smeda light weight roof tiles manufacturing unit

Pre-Feasibility Study

LLiigghhtt WWeeiigghhtt RRooooff TTiilleessMMaannuuffaaccttuurriinngg UUnniitt

Small and Medium Enterprise Development AuthorityGovernment of Pakistan

www.smeda.org.pk

HEAD OFFICE

6th Floor, LDA Plaza, Egerton Road, Lahore.Tel: (042) 111-111-456, Fax: (042) , 6304926, 6304927

[email protected]

REGIONAL OFFICE PUNJAB

REGIONAL OFFICE SINDH

REGIONAL OFFICE KHYBER PAKHTUNKHWA

REGIONAL OFFICE BALOCHISTAN

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

Tel: (042) 111-111-456Fax: (042) 6304926, 6304927

[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) 2831623, 2831702


June, 2010

Pre-feasibility Study Roof Tiles Manufacturing Unit

BAL-PREF-24/June, 2010

II

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. Therefore, the content of this memorandum should not be relied upon

for making any decision, investment or otherwise. The prospective user of this memorandum is

encouraged to carry out his/her own due diligence and gather any information he/she considers

necessary for making an informed decision. The content of the information memorandum does

not bind SMEDA in any legal or other form.

DOCUMENT CONTROL

Document No. PREF-24

Prepared by SMEDA-Balochistan

Issue Date June 2010

Issued by SMEDA-Balochistan



III

1 Purpose of the document............................................................................... 3

2 Project Profile................................................................................................ 3

2.1 Project Brief ................................................................................................................32.2 Opportunity Rationale..................................................................................................42.3 Market Entry Timing ...................................................................................................42.4 Proposed Business Legal Status ...................................................................................42.5 Proposed Product Mix .................................................................................................42.6 Production Capacity.....................................................................................................52.7 Project Investment .......................................................................................................52.8 Recommended Project Parameters ...............................................................................52.9 Suitable Location.........................................................................................................52.10 Key Success Factors ....................................................................................................62.11 Strategic Recommendations.........................................................................................6

3 Current Industry Structure .......................................................................... 6

3.1 National Industry .........................................................................................................7

4 Market analysis ............................................................................................. 8

4.1 Marketing Channels.....................................................................................................94.2 Marketing Constraints..................................................................................................94.3 Price structure..............................................................................................................9

5 Basic Requirements/ Technical Analysis ....................................................10

5.1 Varieties of Tiles to be Produced ...............................................................................105.2 Molds ........................................................................................................................105.3 Basic Raw Materials ..................................................................................................105.4 Production Process Flow............................................................................................105.5 Machinery and Equipment Requirement ....................................................................12

6 Human Resource Requirement ...................................................................13

7 Land and Building Requirement.................................................................13

7.1 Recommended Mode .................................................................................................14

8 Project Economics ........................................................................................14

9 Financial Analysis ........................................................................................15

9.1 Project Cost ...............................................................................................................159.2 Projected Income Statement.......................................................................................169.3 Projected Balance Sheet.............................................................................................179.4 Projected Cash Flow Statement..................................................................................18

10 Key Assumptions ......................................................................................19



IV

10.1 Production Related Assumptions ...............................................................................1910.2 Costs Assumptions ....................................................................................................1910.3 Revenue Assumptions................................................................................................1910.4 Financing Assumptions..............................................................................................2010.5 Depreciation Rates.....................................................................................................2010.6 Cash Flow Assumptions ............................................................................................2010.7 Economy Related Assumptions..................................................................................20


BAL-PREF-24/ June, 2010 - 2 -

Introduction to SMEDA

The 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.1i

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 financial aspects, niche marketing,

technology upgradation 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, urban 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 are 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.

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


BAL-PREF-24/ June, 2010 - 3 -

11 PPUURRPPOOSSEE OOFF TTHHEE DDOOCCUUMMEENNTT

The objective of the 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, and production, finance and business management.

22 PPRROOJJEECCTT PPRROOFFIILLEE

The proposed project is about establishment of a manufacturing facility for production of light weight roof tiles in the adjoining areas of cities and major towns. The document highlights all the marketing, management, and financial aspects required for the establishment and successful running of the project.

22..11 PPrroojjeecctt BBrriieeff

Roof is a very important part of any construction and it comes in many shapes and sizes.There are a wide variety of roofing materials that are used in construction today with a range of advantages and disadvantages. The choice of roof depends upon a number of factors, including the location, climate, desired look, maintenance and cost. In addition the easy/simple installation of the roofs and the durability of the roofing material are alsovery important considerations.

