mcnroe chemicals

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PROTIEN RICH BISCUITS 2009

EXECUTIVE SUMMARY

India has the second largest arable land of 161 million hectares and has the highest acreage under

irrigation. Next to China, India ranks second largest food producer in the world and has the

potential to immerge the biggest with its food and agricultural sector. India accounts for less than

1.5% of international food trade despite being one of the world’s major food producers, which

indicates huge potential for both investors and exporters. India’s GDP is expected to grow in the

range of 8-8.5% in the coming fiscal year, fuelled by robust investments and buoyant consumer

spending. According to Goldman Sachs projections, India’s GDP will exceed Italy’s in 2020,

France’s in 2020, Germany’s in 2025 and Japan’s in 2035.

Excessive controls, low public investment, inadequate infrastructure, poor agri-input

management, distorted pricing and incentives structures, and inadequate credit weighed down

India’s agricultural sector for several decades. The share of agriculture in India’s GDP has fallen

by more than 60% in the past five decades. However, the policy environment is changing with

increase in public investment, fading controls on product marketing and distribution, better price-

discovery mechanisms and improvement in credit availability. Indian agriculture, particularly

food processing and allied activities is thus going through a major transformation with the

government targeting 4% growth for the agri-sector from 2005-2020.

In this project we have tried to make a plan of starting a new venture in this demanding industry.

In this industry we have particularly chosen the Biscuit Industry. We have done research on

almost every aspect of the Biscuit Industry. Then we have prepared the plan of capturing market

phase wise, launching of products, developing Product Mix. After this we have prepared the

feasibility report of the proposed project through financial analysis.

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OBJECTIVES OF THE STUDY

Through this project, I have taken an opportunity to learn the various aspects a business.

Primarily, this project was more about to get a feel of entrepreneurship and learn the

responsibilities of an entrepreneur. The project was about on-board planning of starting a Biscuit

Manufacturing and Marketing firm. The Project was in four different phases.

The first phase of the project was about taking decision regarding industry to enter and

which product category to be chosen. This included the study of the industry and the growth

prospect in it. Here, based on the study we have decided to enter the Biscuit Industry in Food

Processing Industry.

The second phase of the project was to prepare the strategy to enter the market. It included

two things – one was to prepare the strategy to enter the market in different phases

geographically and the other was to decide that what should be the unique proposition in our

product which will help us to enter this highly competitive industry on a high note.

The third phase of the project was about financial planning of the proposed project of

setting up a Biscuit Manufacturing and Marketing firm. This included Cost of Project,

Working Capital Requirement, Estimation of Capital Inputs, Profitability Projection, Break

Even Analysis, and working with different ratios.

The fourth and last phase was to prepare the implementation schedule.

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OVERVIEW OF FOOD PROCESSING INDUSTRY

The Food Processing Industry in India is a sunrise sector that has gained prominence in recent

years. Availability of raw materials, changing lifestyles and relaxation in policies has given a

considerable push to the industry’s growth. This sector is among the few that serves as a vital

link between the agriculture and industrial segments of the economy. Strengthening this link is

of critical importance to improve the value of agricultural produce; ensure remunerative prices

to farmers and at the same time create favourable demand for Indian agricultural products in the

world market.

The Indian food processing industry holds tremendous potential to grow, considering the still

nascent levels of processing at present. Though India’s agricultural production base is

reasonably strong, wastage of agricultural produce is sizeable. Processing of fruits and

vegetables is as low as 2%, of milk is around 35%, of meat is 21% and of poultry products is

6%. By international comparison, these levels are significantly low - processing of agriculture

produce is around 40% in China, 30% in Thailand, 70% in Brazil, 78% in the Philippines and

80% in Malaysia. Value addition to agriculture produce in India is just 20%, wastage is

estimated to be valued at around US$ 13 billion (Rs 580 billion).

Considering the wide-ranging and large raw material base that the country offers, along with a

consumer base of over one billion people, the industry holds tremendous opportunities for large

investments.

