smeda corrugated packages

Pre-Feasibility Study

CCOORRRRUUGGAATTEEDD PPAACCKKAAGGEESS

Small and Medium Enterprise Development AuthorityGovernment of Pakistan

www.smeda.org.pkHEAD OFFICE

6th Floor, LDA Plaza, Egerton Road, LahoreTel: (042) 111-111-456, Fax: (042) 6304326-27

[email protected] OFFICE

PUNJABREGIONAL OFFICE

SINDHREGIONAL OFFICE

NWFPREGIONAL OFFICE

BALOCHISTAN

8th Floor, LDA Plaza, Egerton Road, Lahore.

Tel: (042) 111-111-456Fax: (042) 6370474

[email protected]

5TH Floor, BahriaComplex II, M.T. Khan Road,

Karachi.Tel: (021) 111-111-456

Fax: (021) [email protected]

Ground FloorState Life Building

The Mall, Peshawar.Tel: (091) 9213046-47


Bungalow No. 15-AChaman Housing Scheme

Airport Road, Quetta.Tel: (081) 831623, 831702


January , 2007

Pre-feasibility Study Corrugated Packages

PREF-79 /Jan, 2007/Rev 2

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1 INTRODUCTION TO SMEDA ....................................................................................................5

2 PURPOSE OF THE DOCUMENT ...............................................................................................5

3 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT.....................6

3.1 STRENGTHS.............................................................................................................................63.2 WEAKNESSES ..........................................................................................................................63.3 OPPORTUNITIES.......................................................................................................................63.4 THREATS.................................................................................................................................6

4 PROJECT PROFILE ....................................................................................................................6

4.1 OPPORTUNITY RATIONALE ......................................................................................................64.2 PROJECT BRIEF........................................................................................................................74.3 MARKET ENTRY TIMING..........................................................................................................74.4 PROJECT CAPACITY AND RATIONALE .......................................................................................74.5 PROJECT INVESTMENT .............................................................................................................84.6 RECOMMENDED PROJECT PARAMETERS ............................. ERROR! BOOKMARK NOT DEFINED.4.7 PROPOSED LOCATION ..............................................................................................................8

5 SECTOR & INDUSTRY ANALYSIS ...........................................................................................8

5.1 SECTOR CHARACTERISTICS......................................................................................................8

6 MARKET INFORMATION..........................................................................................................9

6.1 MARKET POTENTIAL ...............................................................................................................96.2 TARGET CUSTOMERS.............................................................................................................10

7 PRODUCT...................................................................................................................................10

7.1 PRIMARY FUNCTIONS ............................................................................................................ 107.1.1 Protective Function.......................................................................................................... 107.1.2 Loading and Transport Function ...................................................................................... 10

7.2 SECONDARY FUNCTIONS........................................................................................................ 107.2.1 Sales Function .................................................................................................................107.2.2 Promotional Function ...................................................................................................... 10

7.3 SERVICE FUNCTION ...............................................................................................................117.4 PRODUCTION PROCESS FLOW.................................................................................................117.5 PRODUCT MIX.......................................................................................................................137.6 RAW MATERIAL REQUIREMENT .............................................................................................13

7.6.1 Take Up Factor (Liner Paper).......................................................................................... 147.6.2 Waste Margin...................................................................................................................157.6.3 Major Suppliers of Raw Material...................................................................................... 15

7.7 SALES PRICE .........................................................................................................................15

8 TECHNOLOGY AND PROCESSES.......................................................................................... 15

8.1 MACHINERY & EQUIPMENT REQUIREMENT ............................................................................ 168.2 REPAIR & MAINTENANCE ...................................................................................................... 178.3 ERECTION & INSTALLATION .................................................................................................. 178.4 OFFICE EQUIPMENT ...............................................................................................................178.5 FURNITURE AND FIXTURES .................................................................................................... 188.6 MOTOR VEHICLES .................................................................................................................18

9 LAND & BUILDING REQUIREMENT.....................................................................................18

9.1 COVERED AREA REQUIREMENT .............................................................................................189.2 RENT COST ...........................................................................................................................19



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9.3 UTILITIES REQUIREMENT.......................................................................................................19

10 HUMAN RESOURCE REQUIREMENT...................................................................................19

11 PROJECT COSTS....................................................................................................................... 20

11.1 ESTIMATED TIME FOR PROJECT COMPLETION .......................................................................... 20

12 FINANCIAL ANALYSIS ............................................................................................................ 22

12.3 PROJECTED BALANCE SHEET ............................................. ERROR! BOOKMARK NOT DEFINED.12.4 PROJECTED CASH FLOW STATEMENT ................................. ERROR! BOOKMARK NOT DEFINED.12.5 RAW MATERIAL COSTS .........................................................................................................25

13 KEY ASSUMPTIONS .................................................................................................................26



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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.