In addition to reinforced concrete roof, other more economic roofing materials include metal sheets, wood, clay and tiles etc. Roofing tiles are one of the preferred construction materials for low cost housing and commercial constructions (warehouses, factories etc.). These tiles can be made of clay brick (e.g., clay fired at a high temperature) or fabricated from concrete.

The proposed project is related to the production of pre-fabricated concrete roofing tiles. The tiles can be designed in a way to achieve high performance in wide range of roof requirements such as converting flat roofs to pitched roofs, construction of housing, community centers, warehouses and factories etc. It is also suitable for roofing of schoolsand other public buildings especially in the rural areas.

The lightweight roofing tiles manufacturing unit will fulfill the local housing construction demand of tiles of different sizes and strengths depending upon the individual requirements of the customer. Roofing tiles used in Balochistan are generally available in 12”x12” however, given the customer demand tiles of different specification can also be manufactured.


BAL-PREF-24/ June, 2010 - 4 -

22..22 OOppppoorrttuunniittyy RRaattiioonnaallee

One of the most basic human needs is shelter, which for most people consists of a few walls and a roof over heads. Providing shelter to every family has also become a major issue for the governments. Being a basic need, the demand for the homes has increased greatly in past two decades. The major cause in increase of demand of housing ispopulation growth and rapid pace of urbanization. In addition, the trend is shifting from joint family system to individual family systems in the urban areas. All of these factors have resulted in major increase in demand for new housing units all over the country.

Roof tiles have gain popularity, especially with the lower income segment of the population, because they are lower in cost as compared to reinforced concrete roofs. Other advantages of tile include durability (compared to wooden/mud roofs), easy installation, easy maintenance and fire safety, as they are non-combustible.

Light weight roofing tiles have a number of uses including public, private, commercial and residential projects and it has well-proven market demand making it a good business opportunity.

22..33 MMaarrkkeett EEnnttrryy TTiimmiinngg

Demand of new housing remains constant throughout the year, however, construction activities slow down in some parts of the country where weather is extremely cold in winters. It is, therefore, recommended to initiate the operations at the end of winters in the colder areas. In other areas the business can be initiated at any time.

22..44 PPrrooppoosseedd BBuussiinneessss LLeeggaall SSttaattuuss

The business can be started as sole proprietorship or partnership basis. Furthermore, comparatively fewer complications are involved in forming, administering and running the sole proprietorship or partnership businesses.

22..55 PPrrooppoosseedd PPrroodduucctt MMiixx

The Proposed project can produce 900 tiles of 12”x12” in one day.

TTaabbllee 22..11:: PPrroodduucctt MMiixx

Product Average Production Per Day Price Tile (Rs.)12” x 12” Tiles 900 11


BAL-PREF-24/ June, 2010 - 5 -

22..66 PPrroodduuccttiioonn CCaappaacciittyy

The financial statements for this project are based on the production of 900 tiles/ day.However, the project can be initiated with the production of 300 tiles / day in smaller towns and other areas where the demand is comparatively lower.

22..77 PPrroojjeecctt IInnvveessttmmeenntt

The total project investment is Rs. 2.47 Million which includes Capital Cost of Rs. 2.31Million and Working Capital of Rs. 0.16 Million. The project is assumed to be financedthrough 60% equity and 40 % debt basis.

22..88 RReeccoommmmeennddeedd PPrroojjeecctt PPaarraammeetteerrss

TTaabbllee 22..22 :: PPrroojjeecctt PPaarraammeetteerrss

Max Capacity Human Resource Technology/Machinery Location

900 Tiles/Day 4 Full time Local Made

Quetta, Mastung, Kalat,Sibi, Pishin, Killa

Saifullah, Ziarat and other cities of towns of Pakistan

Financial Summary

Total Cost IRR NPV Pay Back PeriodCost Of Capital

(WACC)

Rs. 2.47 M 35% 3,066,657 3.57 Years 16%

22..99 SSuuiittaabbllee LLooccaattiioonn

The choice of location depends upon the availability of raw materials and the proximity of target market. The proposed low cost roofing structure is used in single story buildingsor it may also be used in the top floor of a two story building. Demand for such type mainly exists for housing projects in towns and smaller cities. Additionally, in larger cities the low cost roofs are used in suburban housing schemes, ware houses and factories. The production unit can be established in cities and towns of Pakistan where the basic raw materials including cement, sand and water are easily available. Quetta, Mastung, Kalat, Sibi, Pishin, Killa Saifullah and Ziarat etc. are some of the areas recommended for starting such facility in Balochistan.