Food-processing industry is facing constraints like non-availability of adequate infrastructural

facilities, lack of adequate quality control & testing infrastructure, inefficient supply chain, and

seasonality of raw material, high inventory carrying cost, high taxation, high packaging cost,

affordability and cultural preference of fresh food. Unprocessed foods are prone to spoilage by

biochemical processes, microbial attack and infestation. Good processing techniques, packaging,

transportation and storage can play an important role in reducing spoilage and extending shelf

life. The challenge is to retain the nutritional value, aroma, flavour and texture of foods, and

presenting them in near natural form with added conveniences. Processed foods need to be

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offered to the consumer in hygienic and attractive packaging, and at low incremental costs.

Major Challenges for the Indian Food Processing Industry are:

Consumer education on nutritional facts of processed foods

Low price-elasticity for processed food products

Need for distribution network and cold chain

Backward-forward integration from farm to consumers

Development of marketing channels

Development of linkages between industry, government and institutions

Taxation in line with other nations

Streamlining of food laws

Fig 1: Share of Food Processing Industry in Manufacturing Sector

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Fig 2: Structure of the Indian Food Processing Industry

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OVERVIEW OF BISCUIT INDUSTRY

Bakery products are being made since long, with bread and biscuits being the main constituents.

India is one of the largest biscuit producers in the world and last few years have witnessed

substantial increase in the consumption of bakery products including biscuits. Biscuit industry is

the largest segment of the grain milling industry and constitutes about 55-60% of the entire

bakery range. This industry has major share from the organized sector. Biscuits of different

varieties are popular in all age groups as they are cheap compared to many other ready-to-eat

food items, enjoy longer shelf life and can provide nutrients.

Size

The size of biscuits market in India is Rs 5,000 crores of which Rs 3,000 crores is accounted for

by the organised sector. Glucose and milk biscuits account for 25% each and Marie biscuits 20%

of the biscuits market.

Annual Growth

The biscuit industry in India witnessed annual growth as below:-

2003-04 - 15%

2004-05 - 14%

2005-06 - 14%

2006-07 - 13%

2007-08 - 15%

2008-09 - 17% (April – June)

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2003-04 2004-05 2005-06 2006-07 2007-08 2008-090%2%4%6%8%

10%12%14%16%18%

Growth (%)

Growth (%)

Fig 3: Annual Percentage Growth of Biscuit Industry in India

While the growth rate has been stagnating during 2003-2007, it has picked up momentum during

the 2007-08 and the first quarter of 2008-09 mainly on account of exemption from Central

Excise Duty on biscuits with MRP up to Rs.100/per kg, as per Union Budget for 2007-08. Indian

Biscuit Manufacturers’ Association (IBMA), instrumental in obtaining the excise duty

exemption, estimates annual growth of around 20% in the year 2008-09.

Growth in biscuit marketing has been achieved also due to improvement in rural market

penetration. The penetration in Rural Market is around 50-65% and in urban market is around

75-85%.

Key Players

Britannia

Parle-G

Sunfeast

Anmol

Priya Gold

Bisk farm

Cookieman

Raja

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Structure – Organized & Unorganized

The organized and unorganized sector of the biscuit industry is in the proportion of 60-40. The

organized biscuit manufacturing industry‘s annual production (in lakh metric tonnes) figures are

given below:

2003-04 2004-05 2005-06 2006-07 2007-08 -

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Production (in lakh tonnes)

Fig 4: Annual Production of Organized Segment in lakh metric tonnes

Factors affecting the Industry

Imposition of Value Added Tax (VAT) by the State Governments @ 12.5% compared to

VAT at 4%/0% levied on other similar food products has also adversely affected biscuit

industry. IBMA estimates annual growth in the range of 25% and above in the event of

reduction in the rate of VAT on Biscuits to 4%.

The poor efficiency of Supply Chain Management in our country is also affecting this

industry adversely. Biscuits generally have shelf life of 6 months and the distribution of them

takes around 15-20 days. Moreover, this increases the inventory holding cost too.

