Friends Ghee and Oil Mill

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2Friends Oil & Ghee Mil Pvt. Ltd.


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A FEASIBILITY REPORT ON

FRIENDS GHEE & OIL MILLS (PVT) LIMITED


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To understand the Project Appraisal an integral part of BBA (Hons) Accounting &

Finance Program because it gives us practical knowledge of what we have learnt

during our study period. This report is being written to fulfill the requirement ofdegree BBA (Hons). This report process is valuable in course of learning.

This report is also a step of some chance of practical experience form. In this report

we will be covering all vital information and their scanning exposures in the form of

our observation.

In this report we have tried our levels best effort to encompass and elaborate the

necessary inferences suitable to enhance the knowledge. We hope our effort of

transfer of knowledge through this report will be information gaining for readers.

Acknowledgement:

We owe our heart-felt thanks to God Almighty who enabled us to discharge such an

onerous responsibility with due care and caution in the prime interest of the general

public and to the great credit of our worthy teacher and M a am Rabia Mumtaz

who is the main source of the enlightens of our minds and the development of our

natural potentialities. We also feel highly indebted to our parents who guided us at

every stage and whose pains are repaid in the form of what we are today. Our thanks

are bound even to our beloved country Pakistan the sacred soil of which goes to the

making of our whole personality and character by providing every possible facility

and golden opportunity of ideal education and training.


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Table of Contents

CONTENTS PAGE#

Executive Summary 06

Vision and Mission Statement 09

Objectives & Key Success Factors 12

Introduction 14

Management 15

Technical Analysis 17Market Analysis 26

Economic Analysis 33

Assumptions underlying Earning Forecast 40

Projected Financial Statements 41

Auditing Plan 53

Exit Strategy and Risk Assessment 54


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EXECUTIVE SUMMARY

The proposed project contemplates to set up a new Ghee & Oil Mill Unit at

Mukhdoom Rasheed Vahari Road Mulatn.The production of, Refined Oil, and Oil Dirt (By-Product) will be obtained by

crushing Cotton Seed as input. The entire production of the firm will be sold locally to

the local Ghee Mills. The proposed project site enjoys the benefits of

1) Easy availability of raw material,

2) Quick access to main road,

3) Sources of power, water, fuel etc.,

4) Availability of Transport and modern Communication systems,5) Availability of Skilled and Un-Skilled labor, and

6) Free from environmental hazards like water logging and salinity and floods.

The demand of the project is sophisticated enough on the basis of which project will

make sales of Rs. 256,244,000 in its first year of Operations, Rs. 286,813,000 in its

2nd year of Operations whereas it will make sales of Rs. 304,795,000 in its 3 rd and

subsequent years of operations. The annual rated crushing capacity of the plant is

estimated about 21,600,000 kilogram of Cotton Seed working 360 days a year and

tripled shift per day of 8 hours each. The project shall be equipped with latest locally

manufacturing plant and Machinery. The plant of the proposed project will be capable

of crushing 10,000/kg/expeller/day.

Of the total production of sunflower seed and cotton seed of the country the share of

Multan, Bahawalpur and D.G. Khan Division is more than 60%. Further Multan

division consisting of Sahiwal, Vehari, Khanewal, and Lodhran is the major cotton

seed production area, nearly 40% of the total production of cotton seed is produced by

this division. The basic raw materials of the proposed project are

Cotton Seed and Caustic Soda of which later is used to refine crude oil. The proposed

project is located at Mukhdoom Rasheed Vahari Road Multan. The project will

contribute in eliminating unemployment and will best make the use of available

resources. This project will create employment opportunities for Skilled, Semi-Skilled

and Unskilled labor along with the Factory administrative and Marketing Staff.


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The total cost of the project have been estimated to be Rs. 33,053,000 consisting of

Land, Building Machinery (including installation and other cost), Vehicle, Furniture,

Office Equipment, Pre-Production Expenses, Interest during construction and theinitial net working Capital Requirement.

The completion time period of the project is estimated to be 6 months. A plot of land

measuring 1 Acre has been purchased in the name of the company at the proposed

site. The cost of land including cost of registration and development etc. is Rs.

1,590,000. The land is considered to be sufficient for the proposed project. Building

and Other Civil Works consist of mainly Factory Building, Ware house, and

Administrative Staff. The erection and installation cost is estimated amounting to Rs.

838,000.

The debt equity ratio fulfills the maximum requirement i.e. 60 : 40of the bank even

though the current government policy is leaner towards easy loan and lower equity

requirement. The ratio of debt in the cost is such that it allows for easy servicing of

the loan. The debt equity-ratio is considered satisfactory and long term loan would

have a safe equity margin.

The total manufacturing cost of the project have been bifurcated Rs. 211,410,000 in

respect of raw material consumption, Rs. 9,666,000 for labor and Rs. 5,532,000 for

Factory overheads rated at 75% Capacity. The financing cost of the project is

estimated to be is to be 14% of the debt obtained from the financial institution. Firm's

total administrative, General and Selling Expenses have been estimated to be Rs.

14,416,000.


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VISION, MISSION & CORE VALUES

Leadership

Our VisionTo be the premier Pakistani

enterprise with a global reach,

Passionately pursuing value

Creation for all stakeholders

Our ission

To develop and deliver the most

ideal oil products, manage

customer experience, deliver quality

service that contributes to brand


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We value leaders of high integrity, energy and enthusiasm who have the necessary

managerial, professional and people skills to inspire a group or an organization to set

high goals and achieve them willingly. We believe that leadership skills need to bestrengthened at all levels within our organization and that managerial and professional

competence is a necessary foundation.

Teamwork and Partnership

We believe that high performing teams containing appropriate diversity can achieve

what individuals alone cannot. Consciously using the diversity of style, approach and

skills afforded by teams is strength we must continue building into our organization.

