedd IInnccoommee SSttaatteemmeenntt

Calculations SMEDAIncome Statement

Rs. in actualsYear 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Revenue 99,632,403 125,320,235 150,431,933 179,312,767 212,465,449 250,455,540 293,918,995 343,570,584 400,213,302 464,748,858

Cost of salesCost of goods sold 1 76,811,822 94,420,098 110,764,109 129,028,609 149,409,735 172,122,245 197,401,201 225,503,814 256,711,436 291,331,743 Operation costs 1 (direct labor) 2,328,000 2,554,657 2,803,382 3,076,324 3,375,839 3,704,515 4,065,192 4,460,985 4,895,313 5,371,927 Operating costs 2 (machinery maintenance) 468,038 959,477 1,475,488 2,017,300 2,586,203 3,183,550 3,810,765 4,469,341 5,160,846 5,886,925 Operating costs 3 (direct electricity Generator & Indutrial) 5,067,821 6,132,063 7,358,476 8,768,850 10,387,715 12,242,664 14,364,726 16,788,773 19,553,983 22,704,347

Total cost of sales 84,675,681 104,066,295 122,401,455 142,891,083 165,759,492 191,252,975 219,641,885 251,222,913 286,321,578 325,294,943 Gross Profit 14,956,722 21,253,940 28,030,478 36,421,685 46,705,957 59,202,565 74,277,110 92,347,671 113,891,725 139,453,915

General administration & selling expensesAdministration expense 1,422,000 1,560,448 1,712,375 1,879,095 2,062,046 2,262,810 2,483,120 2,724,880 2,990,178 3,281,306 Administration benefits expense 71,100 78,022 85,619 93,955 103,102 113,140 124,156 136,244 149,509 164,065 Electricity expense 356,419 431,267 517,521 616,712 730,567 861,025 1,010,269 1,180,752 1,375,229 1,596,794 Travelling expense 71,100 78,022 85,619 93,955 103,102 113,140 124,156 136,244 149,509 164,065 Communications expense (phone, fax, mail, internet, etc.) 71,100 78,022 85,619 93,955 103,102 113,140 124,156 136,244 149,509 164,065 Office vehicles running expense 80,000 88,000 96,800 106,480 117,128 128,841 141,725 155,897 171,487 188,636 Office expenses (stationary, entertainment, janitorial services, etc.) 71,100 78,022 85,619 93,955 103,102 113,140 124,156 136,244 149,509 164,065 Promotional expense 996,324 1,253,202 1,504,319 1,793,128 2,124,654 2,504,555 2,939,190 3,435,706 4,002,133 4,647,489 Insurance expense 488,038 437,234 386,430 335,626 284,823 266,229 212,983 159,737 106,492 53,246 Professional fees (legal, audit, consultants, etc.) 498,162 626,601 752,160 896,564 1,062,327 1,252,278 1,469,595 1,717,853 2,001,067 2,323,744 Depreciation expense 1,347,225 1,347,225 1,347,225 1,347,225 1,347,225 1,396,066 1,396,066 1,396,066 1,396,066 1,396,066 Amortization of pre-operating costs 244,257 244,257 244,257 244,257 244,257 - - - - - Bad debt expense 2,988,972 3,759,607 4,512,958 5,379,383 6,373,963 7,513,666 8,817,570 10,307,118 12,006,399 13,942,466

Subtotal 8,705,797 10,059,931 11,416,520 12,974,289 14,759,400 16,638,031 18,967,142 21,622,985 24,647,086 28,086,007 Operating Income 6,250,925 11,194,009 16,613,957 23,447,396 31,946,558 42,564,534 55,309,968 70,724,686 89,244,639 111,367,908

Other income (interest on cash) 25,000 70,463 470,989 1,338,436 2,640,949 4,661,160 7,602,127 11,507,051 16,599,385 24,222,474 Gain / (loss) on sale of office vehicles - - - - 160,000 - - - - Earnings Before Interest & Taxes 6,275,925 11,264,472 17,084,946 24,785,831 34,747,507 47,225,694 62,912,095 82,231,737 105,844,023 135,590,382

