fodder production trading company.pdf
TRANSCRIPT
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Pre-Feasibility Study
Prime Ministers Small Business Loan Scheme
Fodder Production & Trading Company
Small and Medium Enterprises Development Authority
Government of Pakistan
www.smeda.org.pkHEAD OFFICE
4th Floor, Building No. 03Aiwan-e-Iqbal Complex, Egertern Road Lahore
Tel: (042) 111-111-456, Fax: (042) 5896619, [email protected]
REGIONAL OFFICEPUNJAB
REGIONAL OFFICESINDH
REGIONAL OFFICENWFP
REGIONAL OFFICEBALOCHISTAN
3rd Floor, Building No. 03Aiwan-e-Iqbal Complex,Egertern Road LahoreTel: (042) 111-111-456,
Fax: (042) 5896619,5899756
5TH Floor, BahriaComplex II, M.T. Khan
Road, Karachi.
Tel: (021) 111-111-456Fax: (021) 5610572Helpdesk-
Ground FloorState Life Building
The Mall, Peshawar.
Tel: (091) 9213046-47Fax: (091) [email protected]
Bungalow No. 15-AChaman Housing Scheme
Airport Road, Quetta.
Tel: (081) 831623, 831702Fax: (081) [email protected]
September 2013
http://www.smeda.org.pk/http://www.smeda.org.pk/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.smeda.org.pk/ -
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Pre-Feasibility Study Fodder Production & Trading Co.
2
September 2013
Contents
1. DISCLAIMER ......................................................................................................................... 32. PURPOSE OF THE DOCUMENT ......................................................................................... 43. INTRODUCTION OF SMEDA .............................................................................................. 44. INTRODUCTION TO SCHEME ........................................................................................... 55. EXECUTIVE SUMMARY ..................................................................................................... 56. BRIEF DESCRIPTION OF PROJECT ................................................................................... 67. CRITICAL FACTORS ............................................................................................................ 68. INSTALLED AND OPERATIONAL CAPACITIES ............................................................ 69. GEOGRAPHICAL POTENTIAL FOR INVESTMENT ........................................................ 710. POTENTIAL TARGET MARKET ..................................................................................... 711. PROCESS FLOW ................................................................................................................ 712. PROJECT COST SUMMARY ............................................................................................ 8
12.1 Project Economics ..................................................................................................... 812.2
Project Financing .......................................................................................................... 9
12.3 Project Cost ................................................................................................................ 912.4 Space Requirement ................................................................................................... 912.5 Machinery and Equipment...................................................................................... 1012.6 Raw Material Requirements ................................................................................... 1012.7 Human Resource Requirement ............................................................................. 1112.8 Revenue Generation ............................................................................................... 1112.9 Other Costs............................................................................................................... 11
13. CONTACTS - SUPPLIERS .............................................................................................. 1114. ANNEXURES ................................................................................................................... 13
14.1 Income Statement................................................................................................... 1314.2
Balance Sheet ......................................................................................................... 14
14.3 Cash Flow Statement ............................................................................................. 1514.4 Useful Project Management Tips ......................................................................... 1614.5 Useful Links ............................................................................................................. 17
15. KEY ASSUMPTIONS....................................................................................................... 18
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1. DISCLAIMERThis information memorandum is to introduce the subject matter and provide a general
idea and information on the said matter. Although, the material included in this
document is based on data/information gathered from various reliable sources;
however, it is based upon certain assumptions which may differ from case to case. The
information has been provided on as is where is basis without any warranties or
assertions as to the correctness or soundness thereof. 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, its employees or agents do not
assume any liability for any financial or other loss resulting from this memorandum in
consequence of undertaking this activity. The contained information does not preclude
any further professional advice. The prospective user of this memorandum is
encouraged to carry out additional diligence and gather any information which is
necessary for making an informed decision, including taking professional advice from aqualified consultant/technical expert before taking any decision to act upon the
information.
For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk
http://www.smeda.org.pk/http://www.smeda.org.pk/http://www.smeda.org.pk/ -
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2. PURPOSE OF THE DOCUMENT
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,
production, marketing, finance and business management. The document also provides
sectoral information, brief on government policies and international scenario, which
have some bearing on the project itself.
The purpose of this document is to facilitate potential investors in Fodder Production &
Trading by providing them a holistic as well as a micro view of business with the hope
that such information as provided herein will aid the potential investors in crucial
investment decisions.