Diversity

We value differences in gender, race, culture, personality and style because diverse

solutions, approaches and structures are more likely to meet the needs of customers

and achieve our business goals.

Quality and Continuous Improvements

We believe that quality and relentless commitment to continuous improvements are

essential to our ongoing success. To this end, we define quality as understanding the

customers expectations, agreeing on performance and value, and providing products

and services that meet expectations 100 percent of the time. Our motto is, Quality in

all we do.

Ethics and Integrity

We do care how results are achieved and will demonstrate honest and ethical behavior

in all our activities. Choosing the course of highest integrity is our

intent and we will establish and maintain the highest professional and personal

standards. A well-founded reputation for scrupulous dealing is itself a priceless asset.


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Candid and Open Communication

We value communications that are courteous, candid and open and that enables each

of us to do our jobs more effectively by providing information that contributes to thequality of our judgment and decision making. Effective communication should

provide the means for gaining understanding of the companys overall objectives and

plans and of the thinking behind them.

Innovation

Success requires us to continually strive to produce break through ideas that result in

improved solutions and services to customers. We encourage challenges to the status

quo and seek organizational environment s in which ideas are generated, nurtured and

developed.

Individual Growth and Development

We strongly believe in the dignity and value of people. We must consistently treat

each other with respect and strive to create an organizational environment in which

individuals are encouraged and empowered to contribute, grow and develop them and

help to develop each other.

Enjoyment and Fun

We believe that excitement, satisfaction and recognition are essential elements of a

healthy, creative and high performing work environment. Having fun in our work

should be a normal experience for everyone


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OBJECTIVES AND KEY SUCCESS FACTORS

The main objectives of the development of project are:

Capitalize on excellent opportunity to extract maximum revenue in a branch

out market.

To launch the oil unit with a highly targeted publicity campaign and in a grand

opening event in the mid September of 2008.

To maintain tight control of costs, operations, and cash flow through diligent

management and automated computer control. To maintain a high standard of product and service provided.

Capitalize on excellent location opportunity. Maintain tight control of costs, operations, and cash flow through diligent

management and automated computer control.

To be the premier company that achieves the goals of profit maximization and

value maximization for all the stakeholders of the company.

The keys to success in achieving our goals are:

Provide an exceptional service and product that leaves an impression. Consistent utilizing of ingredients that creates product quality. Managing our internal finances and cash flow to enable upward capital

growth.

Strict control of all costs at all times, without exception.

The Company will be strategically located to maximize the revenue derived

from the sales of the quality product.

Provide exceptional product that leaves an impression with our core

customers.

Consistent entertainment atmosphere and product quality. Managing our internal finances and cash flow to enable upward capital

growth.

Strict control of all costs, at all times, without exception.


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Accelerated sales growth experienced in the category of sachet packs. Extensive distribution channel for the sachet packs focusing even on small

kiosks in the urban and rural areas.

The product would be focusing the price conscious segment of the market by

providing similar and better quality branded product at lesser price.

Emphasizing on excellent service to the other wholesalers. Adapting to the rapid social and economic changes. Regular flow of local as well as Export orders is the key success factor for

efficiently running of the project.

Selection and procurement of consistent quality raw material would be another

contributing factor for carrying out successful operations of proposed project.

Production of quality products meeting the Health Standards of International

level is necessary for Export sales.

Competitive price of end products. Abundant supply of raw material. Cost efficiency through better management. Media campaign for the awareness of the retail customers. Availability of low cost skilled labor. The main elements of export strategy are reducing cost of doing business,

increasing market access, technology, environmental & Security Compliance,

encouraging export-oriented foreign investment, region-specific strategy,

country & business image building and value addition.

INTRODUCTION


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The proposed project contemplates to set up a new Oil Mill Unit at Mukhdoom

Rasheed Vahari road Multan. The annual rated crushing capacity of the plant is

estimated about 21,600,000 kilogram of Cotton Seed working 360 days a year andtripled shift per day of 8 hours each. The project shall be equipped with latest locally

manufacturing plant and Machinery.

The total Capital Cost of the project is estimated to be Rs. 34,059,907 .

This total Cost of the project comprises of Fixed Assets Rs. 25,162,873 and Initial

Net Working Capital of Rs. 8897034 .

The Cost of the Project is proposed to be financed by Debt and Equity in the ratios of

60 : 40 respectively.The remaining cost of the project will be financed by the

sponsor's share capital of Rs. 13623963.

The partner will contribute in the equity of the project and participate in the profit and

loss of the firm's business according to her capital contribution ratio.

Technical Analysis Location of the Project

The project is proposed to set up at Vehari Road Multan . The site enjoys thefollowing advantages:-

- Easy availability of raw material- Access to the main road, Sources of Power, water, fuel etc.- Availability of transport & communication like telephone, telex, Internet

etc.- Availability of skilled and Un-Skilled manpower- Free from other environmental hazards like water logging, floods, salinity

etc

SCOPE OF BUSINESS: This business has widely scope in the field of Ghee mills. This business provides theraw material to the Ghee Mills, from which they make the cooking oil & Ghee from itand then they provide us in final shape.

CRUCIAL FACTORS & STEPS IN DECISION MAKING INVESTMENT.


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Before making any investment decision it is admissible to evaluate the associated riskfactor by taking into consideration certain key elements. These may include

Availability of resources Technical know-how Past experience

Managerial skillsAt the time of evaluation and analysis of strength, weakness, opportunities & threats[SWOT] for a particular business serves the of basic tools in investment decisionmaking

KEY SUCCESS FACTORS/ PRACTICAL TIPS FOR SUCCESS:

Availability of trained and professional staff Reasonable prices against the competitors High stander environment for the staff and customers

OPERTUNITIES :

Availability of raw material easily. Availability of labour at low cost. Transportation facilities Availability of electricity easily. Skilled person is available easily.