The prospective user of this memorandum is encouraged to carry out additional diligence and

gather any information he/she feels necessary for making an informed decision.

For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk

DOCUMENT CONTROL

Document No. PREF-79

Prepared by SMEDA-Punjab

Issue Date September, 2004

Up-dation Date January, 2007

Issued by Library Officer



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1 IINNTTRROODDUUCCTTIIOONN TTOO SSMMEEDDAA

Small and Medium Enterprise Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program.

Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development.

SMEDA has so far successfully formulated strategies for sectors including, fruits and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear, textiles, surgical instruments, transport and dairy. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation.

Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way.

This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.

2 PPUURRPPOOSSEE OOFF TTHHEE DDOOCCUUMMEENNTT

The objective of a pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, production, marketing, finance and business management. The document also provides sectoral information, brief on government policies and international scenario, which have some bearing on the project itself.

This particular pre-feasibility relates to Corrugated Packages. Before studying the whole document one must consider following critical aspects, which form the basis of any investment decision.



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3 CCRRUUCCIIAALL FFAACCTTOORRSS && SSTTEEPPSS IINN DDEECCIISSIIOONN MMAAKKIINNGG FFOORRIINNVVEESSTTMMEENNTT

Before making the decision, whether to invest in the corrugated packaging business or not, one should carefully analyze the associated risk factors. A SWOT analysis can help in analyzing these factors which can play important role in making the decision.

3.1 Strengths

Corrugated packages provide efficient and convenient unit for marketing of theproduct.

They allow weighing of produce as well as handling and transport to be accomplished in fewer steps.

When compared with wooden crates, corrugated boxes are light to carry and are preferred by air freight companies.

They are recyclable unlike non-recyclable packaging that has to be burnt at the end of its life.

3.2 Weaknesses

Corrugated packages are not reusable. They cannot be produced economically on a small scale. Cost of labour for each

batch and cost of overheads keep on decreasing with the increasing production. They are easily damaged by water and rough handling unless impregnated with

wax at extra cost. They offer most practical and economic choice for packaging but availability of

suitable designs at the right price remains the greatest challenge to improvements.

3.3 Opportunities

Corrugated packages allow for easy printing of labels and can be manufactured to a wide range of sizes, shapes and strength specifications.

Manufacturing sector of Pakistan showed a record growth of 12.6% in the year 2003-2004, which in turn increases the demand for packaging facilities as well.

3.4 Threats

Innovations in the packing industry like plastic crates, plastic bags etc. may affectthe market demand for corrugated packages.

4 PPRROOJJEECCTT PPRROOFFIILLEE

4.1 Opportunity Rationale

Corrugated Packaging is visible wherever goods are produced, transported and displayed. Since its invention years ago, corrugated packaging has ensured efficient safe and sanitary transit of goods, protecting and wrapping about 70% of the world’s liquid and solidmaterials from producer to consumer.



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In Pakistan, the demand for corrugated packages is increasing, as the growth in the manufacturing industry touched a level of 12.6 %1 last year Corrugated packaging protects the product during storage, transportation and handling. Thus the package, by virtue of its protective function-becomes a vital link in the distribution chain. Also corrugated cartons offer the most practical and economic choice for packaging for inter island trade.

Product range includes consumer packages, food and non food-packages, transport packages.

4.2 Project Brief

The proposed project will be producing corrugated packages. Corrugated packages are paperboard made from one or more plies of fluted paper, which is glued onto, paper or cardboard. The said business will be producing 7-ply corrugated sheets.

Different sizes of boxes will be produced to facilitate the customers nationwide. The proposed business will be manufacturing corrugated boxes for meeting the local demand.

4.3 Market Entry Timing

Corrugated Packages are used in so many different sectors that the demand never gets affected with seasons, changing trends and emerging attributes. So the proposed business can be started at any time of the year.

At the commencement of the proposed business, it is important that the entrepreneur must have good public relations in the market and should have some orders in hand.

4.4 Project Capacity and Rationale

The proposed corrugated packaging facility will handle 5000 boxes per day of proposed sizes in 8 hours shift. Details are given in the following table.

TTaabbllee 44--11 PPrroojjeecctt CCaappaacciittyy

Hours utilized by one batch 2Number of product lines 4Maximum box capacity per day per shift 5,000

The industry norm is to run the unit for one shift per 8 hours. However, it can vary depending on the level of orders received from the market. This feasibility is based on one shift of 8 hours.