Per capita consumption of Biscuits in the country is only 1.8 kg, as compared to 2.5 kg to 5.5

kg in South East Asian countries and European countries, and 7.5 kg USA. The per capita

industry should increase for a huge market prospect.

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Exports & Imports

Exports of Biscuits are estimated to be around 15% of the annual production during the year

2007-08.Imports of biscuits into India has not shown any significant growth during the last two

years and has not affected production/sales by the Indian Biscuit industry

Distribution of Consumption

Distribution of Biscuit Consumption (On Zonal basis) in the country is as below:

Northern Zone - 25%

Western Zone - 23%

Southern Zone - 24%

East and North East Zone - 28%

Critical Success Factor

The key factor to succeed in this industry is to maintain quality and healthy relations within the

distribution channel.

Again, Advertisements and Promotions also play a huge role in the success.

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METHODOLOGY OF THE STUDY

The most prominent methodology during the project was the Brainstorming sessions with my

mentor, Mr. Nazmul Hossain. These sessions helped me to think on a particular point from

various aspects.

For Example, if I have to decide that I will be running factory in 2 shifts then his question use to

be – What will be the production at 1 or 3 shifts? What will be the Payback Period in 2 and 3

shifts? He moves on further asking that if the production is done at 2 shifts then will my market

be able to absorb the total production or my Inventory Holding cost will be increasing?

These questions helped me to think on various aspects before taking a decision what ideally an

entrepreneur should do. In this way we always tried to grow a decision tree.

Moreover, during the project I had one to one sessions with the industry experts with the likes of

Marketing Person and Technical Person of a Biscuit Manufacturing and Marketing firm. I also

visited a Biscuit Manufacturing Unit.

Internet based study also helped me to explore the various ideas for implementation in my

project.

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MARKET POTENTIAL

Bakery is an old-age industry manufacturing Breads and Biscuits. With changes in the lifestyles

of people and tendency to spend more, many products have become very popular since last few

years. Spending on fast food items or ready-to-eat snacks has gone up substantially during last

few years and the rural and semi-urban areas are not an exception.

Biscuit, which covers substantial part of this industry, has become an important part of the diet of

an individual. The main reasons of the success of Biscuits are –

Low Water Content – Biscuits typically have a moisture content of less than 4% and when

packaged in moisture-proof containers has a long shelf life, perhaps six months or more.

Healthy Food – Biscuits due to their glucose and fat content are also healthy food with

addition to good taste. Again, some specific Biscuits carry Vitamins too (e.g. – Britannia’s

Vita Marie). Thus, Biscuits are nutritious part of an individual diet.

Today, although Biscuit Industry has a presence of so many players with so many different

variants there is still a gap in the Biscuit’s market. The gap is of absence of Protein content in

Biscuits. Majority of the biscuits are manufactured from wheat flour. Addition of soya flour

would increase the protein contents substantially. Protein rich biscuits can thus serve the purpose

of providing additional nutrition at a reasonable price. So, we have decided to fill this gap with

the launch of our Biscuits. This can be done in varieties like Marie and Cream Biscuits to start

with. This will help to cover all the Segment of potential consumers (from Child to Youth to Old

Age).

Appropriate Marketing network backed up with adequate publicity are critical aspects. One more

major check will be the proportion of soya flour that will be in the total ingredients. This is to

ensure that Biscuits don’t get bitter due to the addition of soya flour. The Proportion will be

discussed later in detail in the when we will be discussing Ingredients.

MANUFACTURING PROCESS

Biscuits are a traditional type of flour confectionery which were, and can still be, made and

baked in a domestic kitchen. Now they are made mostly in factories on large production plants.

These plants are large and complex and involve considerable mechanical sophistication.