The need to come up with pre-feasibility reports for undocumented or minimally
documented sectors attains greater imminence as the research that precedes such
reports reveal certain thumbs of rules; best practices developed by existing enterprises
by trial and error, and certain industrial norms that become a guiding source regarding
various aspects of business set-up and its successful management.
Apart from carefully studying the whole document one must consider critical aspects
provided later on, which form basis of any Investment Decision.
3. INTRODUCTION OF SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was established in
October 1998 with an objective to provide fresh impetus to the economy through
development of Small and Medium Enterprises (SMEs).
With a mission "to assist in employment generation and value addition to the national
income, through development of the SME sector, by helping increase the number, scale
and competitiveness of SMEs" , SMEDA has carried out sectoral research to identify
policy, access to finance, business development services, strategic initiatives and
institutional collaboration and networking initiatives.
Preparation and dissemination of prefeasibility studies in key areas of investment hasbeen a successful hallmark of SME facilitation by SMEDA.
Concurrent to the prefeasibility studies, a broad spectrum of business development
services is also offered to the SMEs by SMEDA. These services include identification of
experts and consultants and delivery of need based capacity building programs of
different types in addition to business guidance through help desk services.
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4. INTRODUCTION TO SCHEME
Prime Ministers Small Business Loans Scheme, for young entrepreneurs, with an
allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide
subsidised financing at 8% mark-up per annum for one hundred thousand (100,000)
beneficiaries, through designated financial institutions, initially through National Bank of
Pakistan (NBP) and First Women Bank Ltd. (FWBL).
Small business loans with tenure up to 7 years, and a debt : equity of 90 : 10 will be
disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber
Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally
Administered Tribal Areas (FATA).
5. EXECUTIVE SUMMARY
This document is developed to provide the insight of the said business with potential
investment opportunity in fodder production and trading unit to cater the need of the
emerging market.
Fodder business is proposed to be located in rural areas of Sindh, Punjab, KPK and
Baluchistan where water is available in abundant quantity.
Product(s) include Dry Fodder, and Green Fodder
Capacity; Installed capacity 185 Tons / Acre / Crop and initial utilization 90 %
Total Cost Estimates is Rs. 2,218,250 with fixed investment Rs.1,312,000 and working
capital Rs. 906,250
Given the cost assumptions, IRR and payback are 51 % and 3 years respectively.
The most critical considerations or factors for success of the project are
1. Contract Management
2. Applying the correct balance of nutrients
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6. BRIEF DESCRIPTION OF PROJECT
Animals consume green fodder in high quantity as it is backed by water so people dontfind it economical. While Alfalfah is consumed less as the making process rinse the
moisture, but give the same nutrition to the animal. Secondly, the requirement is
persistent across Pakistan and round the year vis--vis the international market is also
open and looking for a new venture to trade.
Technology: This proposed fodder production unit will use new cutting and used
bailer machines for cutting and bailing of forage.
Location: Fodder can be cultivated in any rural area where water is easily available
and land is suitable for optimum fodder yield.
Product: The proposed project will produce Green fodder and Dry Fodder
Target Market: In addition to local markets of urban and mostly rural areas, there is
a huge potential of exports in dry and bailed form.
Employment Generation: The proposed project will provide direct employment
to 06 people. Financial analysis shows the unit shall be profitable from the very first
year of operation
7. CRITICAL FACTORSThe most critical considerations or factors for success of the project are
Contract Management
Availability of water
Applying the correct balance of nutrients
Applying fertilizer at the right time.
8. INSTALLED AND OPERATIONAL CAPACITIES
Production capacity of the proposed fodder production and trading unit would be around
25 to 30 tons/acres per annum on contract farming basis. It has assumed that contract
farming would be done on 20 acres of land, where 90% of fodder will be sold as Dry
Fodder and 10% of total production will be sold as Green Fodder. As moisture contents
are up to 70% therefore total production of dry fodder is calculated at 135 Tonnes /
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anum (30% of green) and Green Fodder at 50 Tonnes / anum. There will be 6 cut per
acre / anum for fodder.
9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT
Pakistan is primarily an agricultural country and majority of population is directly
involved in agriculture business. Therefore, for the proposed project location would not
be critical in terms of availability of labor, utilities or other production requirements.
Fodder business is proposed to be located in rural areas of Sindh, Punjab, KPK and
Baluchistan where water is available in abundant quantity.
