PROJECT REPORT FOR

DRY CELL BATTERY PLANT

OF

BHAGWATI CARBIDE INDUSTRIES PVT.LTDBIRATNAGAR

PREPARED BY

CA SUBHASH CHANDRA

CHARTERED ACCOUNTANTDELHI

Project Site Project Head OfficeTankisunwari Sunihatt, Ward No.9Biratnagar BiratnagarMorang, Nepal Morang, Nepal

Table of Contents

Chapters Descriptions Page I. INTRODUCTION 1II. MARKET ASPECTS

2.1 Products and Its Use 62.2 Domestic Production and Import 82.3 Present Consumption and Future Demand 102.4 Type of Dry cell Batteries in Demand 162.5 Prices of Dry Cell Batteries 172.6 Plant Capacity and Production Plan 18

III. TECHNICAL ASPECTS3.1 General Background

203.2 Manufacturing Process and Descriptions

213.3 Plant Machinery & Equipments

23

IV. RAW MATERIAL4.1 Requirements of Raw Material

264.2 Utilities

27

V. FINANCIAL STUDIES5.1 Total Investment

295.2 Sources of Financing

305.3 Annual Operating Cost & Exp

325.4 Financial Evaluation

335.5 Profitability Ratios

365.6 Conclusions

36

VI. ANNEXURES - - 01 to 20.

Lists of Annexure

1. Financial Structure

2. Fixed Assets Investments

3. Estimation of Annual Operating Costs and Expenses

4. Annual Production Costs

5. Working Capital Requirements

6. Sales Revenue

7. Estimation of Sales Price

8. Trading Account

9. Long Term Loan Repayment Schedule

10. Depreciation Schedule

11. Value Added

12. Profit and Loss Account

13. Cash Flow Projections

14. Balance Sheet Projection

15. Pay back Period

16. Calculation of NPV and IRR

17. Calculation of Break Even Point

18. Financial Ratios

19. Requirement of Indirect Labor

20. Manpower Requirement during construction Period

PROJECT HIGHLIGHTS

1. Project : Dry Cell Battery Manufacturing

2. Plant Capacity : 18 ,million Pcs / Annum

3. Location : Tankisunbari, Biratnagar

4. Power Requirement : 220 KW

5. Market : Domestic

6. Manpower : 171

a. Direct : 134

b. Indirect : 37

7. Total Investment : 64367 (Rs.in’000)

a. Fixed Assets : 51365

b. Working Capital : 13002

8. Sales Revenue at 100% Capacity : 107550 (Rs in’000)

9. Annual Operating Costs : 90748 (Rs. In’000)

10. Financial Analysis :

A Break Even Point : 43.10%

B Pay Back Period : 3 Years 11 Months

C Return on Equity : 62.80%

D Return on Investment : 28.30%

E Debt Service Coverage : 2.90

F Profit as a % of Sales : 13.10%

G Net Present Value : 35880 at 18% Discounted Rate

H Internal Rate of Return : 34.64%

I Value add : 32.70% as a % of Sales Revenue

CHAPTER I

INTRODUCTION

1.1 This project study report of Dry Cell Batteries plant has been for M/S Bhagawati Carbide Industries Private Limited for setting up such a plant in Tankeshwari VDC, District Morang Biratnagar.

1.2The proposed project would produce 60 thousand pieces of Dry cell batteries per day. The project has planned to produce 18000 thousand pieces of dry cell battery at 100 percent capacity utilization throughout the year. The total operating days would be 300 per annum on three shift basis per day.

1.3The promoters of the project are Mr. Shashi Kant Agrawal, Mr. Sumit Agrawal and Mr. Prushtam Khetan. Mr. Agrawal is a leading industrialist of Nepal and associated with textile mills, Iron and Steel Industries, Spinning Mills, Plastic Industries, Sugar Industries, Garment and Carpet Industries besides some other trade and business. On the other hand, Mr. Khetan is associated with Export and Import Business Including Other trading transactions.

1.4Presently there are two Dry Cell manufacturing industries operating in Nepal known as Nepal Battery Company and Golden Battery Industries Pvt. Ltd with rated capacity of 16 Million and 10 Million pieces respectively. However, the total production of these industries are 12665 thousand pieces in 2006/2007 and 18925 thousand pieces in 2007/2008.

1.5 The total project cost has been amounted to Rs.63979 thousand of which fixed assets investment would comprise of Rs.51365 thousand and working capital Rs.12614 thousand. The loan component in the fixed assets would stand Rs.30819 thousand and in initial working capital Rs.7568 thousand whereas owner’s equity would be Rs.20546 thousand and Rs.5045 thousand respectively.

1.6The main raw materials required in the course of production are Black Carbon, EMD, NMD.IND, Zinc Chloride, Carbon Rod, Zinc Clot, Steel Cap, Metal Jacket, Metal Top and bottom. AMM. Chloride, Kraft Paper, H.P.Wax, Plastic Top, Gray Board and mill board. The total Raw

Material would be imported from India and third countries. The cots price of total raw materials has been estimated at Rs.68833 thousand.