1 Federal Budget 2005-06



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4.5 Project Investment

Total project cost is Rs. 5.9 million.

TTaabbllee 44-- 44--11 PPrroojjeecctt CCoossttss

Capital Investment 4,432,560

Working Capital Requirement 1,541,201

Total Investment 5,973,761

TTaabbllee 44-- 44--22 PPrroojjeecctt rreettuurrnnss

IRR % 34%

Pay Back period Yrs. 5

NPV Rs. 7,204

4.6 Proposed Location

Selection of a district or a particular city for a project has an imperial effect on fixed and operational costs. The proposed location should be located near the industrial areas as this would reduce the transport cost. Suitable locations in Pakistan for setting up the proposed business are mentioned in the table below:

TTaabbllee 44--22 SSuuiittaabbllee LLooccaattiioonnss

City LocationLahore Kot Lakhpat, Bund Road, Multan Road,

Sheikhupura Road, Kasur Road,Raiwand RoadRawalpindi Peshawar Road, Peer wadhai Karachi Korangi Industrial Area, Landhi Industrial AreaFaisalabad Sargodha Road, Jharanwala RoadSargodha Bhalwal-Kotmomon Road,

5 SSEECCTTOORR && IINNDDUUSSTTRRYY AANNAALLYYSSIISS

5.1 Sector Characteristics

The numbers of corrugated packaging facilities in Pakistan has increased at a rapid pace over the last few years. The size of this sector is still growing. Large corrugated packaging facilities have been set up in the industrial areas of Pakistan. Approximately 2,000 corrugated packaging facilities are being operated in Lahore. Few of them are as follows:

Fine Packages Packages Limited



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Roshan Packages Al-sheikh Packages Convertec Packages Bismillah Packages General Packages

Similarly, large corrugated packaging facilities are also working in prime business locations in Karachi and Rawalpindi, Faisalabad.

6 MMAARRKKEETT IINNFFOORRMMAATTIIOONN

6.1 Market Potential

The trend for packaging has changed from the primitive packaging (wooden boxes) to a modern and up-to-date packaging (corrugated packaging). Nowadays, corrugated packaging is used by almost every manufacturer and supplier or perishable, non perishable and fragile products. Corrugated Packages have inherent benefits as they are environment friendly and have recycling capability. This is the major reason, the international market prefers corrugated packages.

TTrraaddee FFllooww ooff CCoorrrruuggaatteedd PPaacckkaaggeess ((PPaakkiissttaann))22

YYeeaarr IImmppoorrtt ((UUSS$$)) EExxppoorrtt ((UUSS$$))

2003 211,953,808 8,374,2252004 225,411,291 11,766,9662005 296,908,438 6,125,474

TToopp EExxppoorrtt PPaarrttnneerr33

Partner Trade Value (US$)Afghanistan 5,495,404Iran 3,830,161 United Arab Emirates 3,308,145 United Kingdom 2,017,029 USA 1,748,040

2 UN comtrade

3 UN comtrade



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6.2 Target Customers

As mentioned above, the target customers are manufacturers and suppliers of all types of goods. Following are some of the target clients for a manufacturer of corrugated packaging.

Pharmaceutical Industry Textile Industry Home Appliances Garments Confectionary Fruits and Vegetables Shoes Cosmetics

7 PPRROODDUUCCTT

The proposed project will be producing 7 ply corrugated packaging boxes of different sizeswhich will be serving several purposes. The functions of the product can be classified into three different categories.

7.1 Primary Functions

77..11..11 PPrrootteeccttiivvee FFuunnccttiioonn

The protective function of packaging essentially involves protecting the contents from the environment and vice versa. This is intended to ensure full retention of the utility value of the packaged goods or in other words it is intended to protect the goods from loss, damage and theft.

77..11..22 LLooaaddiinngg aanndd TTrraannssppoorrtt FFuunnccttiioonn

Convenient goods handling entails designing transport packaging in such a manner that it may be held, lifted, moved, set down and stowed easily, efficiently and safely. Packaging thus has a crucial impact on the efficiency of transport, handling and storage of goods.

7.2 Secondary Functions

77..22..11 SSaalleess FFuunnccttiioonn

The purpose of the sales function of a package is to enable or promote the sales process and to make it more efficient

77..22..22 PPrroommoottiioonnaall FFuunnccttiioonn

Promotional material placed on the packaging is intended to attract the potential purchaserand to have a positive impact upon the purchasing decision.