Infrastructure Requirements

Road Electricity Water


BAL-PREF-24/ June, 2010 - 6 -

22..1100 KKeeyy SSuucccceessss FFaaccttoorrss

Growing demand for new housing units throughout the year. Growing demand from the institutional market (warehouses, factories, government

buildings etc.). Lower cost of construction as compared to Reinforced concrete roof.

22..1111 SSttrraatteeggiicc RReeccoommmmeennddaattiioonnss

Establishment of the unit in areas where basic infrastructure including water and electricity are available.

There are great fluctuations in the cost of raw materials; therefore, the business must be efficiently managed.

With small amount of training the efficiency of that staff can be increased.

33 CCUURRRREENNTT IINNDDUUSSTTRRYY SSTTRRUUCCTTUURREE

Construction is a complex sector of the economy, which involves a broad range of stakeholders and has wide ranging linkages with other areas of activity such as manufacturing and the use of materials, energy, finance, labor and equipment. Globally, construction industry is regarded as one of the largest fragmented industry. An estimate of annual global construction output was closer to U.S $ 4.5 trillion in 20042.

The construction industry is also a prime source of employment generation offering job opportunities to millions of unskilled, semi-skilled and skilled work force. The distribution of construction employment is highly different in high-income and low income countries. The high-income countries produce 77 per cent of total construction output with 26 per cent of global employment in construction sector. The rest of the world (comprising low- and middle-income countries) produces only 23 per cent of output but has 74 per cent of employment in this sector3. The share of construction in the labour force varies, from about 5 per cent to 8 per cent in larger developed countries, and up to double-digit figures in some developing countries. The indirect creation of jobs in the sector has been estimated at around two to one. Construction is one of the largest employers worldwide, and a major gateway for new jobseekers, especially for unskilledworkers.4

The construction sector consists of the following areas:

Infrastructure, repair and maintenance Public and private housing Non-residential public property (e.g. hospitals and schools)

2 Source: Engineering News Record, USA

3 ILO Press Release, Geneva2001

4 ILO , Committee on Sectoral and Technical Meetings and Related Issues, March 2009


BAL-PREF-24/ June, 2010 - 7 -

Industrial (e.g. factories and processing plant) Commercial construction

Construction sector deals with all economic activities directed to the creation, renovation, repair or extension of fixed assets in the form of buildings, land improvements of an engineering nature. It includes hospitals, schools, townships, offices, houses and other buildings; urban infrastructure (including water supply, sewerage, drainage); highways, roads, ports, railways, airports; power systems; irrigation and agriculture systems; telecommunications etc.

33..11 NNaattiioonnaall IInndduussttrryy

Construction activities and its output is an integral part of a country’s national economy and industrial development. The construction industry is often seen as a driver of economic growth especially in developing countries. The industry can mobilize and effectively utilize local human and material resources in the development and maintenance of housing and infrastructure to promote local employment and improve economic efficiency. Construction makes a noticeable contribution to the economic output of a country; it generates employment and incomes for the people and therefore the effects of changes in the construction industry on the economy occur at all levels and in virtually all aspects of life.

Construction sector is playing an important role in Pakistan’s economy as well and serving as major contributor for economic development of the nation. The industrygenerates employment opportunities for millions of unskilled, semi-skilled and skilled work force. In addition it provides growth impetus to other related sectors through backward and forward linkages.

Although the construction sector had only a 2.07 percent share in GDP in year 2008-09, its share of the employed labor force was disproportionately large at 6.6 percent in the same period. Construction industry had experienced exceptional growth in early 2000s.It grew by a remarkable 24.3 percent in 2006-07. However due to the economic downturnit declined by 5.5 percent in 2007-08 and further declined by 11.2 percent in 2008-09.The industry received this set back as result of reduction in both infrastructure projects and decline in the housing sector. The major cause contributed to the decline was lack of finance and the decline in the property market.

Table 3.1: Growth Performance of Construction Sector

(Percent Growth)

Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Percent Growth

18.6 10.2 24.3 - 5.5 - 11.2 15.3

Source: Economic Survey of Pakistan 2009-10


BAL-PREF-24/ June, 2010 - 8 -

Despite the continued economic downturn the sector showed a positive growth rate of 15.3 percent in 2009-10. It is hoped that the situation will further improve over the next years mainly because a major portion of remittances from the overseas Pakistanis are meant for the property sector. In 2009-10, there has been a decline in Foreign Direct Investment (FDI) in a number of sectors; yet, construction sector received US$ 86 millioninvestment in the same period5.