THREATS :One of the major threat to business is highly salary pakge should be competitive.

IMPORTANCE OF OIL MILLS:


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The oil mills have an important role in the economy of our country, becauseour country is an agricultural country, in this way we are producing more cotton. Thecotton seed is taken from raw cotton which is used in oil mills for the purpose of oil

and as well as seed cake. This oil is sent to the Ghee Factories for ghee & cooking oil purpose which we use in daily cooling. The seed cake is sold to the farmers foranimals requ irement & the wastage is sent to the soap factories for making soaps.The usage of oil is very high in shape of cooking oil & ghee.Oil Mills are performing very high level of business. They are providing theemployment opportunities in the country. They are contributing in GOVT taxes as theGOVT revenue. It is also a profitable business, so that I have decided to start an OilMill.

Manufacturing Process

Some vegetable oils, such as olive, peanut, and some coconut and sunflower oils, arecold-pressed. This method, which entails minimal processing, produces a light,flavorful oil suitable for some cooking needs. Most oil sources, however, arenot suitable for cold pressing, because it would leave many undesirable traceelements in the oil, causing it to be odiferous, bitter tasting, or dark. These oilsundergo many steps beyond mere extraction to produce bland, clear, andconsistent oil.

Cleaning and grinding

Incoming oil seeds are passed over magnets to remove any trace metal before being dehulled, deskinned, or otherwise stripped of all extraneous material. In thecase of cotton, the ginned seeds must be stripped of their lint as well as dehulled.In the case of corn, the kernel must undergo milling to separate the germ.

The stripped seeds or nuts are then ground into coarse meal to provide more

surface area to be pressed. Mechanized grooved rollers or hammer mills crush thematerial to the proper consistency. The meal is then heated to facilitate theextraction of the oil. While the procedure allows more oil to be pressed out, moreimpurities are also pressed out with the oil, and these must be removed before theoil can be deemed edible.

Pressing

The heated meal is then fed continuously into a screw press, which increases the pressure progressively as the meal passes through a slotted barrel. Pressure


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generally increases from 68,950 to 20,6850 kilopascals as the oil is squeezed outfrom the slots in the barrel, where it can be recovered.

Extracting additional oil with solvents

Soybeans are usually not pressed at all before solvent extraction, because they haverelatively little oil, but most oil seeds with more oil are pressed and solvent-treated.After the initial oil has been recovered from the screw press, the oil cake remaining inthe press is processed by solvent extraction to attain the maximum yield. A volatilehydrocarbon (most commonly hexane) dissolves the oil out of the oil cake, which isthen recovered by distilling the light solvent out. The Blaw-Knox Rotocell is used tomeet the demands of the United States soybean oil industry. In using this machine,

flakes of meal are sent through wedge-shaped cells of a cylindrical vessel. The solventthen passes through the matter to be collected at the bottom. Also still in use by asignificant number of manufacturers is the Bollman or Hansa-Muhle unit, in whichoilseed flakes are placed in perforated baskets that circulate continuously. The solvent

percolates through the matter which is periodically dumped and replaced.

Removing solvent traces

Ninety percent of the solvent remaining in the extracted oil simply evaporates,and, as it does, it is collected for reuse. The rest is retrieved with the use of astripping column. The oil is boiled by steam, and the lighter hexane floats upward.As it condenses, it, too, is collected.

Refining the oil

The oil is next refined to remove color, odor, and bitterness. Refining consists ofheating the oil to between 107 and 188 degrees Fahrenheit (40 and 85 degreesCelsius) and mixing an alkaline substance such as sodium hydroxide or sodiumcarbonate with it. Soap forms from the undesired fatty acids and the alkaline

additive, and it is usually removed by centrifuge. The oil is further washed toremove traces of soap and then dried.

Oils are also degummed at this time by treating them with water heated to between 188 and 206 degrees Fahrenheit (85 and 95 degrees Celsius), steam, orwater with acid. The gums, most of which are phosphatides, precipitate out, andthe dregs are removed by centrifuge. Oil that will be heated (for use in cooking) isthen bleached by filtering it through fuller's earth, activated carbon, or activatedclays that absorb certain pigmented material from the oil. By contrast, oil that willundergo refrigeration (because it is intended for salad dressing, for example) iswinterized rapidly chilled and filtered to remove waxes. This procedure ensures


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that the oil will not partially solidify in the refrigerator. Finally, the oil isdeodorized. In this process, steam is passed over hot oil in a vacuum at between440 and 485 degrees Fahrenheit (225 and 250 degrees Celsius), thus allowing the

volatile taste and odor components to distill from the oil. Typically, citric acid at.01 percent is also added to oil after deodorization to inactivate trace metals thatmight promote oxidation within the oil and hence shorten its shelf-life.

Packaging the oil

By products/Waste

The most obvious byproduct of the oil making process is oil seed cake. Most kinds of

seed cake are used to make animal feed and low-grade fertilizer; others are simplydisposed of. In the case of cotton, the lint on the seed is used to make yarn andcellulose that go into such products as mattresses, rayon, and lacquer. Coconut oilgenerates several byproducts, with various uses: desiccated coconut meat(copra) isused in the confectionery industry; coconut milk can be consumed; and coir, the fiberfrom the outer coat, is used to make mats and rope. Since corn oil is derived from asmall portion of the entire kernel, it creates corn meal and hominy if it is dry milled,and corn starch and corn syrup if it is wet milled.

Lecithin is a byproduct of the degumming process used in making soybean oil. Thisindustrially valuable product is used to make animal feed, chocolate, cosmetics, soap,

paint, and plastics to name just a few of its diverse uses. Recent research hasfocused on utilizing the residual oil seed cake. The cake is high in protein and othernutrients, and researchers are working to develop methods of processing it into a

palatable food that can be distributed in areas where people lack sufficient protein intheir diets. This goal requires ridding (through additional processing) the oil seed cake

of various undesirable toxins (such as gossypol in cotton seed, or aflatoxin in peanutmeal). Initial results are promising.