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7.3 Service Function

The various items of information printed on packaging provide the consumer with details about the contents and use of the particular product i.e. dosage information on medicines.

7.4 Production Process Flow

A 7 ply corrugated box consists of 7 layers of sheets. 2 sheets of kraft paper are used on both sides and 5 sheets of flutter paper are used in between them. 3 three sheets of flutter paper will be lined and 2 sheets will be of plain flutter paper. A 7 ply sheet is shown in the figure below:



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FFiigguurree 77--11 77 PPllyy ccoorrrruuggaatteedd sshheeeett

Kraft Paper Flutter paper (plain)

Kraft PaperFlutter Paper (lined)

The process of manufacturing starts from corrugating followed by cutting in accordance with different shapes and sizes, pasting, rotary, bending according to the design and finally stapling to form a shape and to remain strongly intact.

FFiigguurree 77--22 PPrroocceessss FFllooww

Corrugating Cutting

Printing

Pasting

Stapling

RotarySlanting/ bending

The above process takes approximately 8 hours to complete from corrugation to stapling. Each process is explained as below:

a) Corrugation: - In this process the flutter paper is firstly heated up, then passed over the tray, which contains pasting fluid, along with the kraft paper. It is then passed through a corrugating machine, where 5-ply paper corrugated board is manufactured by using glue making unit and reel stand.

b) The Liner paper can also be used instead of Flutter paper for better quality upon clients’ special request.

c) Cutting: - The sheet is cut according to the required size using a paper cutter.

d) Pasting: - The corrugated sheet is then pasted on to another set of corrugated sheet, making it 7 Ply.



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e) Printing: - It is then printed as required by the customers i.e. fragile, some object, recycle after use etc.

f) Rotary: - In this process the flaps and the Four Corners of the box are made using rotary machine.

g) Slanting: - The sheet is bent in this process, forming a box shape.

h) Stapling – To give the box a firm and a proper shape, they are finally stapled.

7.5 Product Mix

Different sizes of boxes are produced for various target industries. They are as follows:

TTaabbllee 77--11 PPrroodduucctt RRaannggee

Sizes Measurements Target IndustryA 24” x 24” x 8” Textile SectorB 14.54” x 10.5” x 6.25” Pharmaceutical SectorC 19.69”x17.72”x13.78” (50cm x 45cm x 35cm) Multi purpose D Others Fridge, Electronic products etc.

Production capacity varies with the size of the box. Production for each size of box will be taking one batch of two hours. Proposed production for each size at 100% capacity will be as under:

TTaabbllee 77--22 PPrroodduucctt MMiixx

Box Sizes Per Day Production Per Annum Production24”x24”x8" 750 225,00014.54”x10.5”x6.25 1,000 300,00019.69”x17.72”x13.78” 750 225,000Others(avg.) 500 150,000Total 3,000 900,000

7.6 Raw Material Requirement

Following raw material are used in corrugated packages.

Kraft paper Flutter paper (Plain) Flutter paper (Liner) Pasting fluid (Silicate)

Raw material used for each size of box and their costing is shown in the tables below4:

4 Calculations for quantity required are provided in the Financial Analysis section.



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TTaabbllee 77--33 RRaaww MMaatteerriiaall CCoossttiinngg ffoorr 2244””xx2244””xx88””

Raw Material Used No. of Papers

Quantity Required (Kg.)

Rs./Kg Total Cost(Rs.)

Liner Paper 2 0.53 55 29.15Flutter Paper (Plain) 2 0.51 15 7.65Corrugated Flutter 3 1.1 15 16.5Total 7 53.3

TTaabbllee 77--44 RRaaww MMaatteerriiaall CCoossttiinngg ffoorr 1144..5544””xx1100..55””xx66..2255””



Rs./Kg Total Cost (Rs.)

Kraft Paper 2 0.15 55 8.25Flutter Paper (Plain) 2 0.14 15 2.1Flutter Paper (Liner) 3 0.30 15 4.5Total 7 14.85

TTaabbllee 77--55 RRaaww MMaatteerriiaall CCoossttiinngg ffoorr 1199..6699””xx1177..7722””xx1133..7788””




Kraft Paper 2 0.07 55 3.85Flutter Paper (Plain) 2 0.06 15 0.9Flutter Paper (Liner) 3 0.13 15 1.95Total 7 6.7

TTaabbllee 77--66 RRaaww MMaatteerriiaall CCoossttiinngg ffoorr MMiisscceellllaanneeoouuss SSiizzeess




Liner Paper 2 0.53 55 29.15Flutter Paper (Plain) 2 0.51 15 7.65Corrugated Flutter 3 1.1 15 16.5Total 7 53.3

77..66..11 TTaakkee UUpp FFaaccttoorr ((LLiinneerr PPaappeerr))

A 7 plied corrugated sheet consists of 2 kraft papers on both sides, 2 plain flutter papers and three sheets of lined flutter paper. The proposed business will only be buying kraft paper and plain flutter paper from the market. A plain flutter paper is converted into a lined flutter paper during the process of corrugation. A lined flutter paper consumes more flutter paper and the take up factor is 40% on average. In other words, a lined flutter paper is 40% heavier than a plain flutter paper.