1.7The total manpower required are 190 Nos. out of which direct and indirect labour amounted at 153 and 37 persons respectively. The total salaries and wages have been estimated at Rs.2895 thousand per annum.

1.8The proposed project would require various plant and machineries like Hot Setting and cooking unit, top washer blanking and sealing unit, capping and buffing unit, mix and electrolyte mixer, white mix starry, capping and buffing unit, battery assembly line, paper department body forming machine, extrusion press machine and edge trimming machine etc. The whole plant and Machinery would be imported from India except body forming machine, Extrusion press machine and edge trimming would be imported from third countries. The total cots of the Plant and Machinery has been estimated at Rs.26862 thousand including custom duty, transportation, clearing and forwarding charges, letter of credit and industrial electrification.

1.9The project would be implemented during the period of 12 months starting from opening of letter of credit in the first month to finally commencing the commercial production in the 12th month. The project implementation work would be look after by an experienced Chemist, Chief Engineer, Mechanical Engineer, Electrical Engineer, Finance Chief and other supporting personnel and staffs. This group will work in the close supervision with the Board of Directors.

1.10The average Ex- Factory selling price of battery has been estimated at Rs.5.975 per piece. The annual sales revenue of the project would be estimated at Rs.61304 thousand in the first year of production and Rs.107550 thousand in the sixth year.

1.11The financial evaluation shows that the break even point at 43.1 percent and value added at 32.7 percent at 100 percent capacity utilization. The pay back period of the total fixed assets investment as been estimated at 3 years and 11 months. The projection of cash flow shows positive returns of Rs.1071 thousand right fro the first year of operation. The net present value at 18 percent discount rate would amount at Rs.35880 thousand and internal rate of return at 34.64. The profit and loss statement demonstrates the net profit of Rs.4034 thousand in the first which would reach to Rs.19562 thousand in the fifth year of operation. The projected balance sheet reflects the position of assets Rs.60700 thousand at the end of the first year which will gradually increase to Rs.158211 thousand at the end of the tenth year.

1.12The analysis of financial evaluation shows this project is commercially and financially viable. Therefore, it is recommended for promotion.

CHAPTER –IIMARKET

2.1 Products and its use: Dry Cell battery, according to its chemicals composition is a leclanche cell type battery with dry electrolyte. It converts into electric energy as a result of chemical reactions of its constituent elements. A for the principle of chemical reaction is involved, anodic active material and cathodes active material are mutually isolated and immersed in a electrolytic solution that reacts to generate electricity.

As a result of electric power source, Dry cell batteries are commonly used in a wide rage of electric and electronic products such a radio, tape recorders, torchlight, photographic equipments as camera, toys and models etc. The Dry cell batteries are available

in different shapes and sizes according to the types and the designs of equipments which require or use batteries as alternative power source.

Dry cell batteries are of two types of shapes: Cylindrical and flat, Stacked or layer. There is an increasing trend of switch over to cylindrical shaped batteries for general purposes. Layer, stacked or flat batteries have shifted towards miniaturization and their demand originates from applications that can afford only little space for the batteries compare to voltage required.

The Dry cell cylindrical batteries are manufactured in different standard sizes (dimension) of R6 to R25. Dry Cell batteries consist of main three kinds and they are designed for specific portable equipments or applications as:-

a) R20 or UM-1 or D Size for amps, radios, tape recorders, toys etc.

b) R14 or UM-2 or C Size for lamps, radios, tape recorders, clocks and power miniature equipments.

c) R6 or UM-3 or AA size for lamps, radios, cameras, calculators, hearing aids and other miniature equipments.

2.2 Domestic Production and Import.The consumption of dry cell batteries in Nepal is being met through domestic production and imports.

There are at present two manufacturers of dry cell batteries in the country. Both of them were established under the foreign collaboration. These units are: Nepal Batter Company Located at Balaju, Kathmandu; and Golden Battery Industries Located at Biratnagar. The approved production capacity of the units was to manufacture a total of 26 millions Pcs of dry cell batteries annually. However, they are operating at a capacity utilization of about 49.20 percent on an average. The table below shows the trend of production of dry cell batteries for the year 2006/07 and 2007/08.

Table 2.1

Year 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08Production 8376 10808 10095 10754 12350 12789% Change - 29.0 -6.6 6.5 14.8 3.6

Source: - Industrial Statistics, Department of Industries, HMG/N.

The above figure revels that the production of dry cell batteries has been on an increasing trend with estimated average annual growth rate of 8.83 percent over the period to 2002/03 to 2007/08.

Import is other important source of supply of dry cell batteries in Nepal. The import tales place mainly from China, India, South Korea, and Singapore. The total imports of all types of batteries including electrical accumulators were amounted to Rs.93.8 million in 2006/07 of which primary cells batteries alone represented for about 90 percent.