Quality Control

The nuts and seeds used to make oil are inspected and graded after harvest by licensedinspectors in accordance with the United States Grain Standards Act, and the fatcontent of the incoming seeds is measured. For the best oil, the seeds should not bestored at all, or for a only very short time, since storage increases the chance ofdeterioration due to mold, loss of nutrients, and rancidity. The seeds should be storedin well-ventilated warehouses with a constantly maintained low temperature andhumidity. Pests should be eradicated, and mold growth should be kept to a minimum.


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Seeds to be stored must have a low moisture content (around 10 percent), or theyshould be dried until it reaches this level (dryer seeds are less likely to encourage thegrowth of mold).

Processed oil should be consistent in all aspects such as color, taste, and viscosity.Color is tested using the Lovibund Tintometer or a similar method in which anexperienced observer compares an oil's color against the shading of standard coloredglasses. Experienced tasters also check the flavor of the oil, and its viscosity ismeasured using a viscometer.

RAW MATERIAL AVAILABILITY

Amongst the oil seeds cultivated in Pakistan, the most important is the cotton seed,like some other oil seeds cotton seed is also a by-product as the crop is mainlycultivated for fiber. Its contribution, however, to the local domestic oil production isabout 57%. Next to the cotton seed is the rape and mustard which account for about31% of the vegetables by-production in the country. In addition to these, productionof other non traditional oil seeds such as sunflower, sesamem, groundnuts, linseed &castor is also increasing.Out of total production of sunflower seed and cotton seed of the country the share ofMultan, Bahawalpur and D.G. Khan Division is more than 60%. Further Multan

division consisting of Sahiwal, Vehari, Khanewal, and Lodhran is the major cottonseed production area, nearly 40% of the total production of cotton seed is produced bythis division. On the basis of the information collected, the yearwise production ofcotton seed based on 3% Growth Rate is given below:-

Production of Cotton seed

YEAR COTTON SEED (000 Tons)

2003-04 2369

2004-05 25232005-06 2687

2006-07 2862

2007-08 3049

2008-09 3141

PROJECTED AVAILABILITY OF COTTON SEED (3% growth)

YEAR COTTON SEED (000 Tons)


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2008-09 3141

2009-10 3235

2010-11 33322011-12 3432

2012-13 3535

Against the requirement of the proposed project of cotton seed at 10000Kg/Expeller/day the estimated production of cotton seed is 3141000 tons during2008-09. Keeping in view the past trend, the available production of cotton seed inBahawalpur Division the proposed Project would not face any problem.

PRODUCTION CAPACITY

The Plant is capable of crushing 10000 Kg/Expeller/day of Cotton seed. It is based on360 working days per annum and tripled shift per day of eight hours.The break up of the Capacity is given as under:-

Crushing of Cotton Seed (10000/Expeller/Day for 360 Days)

Materials Annual Production (Kgs)(000)

Cotton Seed 21,600Caustic Soda 648

80% of the Crushing of Cotton Seed will produce Ghee, 10% would be Refined Oil,whereas the 5% would be Oil Dirt obtained after applying Caustic Soda over CrudeOil and the 5% would be Wastage.

Production of: (000)

Items Annual Production (Kgs)

Oil Cake 17,280

Refined Oil 2,160Oil Dirt 1,080

Wastage 1,080

MARKET ANALYSIS

INTRODUCTION


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In Pakistan at present, the edible oil industry includes the manufacture of compoundcooking oils (which is a recent development) table or salad oils (this process is still inits infancy) margarine and refined oils. Important products of this industry are

mustard oil, cotton seed oil, groundnut oil and newly developed sunflower seed oil,sunflower seed oil and soyabean Oil of late a number of modern oil mills have beenset up for the production of solvent extraction oils. At present, major sources of rawmaterials are cotton seed (about 50%) (Rape and mustard seed about 36%) and otherabout (6%).Traditionally the edible oil industry started operation at small and cottage industryscale. At the village level, there was bullock driven "Kohlu" which was the oldest wayof extracting oil. Later few crushing units of much bigger size were established whichwere equipped with locally manufactured expellers which were equipped with locally

manufactured expellers. These units produced edible oil in raw form and oil meal oroil cakes, food for animals or exported. Both these processes were inefficient and leftmuch oil unrecovered. It is estimated that about one third of oil was left in the oilcakes.

PRODUCTIONActual Production is very low about 457000 tons a year. The following table showsthe output of edible oil in recent years from various oil seeds:-

REFINED OIL PRODUCTION ("000" Tons)

IMPORTS

YEARTOTALPRODUCTION

COTTONSEED

OTHER

2006-07 2,286 1,341 945

2007-08 1,836 774 1062

2008-09 2,826 1,746 1080

2009-10 3,060 1,935 1125

2010-11 3,111 1,977 1134

2011-12 3,134 2,090 1044


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Since the domestic availability of refined (5 red to 7 red) oil is below the requirement,Pakistan has to import it to meet the gap. The vegetable oil imported in the countrycan be grouped as edible and non-edible or the soft and technical oils. The refined oil,

particularly is imported every year against a lot of foreign exchange. Imports are being made from several sources including the U.S.A., Brazil, Indonesia, Malaysia,and Singapore. The refined oil imports and value since 1981-82 are shown in thetable:-

IMPORT OF REFINED OIL

YEAR QUANTITY (000 Tons) AMOUNT ($ 000)

2006-07 1872 10350

2007-08 1968 11010

2008-09 2571 19554

2009-10 1992 20862

2010-11 2475 18387

2011-12 2654 19861

FUTURE DEMANDAccording to the Nutritional Plan of the Federal Government per capital availabilityof cooking medium should be at least one ounce per day or 365 ounce per year. Assuch present consumption of edible oils comes very high. Refined Oil serves as input

for edible oil.The consumption of edible oil is directly proportionate with population. Therefore,future projection is made on the basis of population only, which is increasing about3.00% a year. Yearwise future Demand and Supply gap is given below:-