In addition the industry itself is moving at a fast pace. New methods, techniques and technology are developing rapidly which means that the costs of construction can be reduced at the same time while improving the quality.

TTaabbllee 33..22 EEmmppllooyyeedd LLaabboouurr FFoorrccee bbyy SSeeccttoorrss

((PPeerrcceenntt))

2007-08 2008-09Sector

Total Male Female Total Male Female

Agriculture 44.6 36.9 75.0 45.1 37.3 74.0

Manufacturing 13.0 13.3 11.8 13.0 13.3 11.9

Construction 6.3 7.8 0.4 6.6 8.3 0.4

Transport 5.5 6.8 0.2 5.2 6.6 0.2

Services 13.7 14.4 10.6 13.66 11.1 11.6

Others 2.3 2.9 0.2 0.10 2.9 0.3

Total 100.00 100.00 100.00 100.00 100.00 100.00

Source: Labour force survey 2008-09 Federal Bureau of Statistics

44 MMAARRKKEETT AANNAALLYYSSIISS

There are different types of roofing options including reinforced concrete structure, clay bricks, metal roof etc. Due to the soaring construction costs, low cost roof option is in high demand in most of the rural and urban areas of the country. The tiles are used in a large number of construction projects including non-traditional/traditional housing, community centers, warehouses, factories etc. It is also suitable for roofing of schoolsand other public buildings especially in the rural areas.

The roof tiles manufacturers are concentrated in different parts of Quetta city including eastern by pass, Airport Road and Double Road. This is a highly unorganized sub sector

5 Economic Survey of Pakistan 2009-10


BAL-PREF-24/ June, 2010 - 9 -

of construction, since there are no specific quality standards. The manufacturers use different quantities of raw materials disproportionately in the production of same amount of tiles. Cement and reinforcement wires are two of the priciest raw materials and manufacturers change their quantities/ratio resulting in great variations in the cost, priceand quality of tiles.

44..11 MMaarrkkeettiinngg CChhaannnneellss

The marketing channels are relatively simple in case of prefabricated roof tiles. The tiles are directly sold to the private housing customers. Besides housing sector the tiles are marketed to corporate customers who use them in construction of warehouses, factories,low cost housing projects etc.

44..11..11 TTrraannssppoorrttaattiioonn aanndd PPaacckkaaggiinngg

Concrete roofing does not require any special packaging; however, they must be handled carefully during the transportation. Different means of transportation include trucks,tractor trolleys, Shahzore and pick-ups etc.

44..22 MMaarrkkeettiinngg CCoonnssttrraaiinnttss

The production process of the roof tiles is not highly standardized. Major portion of the cost of tile is attributed to the quantity of cement and number/diameter of reinforcement wire used in a single tile. There are variations in quantity of cement and the number of reinforcement wires used, additionally, the diameter of reinforcement wire is also reduced by some manufactures. This results in great variation in the production cost of single tile. Therefore, it is difficult to compete solely on the basis of price in this sector. The entrepreneur can, however, attain competitive edge in this industry by standardizing the production process. Higher strengths can be produced with the addition of supplementary cement and using good quality of reinforcement wires.

44..33 PPrriiccee ssttrruuccttuurree

The price of the tile largely depends upon the quantities and mix of raw materials used.Price is normally determined by the amount of cement used and number of reinforcement wires used in the tile. Owing to the nature of supply and demand, short-term price fluctuations may also occur.

Some of the factors influencing producer prices are: Amount of Cement used Number of reinforcement wires used Diameter of reinforcement wires


BAL-PREF-24/ June, 2010 - 10 -

55 BBAASSIICC RREEQQUUIIRREEMMEENNTTSS// TTEECCHHNNIICCAALL AANNAALLYYSSIISS

55..11 VVaarriieettiieess ooff TTiilleess ttoo bbee PPrroodduucceedd

The unit can produce 12”x12” tiles; however given the demand tiles of different sizes can also be produced.

55..22 MMoollddss

The molds can be made of wood or metal, for this project it is proposed that metallic molds are used since they are much more durable and long lasting as compared to wooden molds. One mold consists of two tiles placed side by side.

55..33 BBaassiicc RRaaww MMaatteerriiaallss

Cement Sand Crushed Stone Stone Powder Iron Wire Water

55..44 PPrroodduuccttiioonn PPrroocceessss FFllooww

The roofing tiles that are made of cement, sand, gravel mixture which are reinforced with steel wires. The tiles are made in wooden or steel frame, which is placed on an oiled smooth surface. After half-filling the mold with cement sand mixture, six to twelve iron wires are placed in crisscrossed manner. Then the remaining mold is filled up with the mixture. The tiles are left to set down in the mold for one day and after removing from mold they are placed in water for further two days. After removing from water they are left to cure for seven days before they are used in construction.


