toilet soap

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233. PROFILE ON PRODUCTION OF

LAUNDRY SOAP


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TABLE OF CONTENTS

PAGE

I. SUMMARY 233-3

II. PRODUCT DESCRIPTION & APPLICATION 233-3

III. MARKET STUDY AND PLANT CAPACITY 233-4

A. MARKET STUDY 233-4

B. PLANT CAPACITY & PRODUCTION PROGRAMME 233-6

IV. RAW MATERIALS AND INPUTS 233-7

A. RAW & AUXILIARY MATERIALS 233-7

B. UTILITIES 233-7

V. TECHNOLOGY & ENGINEERING 233-8

A. TECHNOLOGY 233-8

B. ENGINEERING 233-9

VI. MANPOWER & TRAINING REQUIREMENT 233-10

A. MANPOWER REQUIREMENT 233-10

B. TRAINING REQUIREMENT 233-10

VII. FINANCIAL ANALYSIS 233-12

A. TOTAL INITIAL INVESTMENT COST 233-12

B. PRODUCTION COST 233-13

C. FINANCIAL EVALUATION 233-14

D. ECONOMIC BENEFITS 233-15


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I. SUMMARY

This profile envisages the establishment of a plant for the production of laundry soap

with a capacity of 12,000 tones per annum.

The present demand for the proposed product is estimated at 22,638 tones per annum.

The demand is expected to reach at 47,963 tones by the year 2025.

The plant will create employment opportunities for 29 persons.

The total investment requirement is estimated at about Birr 14.13 million, out of which

Birr 2.3 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 20 % and a net

present value (NPV) of Birr 8.89 million discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Soap is a cleansing and emulsifying agent that consists essentially of a mixture of water-

soluble sodium or potassium salts of fatty acids and that may contain other ingredients

such as builders, abrasive material, perfume and dyes.

The major application of laundry soap is for washing or cleansing clothes. It is produced

in bar form for use in hand washing.


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III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Laundry tasks are becoming easier with modern cleaner products. Washing clothes in

water even with agitation provided by hand or by machine will remove some but not all

stains, dirt and particular soils. Water alone cannot remove soils that are not water

soluble, and water doesnt have the capability to keep removed soils suspended. Laundry

soaps are therefore used in washing clothes and retreating heavy soils or stains prior to

washing.

The supply of soaps in Ethiopia is both from domestic production and import. The

average import of soaps is about 57% while the domestic production covers 43%.

Among the imported products, Indonesia is the main supplier of soaps to the Ethiopian

market followed by South Korea.

Since the total supply is dominated by imported products, at the right quality level and

packaging there is abundant demand for a new project to capture a reasonable share of

the market.

In the past decade the annual average imported soaps volume was 21,560 tons with an

annual average growth rate of 5%. On the other hand a linear trend equation on the same

series reveals:

Y = 472.91X + 18,959

Estimating the current demand through applying the average annual growth rate and

linear trend approaches resulted in a current effective demand at 22,638 tons and 24,161

tons respectively. In this study however a conservative estimate of 22,638 tons is


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considered as the current effective demand unsatisfied by the present local production of

laundry soap. Supply of soap is presented in Table 3.1.

Table 3.1

SUPPLY OF LAUNDRY SOAP IN TONS

Year Local Imported Total

1997 14,342 22,404 36,746

1998 10,874 14,302 25,176

1999 26,146 20,438 46,585

2000 17,194 18,043 35,237

2001 14,766 25,738 40,505

2002 19,249 27,290 46,539

2003 11,632 22,808 34,440

2004 14,975 16,443 31,419

2005 16,825 24,634 41,459

2006 N.A. 23,496 -

Source: CSA Annual Survey Manufacturing Industries Customs Authority

2. Demand Projection

Laundry soap is an every day use product applied for washing. The low level standard of

living prevailing in the country was the main reason for the associated low level of soap

consumption. Economic development and the rise in income inevitably will lead to better

suitable livelihood and usage of soaps.

