Plan for setting up Coffee Powder Manufacturing Business

presented by

V VIJAY KUMAR113158

Coffee - History

• Coffee culture in India started with a muslim saint Baba Budan in 1670

• He smuggled seven coffee seeds from Yemen to Mysore and planted the on chandragiri hills in Karnataka

• Later they did spread to other parts of Karnataka , Nilagiris , and Kerala

• In 1942 , Indian government decided to regulate export of coffee under Coffee Board of India

Coffee market in India• India, the world's sixth-largest coffee exporter, may turn a net importer the next decade, Tata

Coffee Managing Director Hameed Huq said.

• Domestic consumption is growing five-six per cent a year, while production is stagnating, watchers said. “Domestic per capita consumption is at 90g a year; even if the consumption goes up to 270g per person a year, the country will turn a net importer the next decade.”

• Consumption in India is estimated at 125,000 tonnes a year against a production of 315,000 tonnes. For 2013-14, production is estimated at 311,000 tonnes, a decline of two per cent from a year ago.

• In 2012-13, India exported 308,916 tonnes, a decline of 10.3 per cent compared to 2011-12.

• The market for coffee outlets in India was estimated at around $190 million last year and is expected to grow by around 30% over the next five years

Production (in tonnes) Consumption (in tonnes)2009-10 289600 120300

2010-11 302000 108400

2011-12 314000 113480

2012-13 315000 124000

2013-14 311000 N/A

The graph above shows how coffee is slowly penetrating in to Tea market in India

•India is largely a tea-drinking country•Domestic consumption of coffee is rising at about 5%-6% every year, while tea consumption is increasing only at about 2% annually, according to government data released earlier this year.•Over 80% of visitors to Indian coffee retail chains are below the age of 40

Coffee vs Tea

Existing Brands

There are about 75 registered coffee brands in India of which majority are local brands. When it comes to market share the dominant players are

• Nescafe• Tata Coffee• Bru

SWOT analysis

• Strengths excellent growing conditions and hence wide availability of crop Reasonably cheap machinery technical expertise of labour is not much required Good export market

• Weakness High production when compared to domestic market Well established players and brands Places suitable for coffee cultivation in India are to one end of map. Hence sales involve a lot of transport

• Opportunity Vast export market Penetration into Tea market Youth preferring coffee over Tea

• Threats Replacement by other beverages Climatic conditions change which may badly effect coffee production

Threats to the business

Well established market of

Nescafe sunrise bru

Suppliers upper hand

Distance concerns

Tea marketOther beveragesBranded Coffee

stores

Suppliers favouring

existing brandsGives them

upperhand in bargain

Coffee store chains

STARBUCKS COSTA CAFÉ

Are destroying traditional coffee

consution

Raw materials• Two of the 50 known species of coffee beans dominate the

beverage coffee industry. • Coffee arabica varieties, grown primarily in Latin America, India,

and Indonesia, are relatively mild in flavor and, consequently, bring a higher price. They are also relatively expensive to harvest, since individual coffee cherries must be hand picked at their peak of ripeness. They form 90% of total coffee produced across the world

• Coffee robusta varieties, grown mainly in Africa, India, and Indonesia, have a harsher flavor, but they are cheaper to grow since they can be harvested over a range of ripeness and are more resistant to diseases and insects. Because of their more attractive price, the robustas are widely used in the manufacture of instant coffees.

ProcessCoffee bean extraction

Roasting of coffee beans and cooling

Grinding roasted coffee beans

Packaging

• CLEANING & BLENDING OF GREEN COFFEE The first step is thorough cleaning of defective beans, & separation of

nails, stones, dirt & dusts. Blending of beans is carried out before roasting by installing volumetric feeders at the outlet of the silos. Through this process various kinds of blends are obtained depending on the taste and demand of the market.

• ROASTING & GRINDING OF GREEN COFFEE Roasting of coffee beans develops the flavor & aroma which depends

on various physical & chemical changes which occur during roasting. Degree of roast & roasting temperature are very important and plays an important role in deciding the flavor and colour of the final product.

• Ground coffee is then packaged in air free and aroma preserving packets

Machinery Requirements & Technical Specifications

• Coffee beans extractor for extracting beans out of coffee seeds Capacity : 4 kg/ hr Power rating : 0.8 kw• Centrifuge Dimensions : 3000 litres Capacity : 10 kg/hr Power rating :1.5 kw• Roaster Capacity : 20kg /hr• Grinder Capacity : 15kg/hr Power rating : 1.2 kw• Packaging machinery Capacity :2000 packs / hr Power rating : 2.5 kw