While costing for lined flutter paper it is very important that the cost of additional take up of flutter paper is considered.



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77..66..22 WWaassttee MMaarrggiinn

Wastage is a common feature for corrugated packages business. It is estimated that 1% of the total production goes into waste. But as the wastage occurs during the production process, it is generally charged to the client. The wastage on the other hand is sold as scrap by the manufacturer at the rate of Rs.8.00 per kg.

77..66..33 MMaajjoorr SSuupppplliieerrss ooff RRaaww MMaatteerriiaall

The raw materials are easily available in Lahore and other major cities. Some of the suppliers in Lahore are having their sales point on Bund road and Gunpat road.

7.7 Sales Price

It is generally observed in the corrugated packages business that the sales price is fixed 25% above the cost of raw material consumed for the proposed box size. This 25% includes the profit margins, cost of pasting fluids and printing costs.

On the other hand, cost of printing is approximately Rs.1 per box and pasting fluids are available at the rate of Rs.6 per kilogram. Consumption of pasting fluids depends upon the size of the box.

This particular pre-feasibility assumes that the sales prices are 25% above the cost of raw material which include the costs of printing and pasting fluids.

TTaabbllee 77--77 SSaalleess PPrriicceessBox Sizes Sales Prices (Rs.)

24”x24”x8" 6714.54”x10.5”x6.25 1919.69”x17.72”x13.78” 8Others(avg.) 67

8 TTEECCHHNNOOLLOOGGYY AANNDD PPRROOCCEESSSSEESS

In Pakistan, there are several manufacturers of corrugated packaging machines. There are around 10 suppliers in Lahore i.e. Muhammad Hussain in Misree Shah, Mr. Shafiq in Shah Jamal, almost 42 suppliers in Karachi and 2 suppliers are in Islamabad. These machines can also be imported from the following countries. However, the cost of imported machinery is too high as compared to local machinery.

German Brazil Sweden USA Taiwan China Korea



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The locally manufactured machinery is comparable to the imported machinery in terms of production and quality of the output, whereas price wise, local machinery has an edge over imported machinery. Some of the corrugation machinery manufacturers are listed below: Chughtai Engineering Works, Lahore Prime Tech International, Lahore Sama Engineering works, Karachi

The above mentioned suppliers also export the corrugated packaging machinery to Tashkent and South Africa, which proves the fact that local machinery is comparable to international standards.

8.1 Machinery & Equipment Requirement

The major cost involved in establishing a well-equipped corrugated packaging facility is primarily the cost of plant and machinery. Basically there are three types of machineries available in the market, which are as follows:

TTaabbllee 88--11 MMaacchhiinneerryy TTyyppeess

Machine type Estimated Cost of PlantSemi automated corrugation plant Rs. 1.9 millionFully automated corrugation plant Rs. 8 million

Production capacity for the three types varies. Fully automated machinery employs lesser labor and gives the highest production but as the proposed business will be order based, it is recommended that initially it should concentrate on capturing the market while keeping the project costs at lower end therefore the proposed project will be operating on manually operated corrugation machine.

There is a huge difference in the costs of the three types of machineries. As the total project cost is directly related with the cost of machinery, the proposed project will be using manually operated corrugation machine set.

Manually operated corrugation machine set comprises of 9 machines to form a complete corrugated setup.

Details of required machinery are shown in the table below:



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TTaabbllee 88--22 DDeettaaiillss ooff MMaacchhiinneerryy

Machines No. of Machines Price per Machine (Rs.)

Total Cost(Rs.)

Corrugation Machine 1 250,000 250,000Pasting 105” 1 50,000 50,000Pasting 65” 1 35,000 35,000Rotary 105” 1 50,000 50,000Rotary 65” 1 35,000 35,000Came Slote 85” 1 100,000 100,000Flexo Printing Machine 1 700,000 700,000Hand Cutter 60” 2 30,000 60,000Dye Cutting Machine 40x60 1 500,000 500,000

Staple Machine 52” 2 50,000 100,000Total 12 1,880,000

8.2 Repair & Maintenance

A regular inspection is imperative for the smooth running of machines. The maintenance cost can be suppressed by these regular checkups. However, maintenance will be required to ensure its long life and better output.