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Forming, baking and packing are largely continuous operations but metering ingredients and

dough mixing are typically done in batches. There is a high degree of mechanisation in the

biscuit industry. In our production line there will be some dependence of operators to start and

control production plants. Also packaging will also be somewhat manual. It is essential that

operators are skilled in the tasks they have to do and this involves responsibility for product

quality. As part of their training they must know about the ingredients and their roles in making

biscuits. They must be aware of .the potential ingredient quality variations and the significance

of these. Again some semi-skilled workers will also be there as helpers.

There are basically two types of biscuit dough, hard and soft. The difference is determined by the

amount of water required to make dough which has satisfactory handling quality for making

dough pieces for baking.

Hard dough has high water and relatively low fat (and sugar) contents. The dough is tough and

extensible (it can be pulled out without immediately breaking), like tight bread dough. The

biscuits are either crackers or in a group known as semi-sweet or hard sweet.

Soft dough contains much less water and relatively high levels of fat and sugar. The dough is

short, (breaks when it is pulled out) which means that it exhibits very low extensible character. It

may be so soft that it is pourable. The biscuits are of the soft eating types which are often

referred to as cookies, creams, glucose, etc. There are a great number of biscuit types made from

soft dough and a wide variety of ingredients may be used.

The machinery used to make biscuits is designed to suit the type of dough needed and to develop

the structure and shape of the individual biscuits. Hard Dough needs Lamination and Sheeting

while the Soft Dough needs Moulding. Secondary processing, which is done after the biscuit has

been baked, and packaging biscuits are specific to the product concerned. There is normally a

limited range of biscuit types that can be made by a given set of plant machinery. Many biscuit

production plants bake at the rate of 1000-2000 kg per hour and higher rates are not unusual.

Given this and the sophistication of the production line it is most economical to make only one

biscuit type for a whole day or at least an eight hour shift. Start-ups and changeovers are

relatively inefficient.

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Various Ingredients needed are

Wheat flour/Maida - 60-65%

Soya bean flour - 8-10%

Sugar - 8-10%

Vanaspati & Oil – 2-4%

Starch, Soda, Salt and Preservatives - 3-4%

These ingredients are thoroughly mixed with the help of water in mixing machine and properly

kneaded dough is set on biscuit moulds manually and then baked in an oven. On completion of

baking oil sprinkling is done and then biscuits are cooled, weighed and packed in standard poly

wrappers. Then these packets are sealed in cartons. Then these cartons are moved to Finished

Goods storage area.

PRODUCTION UNIT

A typical Production unit consists of the following-

Raw Material Storage House

Mixing Area

Main Factory or Production Line

Poly House

Finished Goods Storage House

Administration House

Power House

Water House or Tank or Plant

Open Area or Partly Shaded Area for Loading and Unloading

Typically the Main factory is long and, for the most part, normally on only one floor. The reason

for the length is principally due to the oven. Tunnel ovens have baking bands that are usually

between 800- 1400mm (31-55 in) in width. The length of the oven determines the output

capacity of the plant. Ovens have been made up to 150 m in length but 60 m (about 200 feet) is

probably the average length. Ideally, and normally, the ingredients are stored and handled at one

end of the factory. Next to the ingredients store is the mixing area and next to that are the

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continuous production plants. The baking plants feed cooling conveyors, which are often multi-

tiered to save space, and the baked and cooled biscuits are then packed using high speed

machines. In some factories secondary processes are involved after baking. It is also possible that

only semi-automatic packaging is used which requires manual feeding of the wrapping

machines. In these cases biscuits may be taken from the baking line and placed temporarily in

boxes or stored in other ways. These activities are typically labour intensive.

Generally, the Production Line consists of following machinery -

Vertical or Horizontal Laminator

Combination Sheeter

Gauge Roll

Rotary Cutter or Reciprocating Cutter

Rest Conveyor

Vertical & Horizontal Rotary Moulder

Drive and Panner

Salt / Sugar Sprinkler

Oven Drive and Oven Tension

Oven (Direct Gas fire or electric Oven)

Oil Filter

Oil Spray Machine

Cooling Conveyor

Biscuit Stacking Machine

Packing Conveyor

Side scrap return system

Reciprocating Distribution

A sample of Typical Production line is given below.