10. POTENTIAL TARGET MARKET
The fodder industry is becoming progressively more mechanized. Todays producer isbecoming more efficient by having tractors, cutters and trucks for logistics. Stakeholders
related to this sector agree that providers and sources are not enough to meet annual
requirement of fodder. The livestock is increasing in numbers which might increase the
size of the market in future, but, to be a successful fodder producer and trader, one
requires plenty of experience, energy and a good location. During discussion with
stakeholders it was observed that the existing practice of market is that customers come
to door step and buy in bulk. But there are several sale points available where a huge
amount of fodder is being supplied. These un-served segments comprise of regular and
occasional mandis, farm houses and down-town areas or suburbs where people use
cattle, buffalo and cows.
11. PROCESS FLOW
Mowing
Storage /
Stackin
Swath
Customer(Local/International
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12. PROJECT COST SUMMARY
A detailed financial model has been developed to analyze the commercial viability of[the project] under the Prime Ministers Small Business Loan Scheme. Various cost andrevenue related assumptions along with results of the analysis are outlined in this
section.
The projected Income Statement, Cash Flow Statement and Balance Sheet areattached as appendix.
12.1 Project Economics
All the figures in this financial model have been calculated on contract farming basis on20 Acres of Land with an assumption of 25-30 tonnes fodder production per acre peranum. There will be 6 crop cut per anum and dry fodder is produced by drying 70% ofmoisture contents from green fodder. For the proposed project 90% of revenue will
come from dry fodder therefore average production of Dry fodder will be 135 Tons /Acre / Anum and Green fodder (10% of Total Production) 50 Tons / Acre / Anum will beproduced.
The following table shows internal rates of return and payback period.
Table 1 - Project Economics
Description Details
Internal Rate of Return (IRR) 51%
Payback Period (yrs) 3.0
Net Present Value (NPV) 10,560,251
Returns on the scheme and its profitability are highly dependent on fertility of land, goodagricultural practices and availability of water. In case of fodder production thesefactors are not very efficient, they will not be able to cover the potential demand of livestock and dairy sector and recover payments; hence cost of operating the business willincrease. Similarly, to produce optimum output, using good quality seeds and choosingfertile land will be a better option for this investment.
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12.2Project Financing
Following table provides details of the equity required and variables related to bankloan;
Description Details
Total Equity (10%) Rs.221,825Bank Loan (90%.) Rs.1,996,425
Markup to the Borrower (%age/annum) 8%
Tenure of the Loan (Years) 07
12.3 Project Cost
Following requirements have been identified for operations of the proposed business.
Table 1: Capital Investment for the Project
Capital Investment Amount (Rs.)
Land (Leased / Rental basis)Tools & Equipments 1,030,000
Building / Infrastructure (Office Renovation) 60,000Furniture & fixtures 122,000
Preliminary Expenses 100,000
Total Capital Costs 1,312,000
Initial Working Capital 906,250
Total Project Cost 2,218,250
12.4 Space Requirement
Fodder will be cultivated on 20 Acres of fertile land which can be acquired on contractfarming basis. Trading will be managed from Head office situated in any major city andcan be set up on monthly rental basis. For this project we have assumed the followinglease/rentals rates for cultivation and trading office.
Table 2: Land Requirement
Area Required Area Monthly RentCharges (Rs.)
Yearly Rent(Rs.)
Management/ Trading Office 500 Sq. Ft. 15,000 180,000
Land on Contract Farming 20 Acres 20,000 400,000Total Rent 35,000 580,000
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Total working capital for Land and Office space is calculated to be Rs. 105,000 for 3months.
12.5 Machinery and Equipment
Following table provides list of machinery and equipment required for cultivation offodder.
Table 3: List of Machinery and Equipment
Description QuantityCost
Rs/unitTotalRs.
Cutter 1 700,000 700,000
Bailer 1 300,000 300,000Tractor (On rent as per requirement) 1
Raker (On rent as per requirement) 1
Total 1,000,000
These costs are based on the assumption that a setup will be required for bookkeeping, marketing and trading of Fodder across the country.