Annual repair & maintenance of the plant and machinery is estimated to be 1 % of the total machinery cost in the initial year and this rate is expected to grow at 0.05% in the proceeding years.

Spare parts i.e. Rollers, Bearings and Cutter Blade are easily available from the suppliersof the machinery.

8.3 Erection & Installation

Erections and installation cost is assumed to be 5% of the total cost of machinery.

8.4 Office Equipment

Following office equipment will be required for the proposed project:

Description No. Cost Per Unit(Rs.) Total(Rs.000)

Split Unit 1 25,000 25.00

Computer 2 20,000 40.00

Printer 1 15,000 15.00

Telephone sets 4 500 2.00

Fire Extinguish 2 4,000 8.00

Fax machine 1 10,000 10.00

Total 10,000.00



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Depreciation on office equipment will be charged at 10% per annum on straight-line basis.

8.5 Furniture and Fixtures

Following furniture and fixtures will be required for factory and sales outlets.

TTaabbllee 88--44 DDeettaaiillss ooff FFuurrnniittuurree aanndd FFiixxttuurreess

Description No Cost Per unit Total(Rs.000)

Sofa Set 2 Seat 2 4000 8.00

Chairs 10 500 5.00

File Cabinets 3 6000 18.00

Office Table 3 5000 15.00

Total 46,000.00

Depreciation on furniture and fixtures will be charged at 10% per annum on straight-line basis.

8.6 Motor Vehicles

Along with the above mentioned machinery and equipment the proposed business will also be using two shehzore trucks. Each truck will cost approximately Rs. 649,000. Motor vehicles will be depreciated at 10% on straight-line method.

9 LLAANNDD && BBUUIILLDDIINNGG RREEQQUUIIRREEMMEENNTT

9.1 Covered Area Requirement

Covered area requirement and construction costs are listed in the table below.

TTaabbllee 99--11 CCoovveerreedd AArreeaa RReeqquuiirreemmeenntt

Section Total Area (Sq. ft.)Production HallStorage Area 1,125Finished Goods Area 900Plant & Machinery Area 5,625Wastage Area 900Total Production Area 8,550Administrative Block 900Total Covered Area 9,450



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Free Area 1,800Total Area Requirement 11,250

9.2 Rent Cost

As no major construction costs are involved in the proposed building so it is recommended that the area should be acquired on rent basis. The rent cost for the business varies with location. This project is proposed to be located in Kot Lakhpat industrial area, Lahore. An area of 2.5 kanal can be obtained on monthly rent of approximately Rs. 50,000 to 75,000.

9.3 Utilities Requirement

Electricity Telephone Gas Water

10 HHUUMMAANN RREESSOOUURRCCEE RREEQQUUIIRREEMMEENNTT

Following staff would be required for the proposed project:

TTaabbllee 1100--11 HHuummaann RReessoouurrccee RReeqquuiirreemmeenntt

Direct Labor

Designation Per month Salary No. of employeesTotal annual salaries

Production Supervisor 16,000 1 192

Semi Skilled Workers 6,000 30 2,160

Indirect Labor

Designation Per month Salary No. of employeesTotal annual salaries

Administrative Staff

Security gaurd 5,000 2 120

Peon 4,000 2 96

Driver 5,000 1 60

Accountant/Admin 15,000 1 180

Selling & Marketing



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Staff

Purchase Manager 22,000 1 264

Marketing Manager 22,000 1 264

Total Human Resource 39

11 PPRROOJJEECCTT CCOOSSTTSS

Break down of total project cost is in the table below:

TTaabbllee 1111--11 PPrroojjeecctt CCoossttss

TTaabbllee 1111--11

Project Summary Cost Rs. (1000)

Plant and Machinery 1,880

Furniture an fixture and Vehicles 1,444

Pre operating Expenses 925

Erection and Installation ( 5% of total machinery Cost)

94

Contingencies 90

Fixed Assets 4,433

Initial working Capital 1541

Total Project Costs 5,974

11.1 Estimated time for project completion

The proposed project will be taking around 7 to 8 months for completion. Activities to be performed before the regular operations start are as under:

1. Fifteen days for completion of initial formalities, i.e., selection of suitable location and renting of building etc.

2. One month for sanction of loan (in case, if financing has to be arranged through bank).

3. Five to Six month for purchase of machinery.4. One month for furnishing and staff appointments.



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This project can take-off within five to six months as well, as some of the activities will be in progress simultaneously.