BAL-PREF-24/ June, 2010 - 11 -

The following steps describe the production of lightweight roofing tiles in detail.

Step 1: Ordering & Stockpiling the Raw

Raw material required for the production of lightweight roofing tiles i.e. sand, cement, iron wires and gravel will be ordered and stored as per the production requirement.

o It is recommended to store raw materials for one weeks production requirements for efficient running of project and orders fulfillment on time.

Step 2: Mixing

Lightweight roofing tile production begins by mixing aggregates. Sand is pre-washed to remove dirt contaminants. When aggregate are mixed thoroughly water is added to the mixture.

o In the local roof tile industry the mixing is performed manually however for higher production requirements aggregate mixer machine may also be used.

PROCESS FLOW CHART

Step 1: Ordering & Stockpiling the Raw Materials

Step 2: Mixing(Day 1)

Step 3: Molding(Day 1)

Step 4: De-molding and setting

(Day 2 -10)

Step 5: Storage & Distribution


BAL-PREF-24/ June, 2010 - 12 -

Step 3: Molding

The mold is lubricated with a thin layer of motor oil and kerosene mixture. It allows the tile to be easily removed from the mold after setting. The lubrication is applied by using paint brush.

o The lubrication is done by used motor oil purchased from motor workshops.

After lubrication the mold is half filled with aggregate mixture. At this point metal wires are placed on the aggregate in a crisscross manner. Six to twelve wires are used depending upon the requirement of the customer. The diameter of wire also varies. After adding the wires the mold is completely filled with aggregate.

When the molds are full, the concrete is compacted and the upper surface is made smooth by using masonry tools.

o The size and design of the mold determines the size and design of the finished tile.

Step 4: De-molding and Setting

The mold containing the wet concrete tile is moved to setting area. Initially, small amount of water is applied to keep the tiles wet. After about one day the tiles are removed from the mold and moved to a water tank where they are kept immersed in water for further two days.

After being removed from the water tank the tiles are kept in ambient temperature for another seven days to become firm.

Step 5: Storage and distribution

The tiles do not require specific storage requirements, they are normally stored in open air. The tiles are inspected for defects before they are sent for shipment.

55..55 MMaacchhiinneerryy aanndd EEqquuiippmmeenntt RReeqquuiirreemmeenntt

Major cost of the equipment is attributed to the molds (known as “firma” by the local industry), in addition to the molds the project requires very simple masonry equipment. (Cement mixer is only feasible to be used if the production capacity is in excess of 1,000 tiles / day). The details of required equipment are as follows:

TTaabbllee 55..11 :: MMaacchhiinneerryy aanndd EEqquuiippmmeenntt RReeqquuiirreemmeenntt

Items Total Cost Rs.1 Tile Molds (450 molds)* 697,5002 Misc. Equipment (Shovels, Wheel

borrow, Brushes and other masonry tools)

30,000

Total 727,500* One mold produces 2 tiles


BAL-PREF-24/ June, 2010 - 13 -

55..55..11 OOffffiiccee EEqquuiippmmeenntt aanndd FFuurrnniittuurree

TTaabbllee 55..22 :: OOffffiiccee EEqquuiippmmeenntt aanndd FFuurrnniittuurree

Furniture / Office equipment

Total Cost(Rs.)

1 Furniture 25,0002 Office Equipment 20,000

Total 45,000

66 HHUUMMAANN RREESSOOUURRCCEE RREEQQUUIIRREEMMEENNTT

Roof tiles manufacturing is very simple process hence unskilled workers with some instructions can easily start the production. The personal needed for the project are as under:

TTaabbllee 66..11:: HHuummaann RReessoouurrccee RReeqquuiirreemmeenntt

Description No. Monthly Salary /

Person (Rs.)

Total Salary / Year (Rs.)

Labour (Unskilled) 3 5,000 180,000Chokidar (Guard) 1 5,000 60,000Total Salary 240,000

77 LLAANNDD AANNDD BBUUIILLDDIINNGG RREEQQUUIIRREEMMEENNTT

Total required land for this project is 10,000 Sq. Feet. It will comprise of production area, Storage area for raw materials and storage area for finished products. The finished product and raw materials (with the exception of cement) does not require covered areatherefore they can be stored in open air. However, a storage room for cement is requiredand a small office should also be constructed at the production facility. The area required in square feet is as under:

TTaabbllee 77..11:: LLaanndd aanndd BBuuiillddiinngg RReeqquuiirreemmeenntt

Description Quantity / Area

Cost/ Unit

Total Cost (Rs.)