Table 4: Office Equipment Costs
Quantity Cost Amount
Computers with UPS 1 35,000 35,000
Computer printer 1 10,000 10,000
Telephones 3 2,000 6,000Fax machines 1 12,000 12,000
UPS & Battery 1 25,000 25,000
Furniture Nos 42,000 34,000
Total 122,000
12.6 Raw Material Requirements
Table 5: Cost of Material (Per Acre)
Unit Rate Rs. / Acre
Seeds (Kg / acre) 10 450 4,500
Fertilizers 1 1,700 1,700
Pesticides Spray 1 1,000 1,000
PP Bags (50 Kg) 185 50, 9,250
Water 1 1,200 1,200
Cost per Unit 17,650
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12.7 Human Resource Requirement
Table 6: Human Resource Requirement
Description Nos. Salary per month Total
Owner 01 25,000 25,000
Supervisor 01 18,000 18,000Machine Operator 01 12,000 12,000
Land Labor 02 10,000 20,000
Marketing executive 01 20,000 20,000Total Staff 06 95,000
The table above provides details of human resource required to run a fodder producingand trading company. Salaries of all employees are estimated to increase at 10%annually.
12.8 Revenue Generation
In this project it is assumed that 20 acres of land will be cultivated to produce six cropsof fodder in a year. Total 810 tons (30% of green) of dry fodder and 300 tons of greenfodder will be produced which will generate an average annual revenue of Rs. 5 million.
ProductUnit (tons/ crop)
SalesPrice
(Rs./Unit)
First YearProduction(6 crops)
First YearSales
Revenue(Rs)
Dry Fodder (30% of Green) 135 5,400 810 4,374,000
Green Fodder 50 2,100 300 630,000
Total Sales Revenue 5,004,000
12.9 Other Costs
An essential cost to be borne by the company is the miscellaneous cost incurred bymanagement staff during their visits to farmers. It is estimated that average Rs. 30,000will be incurred in a month. Similarly, electricity, water and telephone expense isestimated to be about 30,000 per month.
13. CONTACTS - SUPPLIERS
1. NEW CHAUDHRY AGRICULTURAL MECHANICAL ENGINEERSChowk A.T.M. Vehari Road Multan, LahorePhone:+92-61-36527607, +92-61-36529022,+92-61-36526132.Fax# +92-61-34233706
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2. AGROTRACTORS (PVT)LTD
38-AMAINGULBERGLahorePakistan
Phone: +92 42 35871746
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14. ANNEXURES
14.1 Income Statement
Projected Income Statement (Rs.) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year
Revenue 5,004,000 5,779,620 6,675,461 7,710,158 8,905,232 10,285,543 11,879,802 13,721,171 15,847,953 18Sales on Credit 500,400 577,962 667,546 771,016 890,523 1,028,554 1,187,980 1,372,117 1,584,795 1
Sales on Cash 4,503,600 5,201,658 6,007,915 6,939,142 8,014,709 9,256,989 10,691,822 12,349,054 14,263,158 16
Beginning Inventory - 83,269 91,804 101,214 111,589 123,027 135,637 149,540 164,867
Ending Inventory 83,269 91,804 101,214 111,589 123,027 135,637 149,540 164,867 181,766
Bed Debt Expenses 10,008 11,559 13,351 15,420 17,810 20,571 23,760 27,442 31,696
Net (Adjusted Sales) 4,910,723 5,759,526 6,652,700 7,684,363 8,875,984 10,252,362 11,842,140 13,678,401 15,799,358 18
Cost of Sales 2,998,000 3,304,295 3,641,885 4,013,968 4,424,069 4,876,072 5,374,259 5,923,349 6,528,544 7
Cultivation Cost 2,598,000 2,864,295 3,157,885 3,481,568 3,838,429 4,231,868 4,665,635 5,143,862 5,671,108 6
Cultivation Land Rent 400,000 440,000 484,000 532,400 585,640 644,204 708,624 779,487 857,436
- - - - - - - -
Gross Profit 1,912,723 2,455,231 3,010,815 3,670,394 4,451,914 5,376,289 6,467,881 7,755,052 9,270,814 11
Gross Profit Margin 39% 43% 45% 48% 50% 52% 55% 57% 59%
General Administrative & Selling Expenses
Salaries 1,140,000 1,254,000 1,379,400 1,517,340 1,669,074 1,835,981 2,019,580 2,221,537 2,443,691 2
Office Rent 180,000 198,000 217,800 239,580 263,538 289,892 318,881 350,769 385,846
Amortization of Preliminary Expenses 20,000 20,000 20,000 20,000 20,000 - - - -
Depreciation Expense 121,200 109,080 98,172 88,355 79,519 71,867 64,681 58,213 52,391
Maintenance Expense 10,300 10,300 10,300 10,300 10,300 10,300 10,300 10,300 10,300
Selling & Distribution 147,322 172,786 199,581 230,531 266,280 307,571 355,264 410,352 473,981
Subtotal 1,618,822 1,764,166 1,925,253 2,106,106 2,308,711 2,515,611 2,768,705 3,051,171 3,366,209 3
Operating Income 293,901 691,065 1,085,562 1,564,289 2,143,204 2,860,678 3,699,175 4,703,881 5,904,605 7
Financial Charges 151,702 133,301 113,373 91,791 68,417 43,104 15,690 - -
Earnings Before Taxes 142,199 557,764 972,189 1,472,498 2,074,786 2,817,574 3,683,486 4,703,881 5,904,605 7
Tax - 55,776 68,328 143,375 262,457 426,893 643,371 933,664 1,293,882 1
Net Profit 142,199 501,987 903,861 1,329,123 1,812,329 2,390,680 3,040,114 3,770,217 4,610,724 5
Monthly Profit After Tax 11,850 41,832 75,322 110,760 151,027 199,223 253,343 314,185 384,227
FODDER Production & Trading Business
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14.2 Balance Sheet
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14.3 Cash Flow Statement
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Pre-Feasibility Study Fodder Production & Trading Co.