PREF-79 /Sep, 2004/Rev 1 22

12 FFIINNAANNCCIIAALL AANNAALLYYSSIISS

Projected Income Statement Rs. (1000)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Sales

Corrugated Boxes 19,299 22,528 26,113 30,091 34,497 39,372 44,761 50,712 57,276 64,511 Waste 226 251 278 305 333 363 393 425 457 491

19,525 22,779 26,391 30,396 34,830 39,735 45,154 51,136 57,733 65,002 Cost of Sales 17,627 19,706 21,906 24,235 26,698 29,304 32,060 34,975 38,058 41,318

Gross Profit 1,898 3,073 4,485 6,161 8,132 10,431 13,094 16,161 19,675 23,684

Operating Expenses 2,446 2,662 2,900 3,163 3,452 3,585 3,936 4,323 4,748 5,216

Operating Profit (547) 411 1,585 2,998 4,680 6,846 9,158 11,839 14,927 18,467 Less:Financial expenses 645 251 184 117 50

645 251 184 117 50 - - - - -

Profit Before Taxation (1,192) 160 1,401 2,881 4,630 6,846 9,158 11,839 14,927 18,467 Income Tax - 8 365 883 1,496 2,271 3,080 4,019 5,100 6,339 Net profit After Taxation (1,192) 152 1,035 1,998 3,135 4,575 6,078 7,820 9,828 12,129

Retained earnings - (1,192) (1,040) (4) 1,993 5,128 9,703 15,780 23,600 33,428 Profit transferred to balance sheet (1,192) (1,040) (4) 1,993 5,128 9,703 15,780 23,600 33,428 45,557


PREF-79 /Sep, 2004/Rev 1 23

CORRUGATED PACKAGESBalance Sheet Rs. (1000)

Capital and Reserves Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Share Capital 3584 3584 3584 3584 3584 3584 3584 3584 3584 3584 3584Reatined Earnings 0 (1,192) (1,040) (4) 1,993 5,128 9,703 15,780 23,600 33,428 45,557

3,584 2,392 2,544 3,580 5,578 8,712 13,287 19,365 27,185 37,012 49,141 Long Term Loan 2,390 1,434 956 478 - Current LiabilitiesCurrent portion of long term liabilitites 478 478 478 478 - - - - - - Tax Payable - 8 365 883 1,496 2,271 3,080 4,019 5,100 6,339 Accounts Payable - 347 390 435 482 532 584 639 697 757 777

- 825 876 1,278 1,843 2,027 2,855 3,719 4,715 5,857 7,115

5,974 4,650 4,376 5,335 7,421 10,739 16,142 23,084 31,900 42,869 56,257

Fixed AssetsFixed Assets 3,508 3,166 2,824 2,482 2,140 1,799 1,457 1,115 773 431 90 Pre-operating expenses 925 740 555 370 185 Current AssetsAdvance rent 450 - - - - - - - - - - Raw Material Inventory 739 830 926 1,027 1,134 1,246 1,363 1,487 1,616 1,752 - A/C Receivable - 450 526 609 702 805 919 1,044 1,183 1,336 1,505 Cash/Bank 353 (536) (455) 847 3,260 6,890 12,403 19,438 28,327 39,349 54,662

1,541 745 997 2,483 5,096 8,941 14,685 21,969 31,127 42,438 56,167

5,974 4,650 4,376 5,335 7,421 10,739 16,142 23,084 31,900 42,869 56,257

- - - - - - - - - - -


PREF-79 /Sep, 2004/Rev 1 24

CORRUGATED PACKAGESCash Flow Statement Rs. (1000)

Operating activities Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Net profit - (1,192) 152 1,035 1,998 3,135 4,575 6,078 7,820 9,828 12,129 Amortization (Pre-operational Expenses) - 185 185 185 185 185Depreciation - 342 342 342 342 342 342 342 342 342 342Raw Material Inventory (739) (91) (96) (101) (106) (112) (118) (123) (130) (136) 1,752 Accounts receivable - (450) (75) (84) (93) (103) (114) (126) (139) (153) (169) Accounts payable - 347 43 45 47 50 52 55 58 61 19 Tax Payable - 8 357 518 612 775 809 938 1,081 1,239 Building rent prepayments (450)