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Fig 5: Typical Biscuit Manufacturing/ Production Line

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THE PLANNED MARKET COVERAGE

In this project we have developed the plan of starting a new Business unit in the Biscuit Industry

which will be involved in manufacturing of biscuits under its own Brand. The Phase wise plan of

the project is shown below:

PHASE GEOGRAPHIC MARKET PRODUCT CATEGORY

1 West Bengal & Orissa Biscuits

2 Phase 1 + Chhattisgarh & Bihar Biscuits

3 Phase 2 + North East Biscuits & Cookies

Table 1: Phase Wise Plan of Market Coverage

Market (volume wise) of the targeted Geographic Market

Figures in Lakh Tonnes

1 Annual Production of the Industry in 2007-08 17.44

2 Annual Production of the Industry in 2009-10 (Growth is assumed to be 15% annually) 23.06

3 Share of East Zone & North East Zone [28% of (2)] 6.45

4 Share of the Phase 1 Coverage Area [35% of (3)] 1.94

5 Share of the Phase 2 Coverage Area [{75% of (3)}*1.15] 5.56

6 Share of the Phase 3 Coverage Area [{100% of (3)}*1.152] 8.53

Table 2: Market (volume wise) of the targeted Geographic Market

THE PLANNED PRODUCT MIX

As discussed earlier we will be producing only Biscuits in Phase 1 & 2. In Phase 3 we will be

adding Cakes and Cookies in our Product Mix.

So, in Phase 1 the Product Mix width will contain only Biscuits. The Product length & depth will

be as follows –

Marie Glucose Snack Milk Sweet Cream

90 gm 90 gm 115 gm 70 gm 70 gm Orange – 45gm, 90gm, 180gm

180 gm 500 gm 180 gm 225 gm 225 gm Bourboun – 45gm, 90gm, 180gm

360 gm Milk – 45gm, 90gm, 180gm

Strawberry – 45gm, 90gm

Elaichi – 45gm, 90gm

Table 3: Product Mix Length and Depth

THE PLANNED CAPITAL INPUTS

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1) Land and Building – The Factory and Administration Office will be set up at same place in

Dankuni (15km from Kolkata). The total area required will be 30,000 sq.ft.

2) Machinery for Production

Vertical or Horizontal Laminator

Combination Sheeter

Gauge Roll

Rotary or Reciprocating Cutter

Rest Conveyor

Vertical & Horizontal Rotary

Moulder

Drive and Panner

Salt / Sugar Sprinkler

Oven Drive and Oven Tension

Oven (Direct Gas fire or electric)

Oil Filter

Oil Spray Machine

Cooling Conveyor

Biscuit Stacking Machine

Packing Conveyor

Side scrap return system

Reciprocating Distribution

3) Utilities

Manufacturing of Biscuits will be through Electric Ovens. So our full plant will be

dependent on Electricity. In case there is any power cut from the Electricity supplier then

we have to immediately start the generator and this should not be delayed by more than

60 seconds. This is so because if biscuits remain inside the oven for more than 60

seconds then the whole lot will get burnt. Therefore, we will require a Power House

where a generator will be kept and sufficient amount of fuel will also be stored.

Again, our factory will be located in the industrial region so maybe there will be no

supply of corporation water. Then we will require a Water Softner Plant. Here, the

underground water will extracted and then it will be purified so that we ca use for our

production purpose.

4) Miscellaneous Assets

We will require some other assets too for both office and factory.

For Office – Furniture & Fittings, Electrical Equipments, Computers & Accessories

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For Factory – Furniture & Fittings, Electrical Equipments, Exhaust Fans, Laboratory

Instruments

5) Raw Materials & Packing Materials

Wheat flour would be the basic raw material followed by soya flour. Others like starch, salt,

sugar, ghee, baking soda, colours, flavours etc. shall be required in small quantity. Packing

material like printed wrappers, plastic bags, cartons, box strapping etc. shall be required.