PROJECTED DEMAND FOR REFINED OILS (In "000" Tons)


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Soap footing or Oil dirt is obtained as a by-product in the process of refining crude oilobtained from extraction. Caustic Soda is then applied for refining the Crude Oilwhich in turns refines the Crude Oil into three categories ranging from "5 red to 8

red" (the oil is red to the extent of these numbers, however it is the refined oil quality,considered to be one of the good quality refined oils) and separates Oil Dirt from theCrude Oil. The application of Caustic Soda over improves the Color of the Oil. The

by-Product obtained is being sold to soap manufacturing firms who further processthe Oil Dirt and manufactures soap. This soap is being sold in the market under thename of "KALA SOAP".There is large consumption of this "KALA SOAP" in our country. it is widely

produced all over in the country at cottage industry level and in the unorganizedsector.

CONCLUSIONTo conclude, it is evident that nothing obtained as main product or by-product, fro the

proposed unit goes waste or has no outlet. All the products serve directly of indirectlyhuman needs as well as they are involved in the development of overall economicoutlook. Hence the market viability of the project being based on local raw materialwill result in substantial saving in valuable foreign exchange.

PRICING ANALYSISMain Products

OIL CAKEThe Cotton Seed Oil Cake will be sold in the Grain Market to the dealers @ of12.00/Kg. The prices of Oil Cake have been computed on average of past five years.REFINED OILThe Cotton Seed Refined Oil will be sold to the local ghee mills in bulk quantities @170.00/kg.OIL DIRTOil Dirt will be sold to Soap Manufacturing Firms @ 7.00/kg. Oil Dirt will be sold inlarge bulk quantities but will not be kept as inventory, however a provision of 5%inventory has been assumed at the end of every year.

Following is the table showing prices of the products and by-products:-


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TABLE SHOWING THE PRICES OF PRODUCTS AND BY-PRODUCTS

S. No. Product Prices (Per Kg)

2 Refined Oil 170.00

3 Oil Dirt 7.00

NOTE: The current prevailing prices of Cotton Seed and Caustic Soda are Rs.12.00/kg and Rs. 35.00/kg. Moreover, these prices have been computed on averageof past five years.Economic AnalysisEconomic evaluation is considered prominent yardstick to measure the viability of a

project. This analysis is directed towards determining whether the project is likely tocontribute significantly to the development of the economy as a whole and thecontribution of the project would be great enough to justify the use of availableresources. This aspect is reviewed under the following:-

INITIAL IMPACTIn order to pursue a theory of balanced growth of the economy the currentgovernment is putting an emphasis on industrialization of our inherently agrarian

economy. Industrialization of substantial dynamic benefits is important for changingthe traditional structure of our less developed economy, while providing employmentfor a rapidly increasing labor force, and saving scarce foreign exchange by importsubstitution and creating export potentials.A capital expenditure creates incomes for people engaged in the fabrication of capitalgoods, who in turns spend their incomes on consumer goods. An initial originalcapital investment creates a wave of income and spending which has multiplied effecton the national income, increasing it by several times, the original investment. Theinitial original capital investment of Rs. 34,174,000 in local currency would have ahealthy impact on the GNP of the country, the extent of which depends on the degreeof multiplied effect.EMPLOYMENT OPPORTUNITIESThe project would create employment opportunities for the following staff:

Detail Total Nos.Skilled Labor 18Semi-Skilled Labor 18Factory Administrative Staff 26Marketing Staff 05

BENEFIT COST ANALYSIS


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The benefit/Cost ratio of the project is worked out in timeswhich are considered satisfactory. The NPV of the expected benefit andcosts has been taken into account for the calculation of this ratio.

Freindsl Ghee & Oil Mills (Pvt) Limited

Estimated Cost of Land

Sr.No. Description

Area inUnit Cost

Rs ("000")

Marlas Total Cost

1 Land 160 7,500 1,200

2Registration & Legal Requirements 10% of cost ofLand

160 750 120

3 Stamp Duty 5% of Cost of Land 160 375 60

4 District Council Fee 2.5% of Cost of Land 160 188 30

5 Development Charges 15% of Cost of Land 160 1,125 180

Total Cost of Land 9,938 1,590


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Friends Ghee & Oil Mills (Pvt) LimitedEstimated Cost of Civil Works

Sr.No.

DescriptionType of Unit of Covered Rate Per Rs ("000")

Building Construction Area Unit Total Cost

1 Oil Cake Store 1 RCC Square feet 7,065 575 4,062

2 Expeller Room (G/Floor) RCC Square feet 2,214 575 1,273

3 Expeller Room (F/Floor) RCC Square feet 2,214 575 1,273

4 Refinery Room RCC Square feet 196 575 113

5 Office Block and Corridor RCC Square feet 694 575 399

6 Machinery Covered area RCC Square feet 403 575 232

7 Store RCC Square feet 714 575 411

8 Guest Rooms RCC Square feet 492 500 246

9Cost of Jumbo Lon forinsulation

Open area Square feet 42,174 45 1,898

10 Boundary Wall and Gate Running feet 503 - 276

11 Brick Pavement Running feet 901 - 690

12 Contingency 833 - 544

Total Cost of Civil Works 57763 10,872


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Friends Ghee & Oil Mills (PVT)Limited

Estimated Cost of Machinery

Rupees("000")

Sr.No. Description QtyUnitCost

Total Cost

1Oil Expeller Bearing Type duty weight (100 Mon) withCrude Oil.

Production 250 m/24 hrs. 6 200,000 1,200

2Electric Motor for Expeller 40 HP/950 RPM made Chinanew.