Interest on short term debt 282,088 282,088 - - - - - - - - Interest expense on long term debt (Project Loan) 1,536,644 1,285,991 992,158 647,707 243,916 - - - - - Interest expense on long term debt (Working Capital Loan) 186,774 - - - - - - - - - Subtotal 2,005,506 1,568,079 992,158 647,707 243,916 - - - - - Earnings Before Tax 4,270,419 9,696,393 16,092,787 24,138,125 34,503,591 47,225,694 62,912,095 82,231,737 105,844,023 135,590,382

Tax 1,067,605 2,424,098 4,023,197 6,034,531 8,625,898 11,806,423 15,728,024 20,557,934 26,461,006 33,897,596 NET PROFIT/(LOSS) AFTER TAX 3,202,814 7,272,295 12,069,591 18,103,593 25,877,693 35,419,270 47,184,071 61,673,803 79,383,018 101,692,787

PREF-113/June, 2010

17


1100..22 PPrroojjeecctteedd BBaallaannccee SShheeeett

Calculations SMEDABalance Sheet

Rs. in actualsYear 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Current assetsCash & Bank 500,000 - 1,409,265 8,010,507 18,758,203 34,060,785 59,162,409 92,880,131 137,260,889 194,726,808 289,722,676 Accounts receivable 8,188,965 9,244,629 11,332,281 13,551,152 16,100,475 19,024,150 22,371,556 26,198,202 30,566,461 35,546,390 Finished goods inventory 3,681,551 4,352,583 5,117,831 5,972,939 6,927,262 7,991,071 9,175,640 10,493,340 11,957,746 13,583,745 Equipment spare part inventory 19,502 41,977 67,780 97,303 130,981 169,296 212,783 262,034 317,705 380,523 - Raw material inventory 3,200,493 4,130,879 5,088,226 6,223,614 7,567,019 9,153,185 11,022,354 13,221,105 15,803,321 18,831,298 - Pre-paid insurance 488,038 437,234 386,430 335,626 284,823 266,229 212,983 159,737 106,492 53,246 -

Total Current Assets 4,208,032 16,480,606 20,548,913 31,117,163 46,265,118 66,677,233 97,625,750 138,070,203 190,179,949 256,516,082 338,852,811 Fixed assets

Land 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 Building/Infrastructure 5,860,000 5,567,000 5,274,000 4,981,000 4,688,000 4,395,000 4,102,000 3,809,000 3,516,000 3,223,000 2,930,000 Machinery & equipment 9,360,750 8,424,675 7,488,600 6,552,525 5,616,450 4,680,375 3,744,300 2,808,225 1,872,150 936,075 - Furniture & fixtures 190,000 171,000 152,000 133,000 114,000 95,000 76,000 57,000 38,000 19,000 - Office vehicles 400,000 320,000 240,000 160,000 80,000 644,204 515,363 386,522 257,682 128,841 - Office equipment 191,500 172,350 153,200 134,050 114,900 95,750 76,600 57,450 38,300 19,150 -

Total Fixed Assets 19,282,250 17,935,025 16,587,800 15,240,575 13,893,350 13,190,329 11,794,263 10,398,197 9,002,131 7,606,065 6,210,000 Intangible assets

Pre-operation costs 1,221,286 977,029 732,772 488,514 244,257 - - - - - - Total Intangible Assets 1,221,286 977,029 732,772 488,514 244,257 - - - - - - TOTAL ASSETS 24,711,568 35,392,660 37,869,484 46,846,252 60,402,724 79,867,561 109,420,013 148,468,400 199,182,080 264,122,147 345,062,810

Current liabilitiesAccounts payable 6,694,744 8,263,198 9,744,700 11,403,609 13,259,048 15,332,131 17,646,173 20,226,919 23,102,803 24,428,932 Short term debt - 3,274,938 - - - - - - - - -