Financial Analysis

Machinery expensesMachinery Cost ( in INR) No. of units

Coffee beans extractor

45,000 5 225000

Centrifuge 55,000 2 1,10,000

Coffee bean roaster 5,00,000 2 10,00,000

Grinder 82,000 2 1,64,000

Packaging Machinery

6,50,000 1 6,50,000

Total machinery cost

21,49,000

• Coffee is manufactured into 250gm packets• No. of packets manufactured in an hour = 80• Price on each Packet = 40 rs• Assume a day has 8 working hours and an year

has 250 working days• Total packets manufactured = 250*8*80 =1,60,000

• Estimates of Production• Installation Capacity = 1,60,000 units /year• Unit price = 40rs

Year % utilization of installed capacity

Sales (in units)

Sales (in rupees)

1st year 50 80,000 32,00,000

2nd year 75 1,20,000 48,00,000

3rd year 90 1,44,000 57,60,000

4th year 100 1,60,000 64,00,000

• Land Land requirement : 10 ,000 sq.m or 2.5 acres

nearly Lease rates : 6.5 lacs per annum / acre Lease period :20 yrs Land rentals per year 16.25 lacs Building Construction cost : 35 lacs

Fixed AssetsAsset Value (in INR)

Land 16,25,000

Building 35,00,000

Machinery 21,49,000

Furniture , electrical and plumbing works 2,00,000

Total 74,74,000

Depreciation on fixed assets is 10 %

Depreciation on value of fixed assets is Rs. 7,47,000 per year

Working Capital• Raw Materials• Coffee seeds = 30 rs/kg• Requirement = 1,00,000 kg /year• Total cost = 30,00,000 /year

Designation

Number Annual pay

Total

Manager 1 5,00,000 5,00,000Accountant

1 3,60,000 3,60,000

Technicians

20 2,40,000 48,00,000

Gaurds 3 60,000 1,80,000

Staff and labour :

WORKING CAPITAL :

Amount ( in INR)

Raw Material & utilities 30,00,000

Labour 11,60,000

Total 44,60,000

Year Utilization of capacity

Cost of production

1st 50% 15,00,000

2nd 75% 22,50,000

3rd 90% 27,00,000

1st year 2nd year 3rd year

Cost of production 15,00,000 22,50,000 27,00,000

Administrative expenses 11,60,000 11,60,000 11,60,000

Utilities expense 87,303 96,033 105,636

Office expenses 7,759 6,875 6,265

Promotional expenses 198,335 359,979 272,712

Proffesional fee 49,584 68,178 89,995

Total administarative expenses 262,983 2,451,065 2,394,607

Total sales expenses 1,131,491 1,225,533 1,197,304

Cost of production 2,332,383 4,407,326 5,251,674

Expected sales64,00,000 96,00,000 1,15,20,000

Gross profit before intrest 4,171,377 5,192,674 6,268,326

Total financial expenses expenses

     

rental 1,625,000 1,625,000 1,625,000

intrest on debt 1,409,831 1,409,831 1,409,831

Depreciation 747,000 747,000 747,000

Operating profit 389,546 1,410,843 2,486,495

Preliminary expenses written off 500,000 300,000

Profit before taxation 389,546 910,843 2,186,495

Provision for taxation 53,236 170,319 393,059

Profit after tax 336,310 740,524 1,793,437

Less dividend on sharing capital 318,248 477,929 693,745

Retained Profits 18,062 258,447 1,099,692

Net Cash accrual      

PROFITABILITY

PROJECTIONS

Fixed and Variable costsParticular Fixed cost Variable cost

Rental 16,25,000

Depreciation 74,700

Salaries & wages 11,60,000

Utilities 87,303

Raw materials 30,00,000

Office expenses 7759

Promotional expense 198,335

Professional fees 49584

total 29,17,043 32,85,638

Liabilities 1st year 2nd year 3rd year Assets 1st year 2nd year 3rd year

Accounts payable 56778 153333 662488 Cash35,000 123,000 465,000

long term debt 5000000 5000000 5000000 accounts recievable 351240 542380 772660

share holders equity 1825400 2237600 2834480 finished goods inventory 200000 350000 500000

Retained earnings18,062 258,447 1,099,692

Raw material inventory 250000 380000 700000

Debts 1460000 1370000 1065000 Land 1625000 1625000 1625000

Total equity 1825400 2237600 2834480 Building & infrastructure 3600000 3600000 3600000

machinery 2149000 2149000 2149000

Total liabilities 8310240 8869380 10661660 furniture 100000 100000 100000

Intangible assets 500000 600000 750000

Total assets 83,10,240 88,69,380 10,661,660

Balance Sheet

Break even Analysis

• Fixed costs per unit = 18.23 rs /unit• Variable costs per unit = 20.53 rs/ unit• Contributions per unit = SP/unit – V.C/unit = 40-20.53 = 19.47rs/unit• Break even point = fixed cost / (contribution / unit)

= 29,17,043 / 19.47 = 149822 units

Benefit to Cost Ratio

• Profits = Rs. 17,93,437• Investment = Rs. 62,02,681• BCR = Profits / Investment = 0.289