6 45,000 270

3 Electric Motor Pully V-Belt type Local 6 4,000 24

4 Small Crude Tank for Expeller material 1/4 thickness Local 6 7,500 45

5 Big Crude Tank cap (500 Mon) Local Material 1 60,000 60

6 Storage Tank Cap (500 Mon) Local Material 2 55,000 110

7M.S. Refined Tank Cap (250 Mon) heavy material (3/8

plate Local)3 85,000 255

8 Electric Motor 10 HP/950 RPM China 2 20,000 40

9 Electric Motor 5 HP/950 RPM China 2 13,000 26

10 Refined Pump with Motor 1 16,000 16

11 Gear Pump 2" X 2" Local 2 9,500 19

12 Electric Cables with tape fitting Electric Panel 1 275,000 275

13 Expeller Bolt & Motor Bolts foundation bolts 3 75,000 225

14 Capacitor 40 HP Motor 4 20,000 80

15 Electric Pump Gear with 5 HP Motor 1 13,000 13

16 Contingency - - 133

Total Cost of Machinery 2,791


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Friends Ghee & Oil Mills (PVT)limited

Estimated cost of the Project

Sr.No. Description LCY Total cost ("000")

1 Land 1,590 1,590

2 Building 10,872 10,872

3 Machinery 2,791 2,791

4 Installation & Erection of Machinery 419 419

5 Insurance 5% of Cost of Machinery 140 140

6 Transportation 10% of Machinery 279 279

7 Vehicles 6,270 6,270

8 Furniture and Fixture 300 300

9 Office Equipment 150 150

10 Pre-operating expenses 980 980

11 Interest during construction 1,377

Estimated fixed cost 25,167

Add: Net Initial Net Working Capital 9,006

Total Estimated Cost of Project 34,174

Annexure - V


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Initial Net Working Capital Requirement

Rs. "000"

A. Current Assets:

1 Inventories:

a) Raw Material 5 Days Requirement:

I) Cotton Seed 2,700

II) Caustic Soda 150

b) Finished Goods 11,450

c) Spares & Stores 142

Total Cost of Inventory 14,442

2 Advances and Deposits, & Prepayments 85

3 Accounts Receivables (2% of Sales) 5,202

4 Cash 1% of Amount withdrawn from Bank for Inventory 108

Total Current Assets 19,838

B. Possible Current Liabilities:

Less: Bank Borrowing 75% of Inventories 10,832

Initial Net Working Capital 9,006


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Friends Ghee &Oil Mills (PVT)Limited

Estimated Income Statement

Years ending September 30 : 2014 2015 2016Sales 260,091 291,119 309,371

Less: COST OF SALESRaw Material 212,382 225,504 239,598Labor 10,797 12,416 14,279

Manufacturing Overheads 5,822 6,031 6,241Depreciation 2,250 2,250 2,250Total Cost of Goods Manufactured 231,251 246,202 262,368Inventory Adjustment Less 11,563 748 12,371Cost of Sales 219,688 245,454 249,997Gross Profit 40,403 45,665 59,374OPERATING EXPENSES:Administrative Expenses 2,621 3,014 3,466General Expenses 1,980 2,277 2,619

Selling Expenses 10,404 11,645 12,375Total Operating Expenses 15,004 16,936 18,459Operating Profit 25,398 28,729 40,915OTHER EXPENSES:Financial Charges on:Long Term Loan 3,076 2,768 2,461Bank Borrowings - - -Amortization of Pre-Production Expenses 327 327 327Total Other Expenses 3,402 3,095 2,787

Profit Before Tax and Worker's Fund 21,996 25,634 38,128Worker's Fund 1,760 1,794 2,669Profit/(Loss) Before Tax 20,236 23,840 35,459Tax Provisions @ 45% 9,106 10,728 15,956Net Profit 11,130 13,112 19,502

Ratios:


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ASSUMPTION UNDERLYING EARNING FORECAST

PRODUCTION AND SALES1. The proposed Oil Mill Unit would be equipped with 6 most modern Oil

Expeller Bearing Type duty weight (100 Mon) with Crude Oil, Production 250m/24 hrs, Electric Motor for Expeller 40 HP/950 RPM, Electric Motor PullyV-Belt, Small Crude Tank for Expeller material 1/4 thickness. The project will

be capable of crushing 60000 kg/day of Cotton Seed. However, immediate

target is to meet the current demand level of the Ghee Mills.

2. Operating efficiency of the project is assumed at 75% for the first year and80% for the second 85% for third and subsequent years.

3. In line with recent experience of other units based on the most modern oilmills machinery, 100% of the production would be sold locally In Pakistan toGhee Mills particularly located in Bahawalpur Division.

4. Year-end Inventory is assumed at 5% of the production of that particular year.

5. Selling Prices are assumed in accordance with the current prevailing rates inthe local market. These selling prices are based on average of last five years.

Based over these assumptions, following is the year-wise detail of production,Sales and Sales Revenue of the proposed project:-


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Projected Financial Statement:

Crushing Of Cotton Seed:

10000 Kg of Cotton Seed/day/ExpellersNo. of Expellers

%Output Units ("000")

Oil Cake 6 80 17,280

Refined Oil 6 10 2,160

Oil Dirt 6 5 1,080


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Yearending30thSeptember:

Capacity Utilized2014 2015 2016

75% 80% 85%Quantity ("000")

Production of Oil Cake:a) Number of Units Manufactured 12,960 13,824 14,688

Add: Opening Inventory - 648 691

Total Units available for Sales 12,960 14,472 15,379

Less: Closing Inventory 5% of Production 648 691 734

Units Sold 12,312 13,781 14,645

Production of Refined Oil: b) Number of Units Manufactured 1,620 1,728 1,836

Wastage 6 5 1,080

Total 100 21,600

Production at 100% Capacity


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Add: Opening inventory - 81 86