The demand for laundry soaps although basically depend on the population and other

substitute products; income also is detrimental for the proper and frequent usage of soaps

by the majority of the low income group of population. The change in the housing

patterns of urban dwellers from traditional outdoor kitchens and toilets to better water


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tapped kitchen and toilets will have a direct impact on the demand for soaps. In addition

to this, the rural population consumes more and more laundry soaps with a growth in

income.

In general the demand for soaps is related to the growth in income. Therefore the

estimation of the demand gap left out by the domestic suppliers, is made based on 8.7%

annual gross domestic product growth rate achieved in 2005. Demand projected for

laundry soap is presented in Table 3.2.

Table 3.2

PROJECTED DEMAND OF LAUNDRY SOAP

Year Tons

2008 24,608

2009 26,748

2010 29,075

2011 31,605

2012 34,355

2013 37,3442014 40,592

2015 44,124

2016 47,963

3. Pricing and Distribution

The price of the most popular brands of B29 is Birr 3.50, Zap Birr 3.00 and Pecock Birr

2.50.

Distribution of laundry soaps is better to be handled through wholesalers who have the

experience in the field and good established channels. As a new entrant in the market an


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attractive brand and packaging should be developed and supported by visible

advertisement like TV and posters.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. production capacity

Based on the demand projection indicated above, the proposed plant will have production

capacity of 12,000 tones of laundry soap per annum. The unit is envisaged to operate in

single shift working eight hours a day for 300 days per year.

2. Production programme

The plant is expected to operate at 70% and 80% of the installed capacity in the first and

second year of implementation, respectively and reach full capacity on the third year.

IV. MATERIALS AND INPUT

A. MATERIALS

The raw materials required for the manufacturing of laundry soap are palm fatty acid,

caustic soda and additives. All the annual cost of the raw materials is Birr 43,813,100 for

details see Table 4.1 below.


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Table 4.1

LIST OF RAW AND AUXILIARY MATERIALS AND COST

Total cost (000 Birr )

Sr. No Description Qty (T) FC LC Total

1 Palm fatty acid 10,800 21,335.40 11,340 32,675.40

2 Caustic soda (>98% NaOH) 4,450 9,252.00 1,028 10,280.00

3 Sodium Chloride 420 - 562.50 562.50

4 Bleaching earth 240 90.72 10.08 100.80

5 Additives 360 184.68 9.75 194.40

Total Cost 30,862.80 12,950.30 43,813.10

B. UTILITIES

The required electrical energy for lighting, machinery and equipment is 341,000 KWH,

water is required for cooling, process, and human consumption and annually it is

estimated to be 25,000 m3. The total annual cost is estimated at Birr 299,525.

VI. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The raw materials are melted slowly in a vessel. In order to eliminate the moisture,

vacuum dehydration process will be carried out at a certain temperature. Then bleaching

earth is added and the solution will be stirred vigorously. Fats & oils separated from the

bleaching earth are pumped to saponification kettle and caustic soda solution of a

required concentration is then added in small quantity at a time. The soap charged passes

through different stage en-route to complete saponification. When the saponification


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process is finished a concentrated salt solution is added to separate the lye. The liquid

soap from the tank is heated and pumped to the vacuum spray-drying unit.

The soap powder from the dryer is removed by a set of scrapers and directed to the

plodder. Noodles from the plodder are cut into pieces. The pieces are given further

homogenization and together with some additives, pressed into bars. The piece of soap is

finally cut to the desired size by the cutter and are then stamped and wrapped.

2.Source of Technology

The machinery and equipments required can be obtained from the following address.

Frigmaires International

Maharashtra -400 013,India

Tel: +91-22-24944108

Fax: +91-22-22186046

B. ENGINEERING

1. Machinery and equipment

Most of the required machinery and equipment for the production of laundry soap plant

are imported. The total cost of machinery and equipment is estimated to be Birr

2,300,000 of which birr 300,000 is in local currency. The list of machinery and

equipment is given in Table 5.1


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Table 5.1

LIST OF MACHINERY AND EQUIPMENT

Sr.