Total Current Liabilities - 9,969,682 8,263,198 9,744,700 11,403,609 13,259,048 15,332,131 17,646,173 20,226,919 23,102,803 24,428,932 Other liabilities

Deferred tax 1,067,605 (315,736) (2,890,582) (6,752,682) (12,273,257) (20,213,158) (30,662,884) (44,203,753) (61,522,587) (83,600,839) Long term debt (Project Loan) 10,251,768 8,796,775 7,091,130 5,091,651 2,747,721 - - - - - - Long term debt (Working Capital Loan) 2,104,016 - - - - - - - - - -

Total Long Term Liabilities 12,355,784 9,864,380 6,775,393 2,201,069 (4,004,961) (12,273,257) (20,213,158) (30,662,884) (44,203,753) (61,522,587) (83,600,839) Shareholders' equity

Paid-up capital 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 Retained earnings 3,202,814 10,475,109 22,544,699 40,648,293 66,525,986 101,945,256 149,129,327 210,803,130 290,186,148 391,878,934

Total Equity 12,355,784 15,558,598 22,830,893 34,900,483 53,004,077 78,881,770 114,301,040 161,485,111 223,158,914 302,541,931 404,234,718 TOTAL CAPITAL AND LIABILITIES 24,711,568 35,392,660 37,869,484 46,846,252 60,402,724 79,867,561 109,420,013 148,468,400 199,182,080 264,122,147 345,062,810

Liabilities & Shareholders' Equity

Assets

PREF-113/June, 2010

18

sibility Study UPVC pipes manufacturing unit Pre-Fea

PREF-113/J

une, 2010

19

1100..33 PPrroojjeecctteedd CCaasshh FFllooww SSttaatteemmeenntt

Calculations SMEDACash Flow Statement

Rs. in actualsYear 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Operating activitiesNet profit 3,202,814 7,272,295 12,069,591 18,103,593 25,877,693 35,419,270 47,184,071 61,673,803 79,383,018 101,692,787 Add: depreciation expense 1,347,225 1,347,225 1,347,225 1,347,225 1,347,225 1,396,066 1,396,066 1,396,066 1,396,066 1,396,066 amortization of pre-operating costs 244,257 244,257 244,257 244,257 244,257 - - - - - amortization of training costs - - - - - - - - - - Deferred income tax 1,067,605 (1,383,341) (2,574,846) (3,862,100) (5,520,575) (7,939,902) (10,449,726) (13,540,869) (17,318,834) (22,078,252) Accounts receivable (8,188,965) (1,055,664) (2,087,652) (2,218,871) (2,549,323) (2,923,676) (3,347,406) (3,826,646) (4,368,259) (4,979,929) Finished goods inventory (3,681,551) (671,031) (765,248) (855,108) (954,323) (1,063,809) (1,184,569) (1,317,700) (1,464,405) (1,625,999) Equipment inventory (19,502) (22,476) (25,803) (29,523) (33,678) (38,315) (43,487) (49,251) (55,671) (62,818) 380,523 Raw material inventory (3,200,493) (930,387) (957,347) (1,135,388) (1,343,405) (1,586,166) (1,869,168) (2,198,751) (2,582,217) (3,027,977) 18,831,298 Advance insurance premium (488,038) 50,804 50,804 50,804 50,804 18,594 53,246 53,246 53,246 53,246 53,246 Accounts payable 6,694,744 1,568,455 1,481,501 1,658,909 1,855,439 2,073,083 2,314,042 2,580,746 2,875,884 1,326,129

Cash provided by operations (3,708,032) (215,930) 6,389,849 8,600,721 13,091,626 18,694,507 25,101,623 33,717,722 44,380,758 57,465,919 94,995,868

Financing activitiesProject Loan - principal repayment (1,454,993) (1,705,646) (1,999,478) (2,343,930) (2,747,721) - - - - - Working Capital Loan - principal repayment (2,104,016) - - - - - - - - - Short term debt principal repayment - (3,274,938) - - - - - - - - Additions to Project Loan 10,251,768 - - - - - - - - - - Additions to Working Capital Loan 2,104,016 - - - - - - - - - - Issuance of shares 12,355,784 - - - - - - - - - -