Total Units available for Sales 1,620 1,809 1,922


Quantity Sold 1,539 1,723 1,831

c) Production of Oil Dirt: Number of Units Manufactured 810 864 918

Add: Opening Inventory - 41 43

Total Production available for Sales 810 905 961


Quantity Sold 770 861 915

Sales Revenue:

Description Unit PriceRupees75% 80% 85%

a Oil Cake 27 160,056 179,150 190,382

b Refined Oil 159 95,418 106,801 113,497

c Oil Dirt 6 4,617 5,168 5,492

Total Sales (a+b+c) 260,091 291,119 309,371

Raw Material:

Years 2014 2015 2016

Capacity Utilized75% 80% 85%

Consumption of Raw Material:

Description Quantity ("000")


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a) Cotton Seed 10000kg/day/Expeller 16,200 17,280 18,360

Caustic Soda 486 518 551b) Total Quantity Consumed 16,686 17,798 18,911

Cost of Raw material:

Description Rs. ("000")

Cotton seed @ 12/kg 194,400 207,360 220,320

Caustic soda @ 37/kg 17,982 18,144 19,278

Total Cost 212,382 225,504 239,598

Labor Cost:

a) Direct Labor:No. of Salary/Month Annual

Sr.No.

Plant Labor Employees /WorkerSalary("000")

1 Skilled 18 14,000 3,024

2 Semi-Skilled 18 9,000 1,944

3 Un-Skilled 18 5,000 1,080

Total 54 28,000 6,048

Add: Fringe Benefits (45% of Basic Salary) 2,722


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Total Cost of Plant Labor 8,770

No. of Salary/Month Annual

Sr.No.

Production Labor Employees /Worker Salary("000")

1 Plant Manager 2 20,000 480

2 Electricians 6 9,000 648

3 Peon/Sweeper 5 4,500 270

Total 13 33,500 1,398

Add: Fringe Benefits (45% of Basic Salary) 629

Total Cost of Production Labor 2,027

Assumptions:

1 Direct labor will increase every year @ 15%.

Year Wise Wages of Labor:

Sr. No. DescriptionYears2014 2015 2016Rs ("000")

1 Plant Labor 8,770 10,085 11,5982 Production Labor 2,027 2,331 2,681

Total Cost of Labor 10,797 12,416 14,279


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Manufacturing Overhead Cost:

DescriptionRs("000")

a) Fixed Cost:

Power: @ 365/200/KW/Month 876

Insurance: @ 3% of Fixed Assets Cost 849

Maintenance and Depreciation:

Overhauling Expenses @ 16000 Per Expeller 96Maintenance of Building @ 5% of Cost of Building 544Maintenance of Vehicles @ 5% of Cost of Vehicles 314

Total Fixed Cost 2,678b) Variable Manufacturing Expenses:

Power: @ 4.87/unit of 200/KW/Monthx90% 3,787Machinery Re. 1.00 Per 40/Kg on Crushing of Cotton Seed 405

Total Variable Cost 4,192

The fixed cost has been projected as constant while the variable cost has been budgeted as per operational level for the corresponding years. Following is the detail:-

Year ending Manufacturing Overheads as per Different Capacities:

Description

Years

2014 2015 2016

Rupees ("000")

75% 80% 85%

Fixed Cost 2,678 2,678 2,678

Variable Cost 3,144 3,354 3,563

Total Cost of Manufacturing Overheads 5,822 6,031 6,241


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Administrative And General Expenses Rupees("000")

Sr.No.

DesignationNo. of Salary/ AnnualEmployees Month Salary

1 Managing Director 1 50,000 6002 Accountant 1 15,000 1803 Clerk 4 12,000 5764 Cashier 1 10,000 1205 Chowkidar/Godown Keeper 3 6,000 2166 Peon/Sweeper 3 5,000 180

Total 12 48,000 1,272Add: Fringe Benefits @ 40% 21,600 572

Total Cost of Administrative Staff 69,600 1,844

General Expenses:

Sr. No. DescriptionYear Exp.("000")

1 Traveling Expenses 2502 Printing & Stationary 803 Telephone, Telex, Postage 5004 Rents, Rates and Taxes 4005 Entertainment 1006 Legal & Audit 1507 Miscellaneous 500Total 1,980

Assumptions:1 Administrative Salaries will increase @ 10% every year.


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Year Wise Administrative Salaries:

No. of Rupees ("000")

Sr.No.

DesignationEmployees 2014 2015 2016

1 Managing Director 1 600 690 7942 Accountant 1 180 207 2383 Clerk 4 576 662 7624 Cashier 1 120 138 1595 Chowkidar/Godown Keeper 3 216 248 286

6 Peon/Sweeper 3 180 207 238Total 13 1,872 2,153 2,476

Add: Fringe Benefits @ 40% 749 861 990

Total Administrative Salaries per Year 2,621 3,014 3,466

General Expenses:Sr.No. Description Rupees ("000")1 Traveling Expenses 250 288 331

2 Printing & Stationary 80 92 106

3 Telephone, Telex, Postage 500 575 661

4 Rents, Rates and Taxes 400 460 529

5 Entertainment 100 115 132

6 Legal & Audit 150 173 198

7 Miscellaneous 500 575 661

Total 1,980 2,277 2,619

Selling Expenses:

Selling Expenses are assumed to be 2% of Sales

Sr.No.

Description Rupees ("000")

1 Selling Expenses 4% of Sales Revenue 10,404 11,645 12,375


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Depreciation Schedule of Fixed Assets:

Sr. No. Description Total Cost (Rs.) Rs. ("000")1 Plant & Machinery 10% 3,628 3632 Building 5% 10,872 5443 Vehicles 20% 6,270 1,254

4 Furniture & Fixture 20% 300 605 Office Equipment 20% 150 30

Total 21,220 2,250

Note:- Depreciation will be constant over the life of assets.