16
September 2013
14.4 Useful Project Management Tips
Technology
Cutter
Bailer
Tractor (On rent as per requirement)
Raker (On rent as per requirement)
Energy Requirement: Should not be overestimated or installed in excess and
alternate source of energy for critical operations be arranged in advance.
Machinery Suppliers: Should be asked for training and after sales services under
the contract with the machinery suppliers.
Quality Assurance Equipment & Standards: Whatever means requiredproducts quality standards need to be defined on the packaging and a system to
check them instituted, this improves credibility.
Marketing
Product Development & Packaging: Expert's help may be engaged for
product/service and packaging design & development
Ads & P.O.S. Promotion: Business promotion and dissemination through
banners and launch events is highly recommended. Product broachers from good
quality service providers. Sales & Distribution Network: Expert's advise and distribution agreements
are required with.
Price - Bulk Discounts, Cost plus Introductory Discounts: Price should never
be allowed to compromise quality. Price during introductory phase may be lower and
used as promotional tool. Product cost estimates should be carefully documented
before price setting. Government controlled prices shall be displayed.
Human Resources
Owner
Supervisor
Machine Operator
Land Labor
Marketing executive
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Adequacy & Competencies: Skilled and experienced staff should be
considered an investment even to the extent of offering share in business profit.
Performance Based Remuneration: Attempt to manage human resource
cost should be focused through performance measurement and performance based
compensation.
Training & Skill Development: Encouraging training and skill of self &
employees through experts and exposure of best practices is route to success.
Least cost options for Training and Skill Development (T&SD) may be linked with
compensation benefits and awards.
14.5 Useful Links
Prime Ministers Office
www.pmo.gov.pk
Small & Medium Enterprises Development Authority (SMEDA)
www.smeda.org.pk
National Bank of Pakistan (NBP)
www.nbp.com.pk
First Women Bank Limited (FWBL)
www.fwbl.com.pkGovernment of Pakistan
www.pakistan.gov.pk
Ministry of Industries & Production
www.moip.gov.pk
Ministry of Education, Training & Standards in Higher Education
http://moptt.gov.pk
Government of Punjabwww.punjab.gov.pk
Government of Sindh
www.sindh.gov.pk
Government of Khyber Pakhtoonkhwa
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www.khyberpakhtunkhwa.gov.pk
Government of Balochistan
www.balochistan.gov.pk
Government of Gilgit Baltistan
www.gilgitbaltistan.gov.pk
Government of Azad Jammu & Kashmir
www.ajk.gov.pk
Trade Development Authority of Pakistan (TDAP)
www.tdap.gov.pk
Security Commission of Pakistan (SECP)
www.secp.gov.pk
Federation of Pakistan Chambers of Commerce and Industry (FPCCI)
www.fpcci.com.pk
State Bank of Pakistan (SBP)
www.sbp.org.pk
Pakistan Institute of Fashion Design(PIFD)
www.pifd.edu.pk
Pakistan Fashion Design Council (PFDC)
www.pfdc.org
15. KEY ASSUMPTIONS
Description
Debt Equity Ratio 90:10
Interest Rate 8%
Loan Tenure 7 Years
Sales Price Growth Rate 10%
Depreciation Rate 10%
Weighted Average Cost of Capital 9.2%
Prepaid Rent Period 6 Months
Increase in Staff Salaries 10%
Increase in Office expense 10%