Office 196 1,000 196,000Store 256 800 204,800Production Shed 324 250 81,000Water Tank - - 44,000Total 525,800


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77..11 RReeccoommmmeennddeedd MMooddee

The project can be started on purchased or leased land depending upon the price of the land. Since price of land in the suburbs of cities and in rural districts of Balochistan is not very high the land is assumed to be purchased for this purpose. For smaller production capacity however, it is recommended to start the project on leased land.

88 PPRROOJJEECCTT EECCOONNOOMMIICCSS

TTaabbllee 88..11

Equity Project Internal Rate of Return (IRR) 40% 35%

Payback Period (yrs) 3.58 3.57Net Present Value (NPV) 2,634,951 (@ 18%) 3,066,657 (@ 16%)


BAL-PREF-24/ June, 2010 - 15 -

99 FFIINNAANNCCIIAALL AANNAALLYYSSIISS

99..11 PPrroojjeecctt CCoosstt

Capital Investment Rs. in actualsLand 1,000,000 Building/Infrastructure 525,800 Machinery & equipment 727,500 Furniture & fixtures 25,000 Office equipment 20,000 Pre-operating costs 10,000 Training costs - Total Capital Costs 2,308,300

Working Capital Rs. in actualsEquipment spare part inventory - Raw material inventory 62,164 Cash 100,000 Total Working Capital 162,164

Total Investment 2,470,464

Initial Financing Rs. in actualsDebt 992,569 Equity 1,477,895 Lease - Export re-finance facility -


BAL-PREF-24/ June, 2010 - 16 -

99..22 PPrroojjeecctteedd IInnccoommee SSttaatteemmeenntt

Statement Summaries SMEDAIncome Statement

Rs. in actualsYear 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Revenue 2,428,800 3,121,800 3,633,630 4,005,778 4,406,355 4,846,991 5,331,690 5,864,859 6,451,345 7,096,479 Cost of goods sold 1,708,586 2,135,859 2,433,337 2,638,536 2,854,841 3,088,962 3,342,373 3,616,674 3,913,596 4,235,014

Gross Profit 720,214 985,941 1,200,293 1,367,242 1,551,514 1,758,029 1,989,317 2,248,185 2,537,749 2,861,465

General administration & selling expensesAdministration expense 60,000 65,842 72,252 79,287 87,006 95,477 104,773 114,974 126,168 138,452 Travelling & Comm. expense (phone, fax, etc.) 30,000 32,921 36,126 39,643 43,503 47,739 52,386 57,487 63,084 69,226 Office expenses (stationary, etc.) 6,000 6,584 7,225 7,929 8,701 9,548 10,477 11,497 12,617 13,845 Professional fees (legal, audit, etc.) 6,072 7,805 9,084 10,014 11,016 12,117 13,329 14,662 16,128 17,741 Depreciation expense 103,540 103,540 103,540 103,540 103,540 103,540 103,540 103,540 103,540 103,540 Amortization expense 2,000 2,000 2,000 2,000 2,000 - - - - -

Subtotal 207,612 218,691 230,227 242,413 255,766 268,421 284,506 302,160 321,537 342,804 Operating Income 512,602 767,250 970,066 1,124,829 1,295,749 1,489,608 1,704,811 1,946,024 2,216,212 2,518,661

Other income 3,454 8,975 18,405 30,429 45,131 65,646 92,413 123,035 157,982 201,101 Gain / (loss) on sale of assets - - - - - - - - - - Earnings Before Interest & Taxes 516,055 776,225 988,471 1,155,258 1,340,879 1,555,254 1,797,224 2,069,060 2,374,194 2,719,762

Interest expense 168,737 144,681 116,536 83,606 45,078 - - - - - Earnings Before Tax 347,319 631,544 871,935 1,071,652 1,295,802 1,555,254 1,797,224 2,069,060 2,374,194 2,719,762

Tax 76,410 138,940 191,826 235,763 285,076 342,156 395,389 455,193 522,323 598,348 NET PROFIT/(LOSS) AFTER TAX 270,909 492,604 680,109 835,889 1,010,725 1,213,099 1,401,835 1,613,866 1,851,872 2,121,414