No

Description Qty

1 Pump 5

2 Mixer with agitator & heating Coil 1

3 Boiling kettle 5

4 Filter press 2

5 Heat Exchanger 1

6 Booster Compressor 1

7 Screw Conveyor 1

8 Weight mixer 2

9 Cutting machine 3

10 Stamper 2

11 Wrapper 2

2. Land Building and Civil Works

The plant will require a total land area of 800 m2

of which 650 m2

will be covered by the

factory and office buildings, stores, etc. the total cost of building and civil works,

estimated at a rate of Birr 2,500 per m2will be Birr 1,625,000cost for holding of land at

the rate of Birr 0.8 per m2 and 95years of land holding are estimated at Birr 60,800.

Therefore, the total cost for land holding, building and civil works will be Birr 1,685,800.

3. Proposed Location

The envisaged plant shall be located in Jinka town, Bakogazer Woreda of Sheka Zone South

Omo.


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VI. MANPOWER & TRANING REQUIRMENT

A. MANPOWER REQUIRMENT

The envisaged laundry soap plant requires 29 workers. The total estimated annual laborcost is birr 259,500 the detail breakdown of manpower required for the plant is presented

in Table 6.1

B. TRAINING REQUIREMENTTraining is required for the production staff on process of technology, machine operation,

and maintenance. The training is expected to be given for a period of six weeks by the

machinery supplier at the project site. A total of birr 50,000 is allotted for executing the

training programme.

Table 6.1

MANPOWER REQUIREMENT AND ANNUAL LABOUR COST

Sr.

No

Description No

Required

Salary (Birr)

A. Administration

1 Manager 1 2,500 30,000

2 Secretary 1 900 10,800

3 Finance/ Administration 1 1,500 18,000

4 Commercial head 1 1,200 14,400

5 Sales person 2 500 12,000

6 Accountant 1 600 7,200

7 Store keeper 1 400 4,800

8 Driver 2 350 8,400

9 Clerk 2 250 6,000

10 General service 2 150 3,600

Sub total 14 115,200

B. Production

10 Technical & production Head (mechanical engineer ) 1 1,200 14,40011 Supervisor (chemist) 1 1,000 12,000

12 General mechanic 2 750 18,000

13 Machine operator 6 500 36,000

14 Unskilled Worker 5 200 12,000

Sub total 15 92,400

Employees benefits (25% of basic Salary) 51,900

Grand Total 29 259,500


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Table 7.1

INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (000 Birr)

1 Land lease value 60.8

2 Building and Civil Work 1,625.00

3 Plant Machinery and Equipment 2,300.00

4 Office Furniture and Equipment 100

5 Vehicle 450

6 Pre-production Expenditure* 322.46

7 Working Capital 9278.66

Total Investment cost 14,136.9

Foreign Share 43

* N.B Pre-production expenditure includes interest during construction (Birr 172.46

thousand) training (Birr 50 thousand) and Birr 100 thousand costs of registration,

licensing and formation of the company including legal fees, commissioning expenses,

etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 45.09

million (see Table 7.2). The material and utility cost accounts for 97.83 per cent, while

repair and maintenance take 0.25 per cent of the production cost.


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Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %

Raw Material and Inputs43,813.10 97.16

Utilities299.52 0.66

Maintenance and repair113.65 0.25

Labour direct124.56 0.28

Factory overheads51.9 0.12

Administration Costs83.04 0.18

Total Operating Costs44,485.77 98.65

Depreciation444.29 0.99

Cost of Finance162.22 0.36

Total Production Cost 45,092.28 100

C. FINANCIAL EVALUATION

1. Profitability

According to the projected income statement, the project will start generating profit in the

first year of operation. Important ratios such as profit to total sales, net profit to equity

(Return on equity) and net profit plus interest on total investment (return on total

investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is

viable.


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2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at

full capacity (year 3) is estimated by using income statement projection.

BE = Fixed Cost = 15 %

Sales Variable Cost

3. Pay Back Period

The investment cost and income statement projection are used to project the pay-back

period. The projects initial investment will be fully recovered within 6 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 20 % and the net

present value at 8.5% discount rate is Birr 8.89 million.

D. ECONOMIC BENEFITS

The project can create employment for 29 persons. In addition to supply of the domestic

needs, the project will generate Birr 6.38 million in terms of tax revenue. The

establishment of such factory will have a foreign exchange saving effect to the country by

substituting the current imports.

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