6) Manpower Requirements

For Factory –

Skilled Labours

Helpers

Supervisors

Manager

Electrical Guy

Mechanical Guy

For Office –

Clerks

Accountants

Personal Manager

Personal Department

Finance Head

Finance Department

Marketing Head

Marketing Department

Sales Man

Commercial Department

Piaons & Guards

DUMPING

Now, the question is what we should of any scrap production, sub-standard production, or any

production which flows back to the factory from retailers. For this we have thought of to sell

these to the dairy or to the individuals as cow feed. This can be done at the rate of Rs. 25/kg.

This will help us to lower our normal loss as these kinds of losses are very general to the biscuit

industry.

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COMMERCIAL AND LEGAL REQUIREMENTS

Laws relating to Food Processing Industries

There are a number of food laws being implemented by various Ministries/Departments. These

are primarily meant for two purposes namely (1) Regulation of Specifications of food and (2)

Regulation of Hygienic condition of Processing/Manufacturing. Some of these food laws are

mandatory and some are voluntary. The details of various food laws in operation in India are as

under:-

A. Food Laws

1. Prevention of Food Adulteration Act (Ministry of Health)

The Act lays down specifications for various food products and is mandatory. The Ministry of

Health in 1995 had constituted a Task Force under the chairmanship of Shri E.S.

Venkataramaiah, Chief Justice of India (retired). The Task Force recommended that there should

be emphasis on good manufacturing practices instead of detection of adulteration and

prosecution. It also expresses concern about lack of laboratory equipments and quantified

persons. In addition it also suggested that the name of PFA Act be changed to Food Safety Act.

2. Agriculture Produce (Grading & Marking) Act (Ministry of Rural Development)

This Act is commonly known as AGMARK and is voluntary. The Act lays down the

specifications for various agricultural commodities including some processed foods.

3. Laws being operated by Bureau of Indian Standards (BIS)

BIS is the largest body for formulating standards for various food items. These standards are also

voluntary.

4. Essential Commodities Act

A number of quality control orders have been issued under Essential Commodities Act such as

FPO, MMPO, Meat Product Order and Vegetable Oils Control Order. These orders are

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mandatory and primarily meant for regulating the hygienic conditions. They need to be clubbed

under one order which may call Food Products Order.

B. Harmonization of Food Laws

The review of multiple laws is necessary to have a uniform and logical approach for regulating

the quality of food. The following action is being taken by various Ministries:-

1. The Ministry of Civil Supplies & Consumer Affairs has brought out a paper for consideration

of Committee of Secretaries (COS). The paper recommends that BIS should formulate standards

for all food items in the country. This will be a major step towards harmonization of food laws

and is still under consideration of COS for finalization.

2. The Task Force constituted by the Prime Minister under the chairmanship of Shri Nulsi Wadia

has submitted its report which is under the consideration of the Government. The Task Force had

advocated promotion of food safety and quality. The Task Force has further made following

suggestions:-

Food Regulation Authority (FRA) be set up to formulate and update food standards for

domestic and export market.

FRA should replace the PFA to conform to international standards. The Task Force has given

ten specific recommendations such as provision of storage simplicitor, simplification of

sampling procedure, simplification of procedure for nominee, time limit for prosecution,

standard methods of analysis to be prescribed, penalty should graded according to the gravity

of offences and provision of adequate/infrastructure and laboratories.

Harmonisation of Indian standard with quality norms of Codex and WTO.

The Central Committee of food Standard (CCFS) should be replaced by FRA Governing

Body for expeditious decisions.

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General Laws and Commercial Requirements

Following Licences will be required

1) Licence will be required to set up factory.

2) Licence will be required under Water Pollution Act.

3) Licence will also be required for Labour Employment.