Balance brought forward 270,909 763,513 1,443,622 2,279,511 3,290,236 4,503,334 5,905,169 7,519,036 9,370,907 Total profit available for appropriation 270,909 763,513 1,443,622 2,279,511 3,290,236 4,503,334 5,905,169 7,519,036 9,370,907 11,492,321 Owner's Withdrawals - - - - - - - - - - Balance carried forward 270,909 763,513 1,443,622 2,279,511 3,290,236 4,503,334 5,905,169 7,519,036 9,370,907 11,492,321


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99..33 PPrroojjeecctteedd BBaallaannccee SShheeeett

Statement Summaries SMEDABalance Sheet

Rs. in actualsYear 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

AssetsCurrent assets

Cash & Bank 100,000 245,375 652,121 1,188,391 1,854,536 2,658,521 3,906,091 5,335,244 6,968,265 8,829,971 11,280,088 Accounts receivable - 199,627 228,107 277,620 313,948 345,704 380,275 418,302 460,132 506,145 556,760 Finished goods inventory - 74,286 89,408 101,612 109,939 118,952 128,707 139,266 150,695 163,066 176,459 Raw material inventory 62,164 84,724 104,567 122,235 142,575 166,299 193,972 226,249 263,896 307,809 -

Total Current Assets 162,164 604,013 1,074,203 1,689,859 2,420,998 3,289,476 4,609,044 6,119,060 7,842,988 9,806,991 12,013,307

Fixed assetsLand 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 Building/Infrastructure 525,800 499,510 473,220 446,930 420,640 394,350 368,060 341,770 315,480 289,190 262,900 Machinery & equipment 727,500 654,750 582,000 509,250 436,500 363,750 291,000 218,250 145,500 72,750 - Furniture & fixtures 25,000 22,500 20,000 17,500 15,000 12,500 10,000 7,500 5,000 2,500 - Office equipment 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 -

Total Fixed Assets 2,298,300 2,194,760 2,091,220 1,987,680 1,884,140 1,780,600 1,677,060 1,573,520 1,469,980 1,366,440 1,262,900

Intangible assetsPre-operation costs 10,000 8,000 6,000 4,000 2,000 - - - - - -

Total Intangible Assets 10,000 8,000 6,000 4,000 2,000 - - - - - - TOTAL ASSETS 2,470,464 2,806,773 3,171,423 3,681,539 4,307,138 5,070,076 6,286,104 7,692,580 9,312,968 11,173,431 13,276,207

Liabilities & Shareholders' EquityCurrent liabilities

Accounts payable - 130,495 164,486 188,198 204,545 221,921 240,855 261,501 284,028 308,624 305,991 Total Current Liabilities - 130,495 164,486 188,198 204,545 221,921 240,855 261,501 284,028 308,624 305,991

Other liabilitiesDeferred tax - 76,410 80,025 80,025 80,025 80,025 64,020 48,015 32,010 16,005 (0) Long term debt 992,569 851,065 685,504 491,799 265,163 - - - - - -

Total Long Term Liabilities 992,569 927,475 765,529 571,824 345,188 80,025 64,020 48,015 32,010 16,005 (0)

Shareholders' equityPaid-up capital 1,477,895 1,477,895 1,477,895 1,477,895 1,477,895 1,477,895 1,477,895 1,477,895 1,477,895 1,477,895 1,477,895 Retained earnings - 270,909 763,513 1,443,622 2,279,511 3,290,236 4,503,334 5,905,169 7,519,036 9,370,907 11,492,321

Total Equity 1,477,895 1,748,803 2,241,407 2,921,517 3,757,405 4,768,131 5,981,229 7,383,064 8,996,930 10,848,802 12,970,216 TOTAL CAPITAL AND LIABILITIES 2,470,464 2,806,773 3,171,423 3,681,539 4,307,138 5,070,076 6,286,104 7,692,580 9,312,968 11,173,431 13,276,207

Note: Total assets value will differ from project cost due to first installment of leases paid at the start of year 0- - - - - - (0) 0 (0) 0 (0)


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99..44 PPrroojjeecctteedd CCaasshh FFllooww SSttaatteemmeenntt

- - - - - - (0) 0 (0) 0 (0)