Cash provided by / (used for) financing activities 24,711,568 (3,559,009) (4,980,584) (1,999,478) (2,343,930) (2,747,721) - - - - -

Investing activitiesCapital expenditure (20,503,536) - - - - (644,204) - - - - -

Cash (used for) / provided by investing activities (20,503,536) - - - - (644,204) - - - - -

NET CASH 500,000 (3,774,938) 1,409,265 6,601,242 10,747,696 15,302,582 25,101,623 33,717,722 44,380,758 57,465,919 94,995,868


PREF-113/June, 2010

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11 KKEEYY AASSSSUUMMPPTTIIOONN

Table 11-1: Operating Assumptions Hours operational per day 8 Days operational per month 25 Days operational per year 300

Table 11-2: Production Assumptions Production Line 1 3" pipe Production Line 2 4" & 6" pipe Maximum Capacity of Machine 230 Kg / Hour Annual Production Capacity (Kgs) 1,104,000 Capacity Utilization (1st Year) 50% Capacity Growth Rate (Yearly) 10% Maximum Capacity Utilization 95% Production Wastage 5%

Table 11-3: Economy-Related Assumptions Electricity & Diesel Price growth rate 10% Wages growth rate 10% Machine Maintenance Growth Rate 5%

Table 11-4: Cash Flow Assumptions Accounts Receivable cycle (in days) 30 Accounts payable cycle (in days) 30 Finished Goods Inventory (in days) 15 Raw Material Inventory (in days) 15

Table 11-5: Expense Assumptions Traveling, Administration & Office Expense (%age of Administration expense)

5%

Professional Fee (%age of revenue) 0.5%


PREF-113/June, 2010

21

Table 11-6: Depreciation Assumptions Depreciation Method Straight Line Building & Infrastructure 5% Machinery & Equipment 10% Furniture & Fixture 10% Vehicle 20%

Table 11-7: Revenue Assumptions Production capacity of the unit (Nos.) 270,913 Weighted Avg. Sale price per unit in year 1 (in Rs.)

768

Sale price growth rate 10% Avg. Sale Price (in Rs.)

3" Pipe 636 4" Pipe 810 6" Pipe 1,847

Weighted Avg. Price 768

Table 11-8: Financial Assumptions Debt : Equity 50 : 50 Interest rate on long & Short term debt 16% Debt tenure 5 Debt payments per year 12 Cash in Hand Rs. 500,000

Table 11-9: Raw Material Consumption per Pipe Size (4 Meter Pipe) Weight (Kg) Rate Total Cost

(Rs.)3" Pipe 3.35 145 4864" Pipe 4.32 145 6286" Pipe 9.98 145 1,448Weighted Avg. Cost 592


PREF-113/June, 2010

22

1122 ANNEXTURE

1122..11 MMaacchhiinneerryy SSuupppplliieerr Company Name Address/contact Details

Speedup Engineering

Shahdra Lahore Tel: 042-7940812, 041-7933110 Mobile: 0321-4439282, 0321-4455668 (Hafiz Nadeem) Email: [email protected]

Blowmatic corporation

10 / 3 Modern H S Shahed E Millat Road, Karachi Tel: 021-4548132, 5416167 Fax: 021-4557925 Mobile: 0300 2014380

Azfar & Company 6-Rana Chambers, Lake Road, Lahore Tel: 042-37323798 Fax: 042-37235352

1122..22 RRaaww MMaatteerriiaall SSuupppplliieerr Company Name Address/contact Details

Engro Asahi Polymer & Chemical Ltd

RB-1, Ground Floor, Awami Complex, Usman Block, New Garden Town Lahore Tel: (+92-42) - 5834722, 5834733, 5840736, 5840727 Fax: 0092-42-5883111

mailto:[email protected]

smeda upvc pipes manufacturing unit

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