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ANALYSIS FOR DECISION MAKING REGARDING THE

LEVEL OF PRODUCTION

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Here we have developed 4 strategies –

1) To produce with 1 Machine in 2 Shifts

2) To produce with 1 Machine in 3 Shifts

3) To produce with 2 Machines in 2 Shifts

4) To produce with 2 Machines in 3 Shifts

Each Machine has a capacity of producing 1,000 tonnes per month of 25 days at 100% efficiency

when working in 3 shifts. The Annual Production and Efficiency which can be achieved with

each of the strategies is given below -

Excel Files\23.xls

Note:

1) Annual Production (under capacity utilisation)

= Annual Production (under installed Capacity)*Efficiency*No. of Shifts/3

2) Total Working Days = 25*12 = 300

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On the coming page, Basis for selecting Raw Material Stock in days has been shown. Here, first

we have taken 15 days and then 10 days and on the basis of Cost of Holding the decision has

been made.

Moreover, calculation for Annual requirement of Raw Materials (both in terms of volume and

money involved) has been shown.

The calculations are on the basis of following –

1) Contents in percentage terms for manufacturing biscuits

Wheat Flour - 65%

Soya Flour - 12%

Sugar - 30%

Vanaspati & Edible Oil - 3%

Preservatives, etc - 2%

Total 112%

2) Rates of the Raw Materials are taken as –

Wheat Flour @ Rs. 15,000 per ton

Soya Flour @ Rs. 30,000 per ton

Sugar @ Rs. 24,000 per ton

Vanaspati & Edible Oil @ Rs. 70,000 per ton

Preservatives, etc @ Rs. 20,000 per ton

Excel Files\24A.xls

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In the next page, calculation for Man power Requirement for both factory and administration

has been shown. The monthly cost incurred on that has also been shown. The calculations are on

the following basis.

1) Numbers of man power required is on the basis of discussions with the industry experts.

2) Rates for different labours are as -

For Factory –

Skilled Labours @ Rs. 150 per day

Helpers @ Rs. 100 per day

Supervisors @ Rs. 10,000 per month

Manager @ Rs. 25,000 per month

Electrical Guy @ Rs. 15,000 per month

Mechanical Guy @ Rs. 15,000 per month

For Office –

Clerks @ Rs. 6,000 per month

Accountants @ Rs. 12,000 per month

Personal Manager @ Rs. 40,000 per month

Personal Department @ Rs. 15,000 per month

Finance Head @ Rs. 45,000 per month

Finance Department @ Rs. 15,000 per month

Marketing Head @ Rs. 45,000 per month

Marketing Department @ Rs. 15,000 per month

Sales Man @ Rs. 8,000 per month

Commercial Department @ 15,000 per month

Piaons & Guards @ Rs. 3,000 per month

Excel Files\25A.xls

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On the coming page, calculations for Working Capital Investment, Operative & Administrative

Expenses and other Administrative Expenses have been shown.

Basis for Calculation of Working Capital Investment –

1) Raw Material Days are taken as 10 days.

2) Pacing Materials Days are taken as 15 days.

3) Finished Goods days are taken as 25 days.

4) Working Expenses are taken for full month.

5) Average Collection Period is taken as 10 days.

6) Average Payment Period is also taken as 10 days.

Basis for Calculation of Operative & Administrative Expenses –

1) The Electricity and Water Supply Expenses are purely on the basis of experience of the

Industry Experts.

2) For transportation cost it is taken that there will be 10 tonnes truck. Each tuck will charge

Rs. 3,500 per trip. The trucks will be full load.

3) Wages & Salaries for Factory & Administration is taken as the figures calculated on Pg -

16A.

4) The Repairs & Maintenance and Stores & Spares are taken as Rs. 100,000 fixed and

0.25% of Sales as variable.

Excel Files\26A.xls

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Here, Cost of Project has been computed. All the figures are on the basis of discussions with

industry experts. Again, Working Capital Margins are taken as 25% of the total Working Capital

Requirement.

Excel Files\27.xls

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Rates for Depreciation on Fixed Assets applicable as per Income Tax Act, 1961 has been

preferred over Rates as per Company Act. The rationale behind this is making calculations

simpler. Moreover, it also gives the actual picture of the forecast as any government incentives

are provided on this basis only.