Statement Summaries SMEDACash Flow Statement

Rs. in actualsYear 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Operating activitiesNet profit - 270,909 492,604 680,109 835,889 1,010,725 1,213,099 1,401,835 1,613,866 1,851,872 2,121,414 Add: depreciation expense - 103,540 103,540 103,540 103,540 103,540 103,540 103,540 103,540 103,540 103,540 amortization expense - 2,000 2,000 2,000 2,000 2,000 - - - - - Deferred income tax - 76,410 3,615 - - - (16,005) (16,005) (16,005) (16,005) (16,005) Accounts receivable - (199,627) (28,479) (49,514) (36,328) (31,756) (34,570) (38,027) (41,830) (46,013) (50,615) Finished good inventory - (74,286) (15,122) (12,204) (8,327) (9,013) (9,755) (10,559) (11,429) (12,372) (13,392) Equipment inventory - - - - - - - - - - - Raw material inventory (62,164) (22,560) (19,843) (17,668) (20,340) (23,724) (27,672) (32,277) (37,648) (43,912) 307,809 Accounts payable - 130,495 33,991 23,712 16,347 17,376 18,935 20,646 22,527 24,596 (2,633) Other liabilities - - - - - - - - - - -

Cash provided by operations (62,164) 286,880 572,305 729,976 892,780 1,069,148 1,247,570 1,429,153 1,633,021 1,861,706 2,450,117

Financing activitiesChange in long term debt 992,569 (141,504) (165,560) (193,705) (226,635) (265,163) - - - - - Issuance of shares 1,477,895 - - - - - - - - - -

Cash provided by / (used for) financing activities2,470,464 (141,504) (165,560) (193,705) (226,635) (265,163) - - - - -

Investing activitiesCapital expenditure (2,308,300) - - - - - - - - - -

Cash (used for) / provided by investing activities(2,308,300) - - - - - - - - - -

NET CASH 100,000 145,375 406,745 536,271 666,145 803,985 1,247,570 1,429,153 1,633,021 1,861,706 2,450,117

Cash balance brought forward 100,000 245,375 652,121 1,188,391 1,854,536 2,658,521 3,906,091 5,335,244 6,968,265 8,829,971 Cash available for appropriation 100,000 245,375 652,121 1,188,391 1,854,536 2,658,521 3,906,091 5,335,244 6,968,265 8,829,971 11,280,088 Cash carried forward 100,000 245,375 652,121 1,188,391 1,854,536 2,658,521 3,906,091 5,335,244 6,968,265 8,829,971 11,280,088

s


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1100 KKEEYY AASSSSUUMMPPTTIIOONNSS

1100..11 PPrroodduuccttiioonn RReellaatteedd AAssssuummppttiioonnss

Initial production capacity of unit is assumed to be 80 % which will increase @ 10% annually to 95 % at maximum.

Production Capacity

Product Average Daily Production / person

No. of Labour Total Daily Production

Tiles 300 3 900

1100..22 CCoossttss AAssssuummppttiioonnss

Cost of goods sold for cement tiles is determined for by adding cement, sand, gravel, sand powder, iron wires, water and direct labour costs. This cost varies owing to the different ratios of raw materials are used by different manufacturers, for this project average cost of goods sold is assumed to be Rs. 7.7 per tile.

1100..22..11 AAddmmiinniissttrraattiioonn aanndd LLaabboorr CCoossttss::

Labor cost is calculated assuming one labour can produce 300 tiles per day.

Description No. Monthly Salary /

Person (Rs.)

Total Salary / Year (Rs.)

Labour (Unskilled) 3 5,000 180,000Chokidar (Guard) 1 5,000 60,000Total Salary 240,000

1100..33 RReevveennuuee AAssssuummppttiioonnss

Sales price ranges from Rs. 10 to Rs. 14 per tile depending upon the quality of tile. Sale price for this project has been calculated as Rs. 11 per tile. The sales price growth rate is assumed to increase at 10% per annum.


BAL-PREF-24/ June, 2010 - 20 -

Revenue year 1Production

Quantity Sold *Sale Price/ Unit (Rs.)

Total Revenue (Rs.)

220,800 11 2,428,800

* Subtracting finished product inventory from total production (Year 1)

1100..44 FFiinnaanncciinngg AAssssuummppttiioonnss

Debt 40 %Equity 60 %Required rate of return on equity 18 %WACC 16 %

1100..55 DDeepprreecciiaattiioonn RRaatteess

Building and Infrastructure 5 %Office Equipment 10 %Machinery and Equipment 10 %

1100..66 CCaasshh FFllooww AAssssuummppttiioonnss

Accounts Receivables Cycle (In Days) 30

Accounts Payable Cycle (In Days) 30

Cash in Hand Rs. 100,000

1100..77 EEccoonnoommyy RReellaatteedd AAssssuummppttiioonnss

Inflation rate 10 % Electricity growth rate 10 % Water price growth rate 10 % Wage growth rate 10 %

smeda light weight roof tiles manufacturing unit

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