Year Wise Depreciation:

DescriptionYears

2014 2015 2016

Rupees ("000")

Depreciation 2,250 2,250 2,250

Pre-Production Expenses:Sr. No. Description Rs. ("000")

1 Registration Charges 150

2 Sales Tax Registration Charges 853 Consultancy & Report Preparation Charges 1204 Printing & Stationary 255 Conveyance Charges 506 Telephone & Postage 50

6 Salaries and Wages during Construction 500


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Total Pre- Preproduction Expenses 980

Friends Ghee & Oil Mills (Pvt) Limited.

Cash Flow Statement

End ofOperating Years

years ending 30th September:Construction

2013 2014 2015 2016

SOURCES OF FUNDS:Operating Profits - 25,398 28,729 40,915

Add: Depreciation - 2,250 2,250 2,250Total Funds from Operation - 27,649 30,980 43,165Other Sources:Long Term Loan 20,504 - -Bank Borrowings - - -Paid-Up Capital 13,669 - -Total Sources of Funds 34,174 27,649 30,980 43,165

APPLICATION OF FUNDS:

Investment in Fixed Assets 22,810 - - -Financial Charges duringConstruction

1,377 - - -

Pre-Production Expenses 980 - - -Repayment of:Long Term Loan - - 2,050 2,050Bank Borrowings - - -

Financial Charges On:Long Term Loan - 3,076 2,768 2,461Bank Borrowings - -PAYMENT OF:Taxes - 9,106 10,728Dividends - - - -Worker's Fund - 1,760 1,794Short Term Investment 3,000 - 5,000 20,000Increase in Current Assets (Other

than Cash)3,078 24,534 2,024 1,878

Total Application of Funds 31,245 27,609 22,709 38,911


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Cash Surplus/(Deficit) 2,928 39 8,271 4,254Cash at the Beginning of the Year - 2,928 2,968 11,239

Cash at the end of the year 2,928 2,968 11,239 15,492

Annexure-VIII


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Balance SheetEnd of

Operating Years

Year ending 30th September:

Construction

2013 2014 2015 2016ASSETS: Rupees ("000")CURRENT ASSETS:Cash and Bank Balance 2,928 2,968 11,239 15,492Short Term Investment 3,000 3,000 8,000 28,000Accounts Receivable - 5,202 5,822 6,187Inventories:

Cotton Seed 2,700 9,720 10,368 11,016Caustic Soda 150 899 907 964

Finished Goods - 11,563 12,310 13,118Stores & Spares 142 142 142 142

Advances, Deposits and Prepayments 85 85 85 85Total Current Assets 9,006 33,579 48,874 75,006FIXED ASSETS:Fixed Assets at Cost 24,187 24,187 24,187 24,187Accumulated Depreciation on Fixed Assets - 2,250 4,501 6,751Fixed Assets Net 24,187 21,937 19,687 17,436Intangibles 980 653 327 -

Total Assets 34,174 56,170 68,888 92,442LIABILITIES AND EQUITY:CURRENT LIABILITIES:Bank Borrowings - -Taxes Payable - 9,106 10,728 15,956Dividend Payable - -Worker's Fund Payable - 1,760 1,794 2,669Current Maturity of Log Term Debt - 2,050 2,050 2,050Total Current Liabilities - 12,916 14,573 20,676LONG TERM DEBTS:Long Term Debt 20,504 18,454 16,403 14,353Total long Term Debt 20,504 18,454 16,403 14,353EQUITY:Paid-Up-capital 13,669 13,669 13,669 13,669Retained Earnings - 11,130 24,242 43,744Total Equity 13,669 24,799 37,911 57,414Total Liabilities and Equity 34,174 56,170 68,888 92,442


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Friends Ghee & Oil Mills (Pvt) Limited.

Financial Plan

Rupees ("00 0)

Description LCY Total cost

Total Fixed cost of the project 25,167 25,167

Initial Permanent working capital 9,006 9,006

Total cost of the project 34,174 34,174

Long Term Debt 20,504 20,504

Equity Participation 13,669 13,669

Total Capital Required 34,174 34,174

Debt/Equity Ratio

Debt-to-Equity Ratio: 60 : 40


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Friends Ghee & Oil Mills (PVT)limited

Loan Repayment Schedule

YearsOpening

Interest PrincipleClosing

Balance Balance

1 20,504 3,076 2,050 18,454

2 18,454 2,768 2,050 16,403

3 16,403 2,461 2,050 14,353

4 14,353 2,153 2,050 12,303

5 12,303 1,845 2,050 10,252

6 10,252 1,538 2,050 8,202

7 8,202 1,230 2,050 6,151

8 6,151 923 2,050 4,101

9 4,101 615 2,050 2,050

10 2,050 308 2,050 -


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Exit Strategy and Risk Assessment .

The owners are aware of the highly risky nature of launching a oil unit in the highlycompetitive market. If the venture fails, the owner's paid-in capital and expenses maynot be recovered

The venture's actual revenue will be tracked against projections on a month-to-month basis. If net profitability is not in-line with forecasts, management and operationaladjustments will be made to address the issues.

If the venture is undercapitalized and requires more working capital, the owner willconsider bringing on investment partners. The owner will also review the return-on-

investment for personally providing more paid-in capital.

In the event that net profitability cannot be attained, the owner will take the followingsequential steps to exit the venture:

1. The owner will attempt to sell the venture outright to a suitable buyer.

2. If a buyer cannot be found, the owner will liquidate all viable assets, including thecomputers, play stations etc.

3. Capital raised through asset liquidation will be used to reduce possible debt. Alldebt will be negotiated prior to settlement.

4. If debts cannot be eliminated, the owner will discuss corporate bankruptcy optionswith legal counsel.

Documents

Friends Ghee and Oil Mill