Excel Files\28.xls

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Fringe Benefit Tax (FBT) is a type of Direct Tax. It is paid on the expenses which are paid from

the account of the company but the expenses are not for business purpose instead it is for the

personal purposes of employees. 20% of expenses for Telephone, Travelling & conveyance and

20% of Depreciation on Car adds up to Value of Fringe Benefit on which the FBT is paid.

Excel Files\29.xls

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Excel Files\30.xls

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On the following page projection of profit has been made under each strategy. Basis of

calculations are –

1) Sales Revenue = Annual Production* 93%*Rs.75,000/ton

2) Rate of Rs. 75,000 per ton is taken as industry standard. Generally, a pack of 360gm of Marie

is sold at Rs. 20 which gives the per kg rate of Rs. 55 and a pack of 90gm of Cream Biscuits

is sold at Rs. 10-11 which gives per kg rate of Rs. 115-120. These are two extremes and so

on an average per kg rate of Biscuit comes to Rs. 85-90. Keeping a 10-14% of margin for

retailers we get a Rate of Rs. 75 per kg i.e. Rs 75,000 per ton.

3) Selling and Distribution Expenses are taken at 30% of Selling Price.

4) Selling And Distribution Expenses includes the following expenses -

Carriage Outward

C&F Expenses

Distributor’s Margin

Advertising Expenses

Promotions & Schemes

5) Realization from Scrap Sale = Annual Production*2%*Rs.25,000/ton

6) Scrap Sale here refers to Sale of Biscuits which is either damaged during processing or which

are sales return due to damage, expiry, or bad taste.

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Here, the Profitability Ratios – ROCE & ROE are computed. ROCE means Return on Capital

Employed and ROE means Return on Equity.

Excel Files\32.xls

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Market Share achieved through different strategies –

STRATEGY

I II III IVAnnual Sales in tones 4,800.00 6,960.00 10,400.00 15,120.00

Volume of the Geographical Market

which has to be entered (in tones)

1,94,000.00 1,94,000.00 1,94,000.00 1,94,000.00

Market Share (in %) 2.47 3.58 5.36 7.79

On the basis of analysis on the following page - the Profitability Ratios and Market Share we

have decided to go with strategy III initially and if there will be any requirement of increasing

the production then we can switch to either strategy IV or we can continue with the same

strategy with overtime which ever will be suitable. The rationale behind going for strategy III

and not IV is that initially a target of 7.25% market share can put a lot of pressure on the

management. It can also lead to high Inventory days for Finished Goods which will put pressure

on the Working Capital.

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PROJECTION OF PROFITABILITY FOR NEXT 5 YEARS

UNDER STRATEGY III

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Here requirement of Raw Materials and Packing Materials has been projected for the next years.

The cost of Packing Materials is taken as 15% of sales. The cost of Raw Materials has been

inflated by 5%.

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RECOMENDATIONS

The Implementation schedule on the next page is recommended for this project. The implementation

schedule has been prepared with starting date of project as 10th of April 2009.

LIMITATIONS OF THE STUDY

The project is entirely based on current situation of the industry. Most of the facts and figures are

based on the discussions with Industry Experts. So, projections may not be 100% correct.

Moreover, there are some assumptions too, like the inflation is considered constant at 5%. This

may not be true.

Again, the project if implemented will be implemented after a certain period of time, so the

analysis done now may not be valid at that point of time.

SCOPE OF FUTURE IMPROVEMENTS

Over the period of time following improvements can be made in this project -

We can search for new market places for our product launches

We can increase are product mix length by upward integration. Like if instead of

purchasing wheat flour we purchase wheat and then produce the flour in our own mill

then we can have the by-products as Wheat Daliya, Rusk, etc. This can help us to further

decrease our input cost and can help us to use our Brand for other products too.

We can increase the product mix length by entering into bakery segment too.

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Excel Files\43.xls

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