Prepaid Payments 450 Cash provided by operations (1,189) (410) 559 1,780 2,891 4,108 5,513 7,035 8,889 11,022 15,313 Financing activitiesLong term debt principal repayment (478) (478) (478) (478) (478) Addition to long term debt 2390Owner's investment 3584Cash provided by/ (used for) financing activities 5974 (478) (478) (478) (478) (478) - - - - - Investing activitiesCapital expenditure (4,433) Cash (used for)/ provided by investing activities (4,433) - - - - - - - - - - Net Cash 353 (888) 81 1,302 2,413 3,631 5,513 7,035 8,889 11,022 15,313 Cash balance brought forward - 353 (536) (455) 847 3,260 6,890 12,403 19,438 28,327 39,349 Cash carried forward 353 (536) (455) 847 3,260 6,890 12,403 19,438 28,327 39,349 54,662


PREF-79 /Sep, 2004/Rev 1 25

12.1 Raw Material Costs

C onversio n Factors

1 m 2 = 1550 inch 2

1 inch = 25 .4 m m

D im ensions Size in Inches Size in m illim etersLength L Lx 25.4W idth W W x 25.4H eight H H x 25.4W idth required(W +H )+25.4Length req uired(L +W )x2+ (2x25.4)

A rea of sheet W idth req uired x L ength requiredW aste M argin 5%K raft P aper R equirem entW eight of K raft paper (K gs per square m eter) 0 .125N o. of kraft paper 2W eight of kraft paper required

P rice per kg . kraft p aper R s. 48C ost of kraft pa per price p er kg. x w eight of kraft p aper req uiredF lutter P aper R equirem entW eight of F lutte r P ap er (K gs per square m eter) 0 .12T ake up factor for lined flu tte r paper 40%N o. of flu tter paper (p la in) 2W eight of p la in flutte r paper required

N o. of flu tter paper (liner) 3weight of L ined flutter paper required

T ota l weight of flu tte r paper

P rice per kg . F lutte r paper R s. 12C ost of F lutter P aper price p er kg. x tota l w eight of flutter paper

T otal raw m ateria l cost cost of kraft pap er + cost of flutter paper

(A rea of shee t x w eight of kraft paper x N o. of kraft paper) x (1+W aste M argin)

(A rea of shee t x w eight of flutte r paper x N o. of flutte r paper) x (1+W aste M argin)

(A rea of shee t x w eight of flutte r paper(1+ take up fac tor for lined paper) x N o. of flutter paper(Liner)) x (1+W aste M argin)weight of p la in flutte r p aper required + weight of lined flu tter paper required


PREF-79 /Sep, 2004/Rev 1

26

13 KKEEYY AASSSSUUMMPPTTIIOONNSS

TTaabbllee 1133--11 OOppeerraattiinngg AAssssuummppttiioonnss

Annual production capacity (boxes) 900,000Operating Shift per day5 1Operating hours per shift 8Days operational per year 300No. of Batches 4Hours consumed for one batch 2

TTaabbllee 1133--22 MMaacchhiinneerryy AAssssuummppttiioonnss

Machine Type Manually operatedNumber of Machines Installed 9Installed capacity 100%Initial year capacity 55%

Annual capacity growth rate 5%Depreciation rate on machinery (Straight Line Method) 10%

TTaabbllee 1133--33 RReevveennuuee AAssssuummppttiioonnss

Sales prices Industry normsSales price growth rate 30%Wastage sales 5%

Wastage sales growth rate 2%

TTaabbllee 1133--44 FFiinnaanncciiaall AAssssuummppttiioonnss

Project life (Years) 10Debt 40%Equity 60%Interest rate on long term debt 14%Debt tenure (Years) 5No. of installments in a year 2Amortization (years) 5

5 The industry norm is one shift per day. However, it can vary with the demand


PREF-79 /Sep, 2004/Rev 1

27

TTaabbllee 1133--55 CCoosstt ooff ssaalleess AAssssuummppttiioonnss

Raw Material cost growth rate 5%Wage and salaries growth rate 10%Gas Growth rates 5%Electricity growth rate 10%Depreciation (straight line method) 10%

TTaabbllee 1133--66 CCoonnttiinnggeennccyy EExxppeennssee AAssssuummppttiioonnss

Erection and Installation 5%Furniture and Fixture 1%Pre-operating Expenses 2%Vehicles 5%

TTaabbllee 1133--77 CCaasshh FFllooww AAssssuummppttiioonnss

Accounts Receivable in days 7Accounts Payable in days 7Raw Material Inventory (days) 15Stores and Spares Inventory (days) 30Minimum Cash Required Rs.194,000

smeda corrugated packages

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