2.3 Present Consumption and future Demand. The demand for dry cell batteries has been assessed based on end use or consumption coefficient method. A study2 on electrical goods and accessories sub sector has taken following points into account while in estimating the demand for dry cell batteries.

Note- 2 Report on electrical goods and accessories sub sector study (Phase-I) Vol. II 2005, ISC, Kathmandu and KICONS, India.

I. The dry cell batteries are mainly used for transistors, cassette radio, Tape reorders and torch lights. The demand assessment has entirely been based on the consumption for these equipments.

II. The consumption norm of batteries for above equipments based on the household survey undertaken in the course of the study mentioned above, were estimated at 16.0 Pcs for transistor sets, 27.68 Pcs for cassette radio, 15.56 Pcs for tape recorder and 14.17 Pcs for torch lights.

III. The number of equipment owned as a percentage of total household in 2001 -02 were estimated at 18.86 percent, 1.23 percent, 0.628 percent and 16.40 percent for transistors sets, cassette radios, tape recorders, and torches respectively. As for the demand growth of the equipments is concerned, the study had assumed the rate of annual growth of 15 percent each for transistors sets, Cassette radios and tape recorders and 10 percent for torches for the period 2002/ 03 to 2006/07.

To estimate the present level of consumption of the dry cell batteries, the following assumptions have been made.

a. The consumption norm of dry cell batteries for applications under construction remains unchanged at least for project period.

b. The rate of annual growth in demand for equipments under construction would remain same as of the period 2002/03 to 2007/08.

c. The sum of the product of the consumption norms by equipment and corresponding population or stock of the equipments provide an indication of the magnitude of the total consumption of dry cell batteries in the country.

d. In view of the past trend of production and import of dry cell batteries, the future growth in demand for dry cell batteries would be around at least 7.5 percent annual.

Table 2.2

Item Stock of Equipments* Battery Consumption** (Nos.000) (000 Pcs)2005/06 2006/07

2005/06*** 2006/07Transistors Sets 1512.90 2125.53 24206 34005Cassette Radios 114.04 173.55 3157 4805Tape Recorders 58.14 88.49 905 1377Torches 977.75 1294.72 13784 18346

Total Demand 42047 58532Effective Demand (80%) 33638 46826AAGR (5) **** 11.65%

* Cumulative addition of successive annual demand for equipments to the stocks of equipments up to 2005/06. The equipments to the stocks of transistors sets, cassette radios, tape recorders, and torches were estimated to be 426800, 28200, 14400, and 375040 in numbers respectively. It is assumed that at least 20% of the equipments are either

not in proper condition or opted to battery eliminator due to further electrifications.

** The average consumption norms of batteries for transistors sets, cassette radios, tape recorders, and torches has been estimated at 16.0 , 27.68, 15.5, and 14.17 respectively.

*** Based on consumption norms and stock of equipments **** Average annual Growth Rate.

The estimates of dry cell battery consumption in the country has been worked out based on findings and analysis of the earlier studies on electrical goods and accessories, as well as the set of assumptions made above, and has been presented in Table 2.2. The total consumption of dry cell batteries has been estimated to be 46.83 million Pcs in 2007/08. It indicated that the per capita consumption of dry cell batteries in Nepal was 2.45 Pcs in 2007/08. The demand for dry cell batteries based on the assumed growth rate of 7.5 percent has been projected for the year 2007/08 and 2008/09 as follows.

Table 2.3

In Million PcsYear 2006/07 2007/08 2008/09

Demand for Dry Cell Batteries

46.83 50.34 54.12

The above table indicates that the demand for dry cell batteries will grow from 46.83 million Pcs in 2006/07 to 54.12 million Pcs in 2008/09. As against this growth in consumption demand, the existing two manufacturers of dry cell batteries have the capacity to supply 26 million Pcs of dry cell batteries. The domestic supply represent 55.6 percent of the total consumption demand for dry cell batteries in 2006/07 and 48.04 percent.

2.4 Types of Dry cell Batteries in Demand. Dry Cell batteries foremost in demand in local market is

cylindrical by shape and the most commonly popular in terms of their uses by sizes are R-20 (Large Size); R-14 (Medium Size) and R-6 (Pen Torch Size).The market share of R-20 dry cell batteries is still predominant, about 75 percent, followed by R-14 and R-6 about 23 percent and the rest two percent by others.

With the development of consumer market and gradual penetration of such products as calculator, shaver, toys and other relatively sophisticated gadgets to rural area, the R-6 sized battery growth could take place at a substantial rate but from a very small base at present. Nevertheless, it is very unlikely for R-6 to make inroads in to R-20 as the

end use device of R-20 dominate other devices using different sized cells, and this is particularly an important aspect in a country like ours which is predominantly rural .

2.5 Prices of Dry Cell Batteries. The price of dry cell batteries varies according to shapes, sizes, materials, and design and product quality. The table below indicates the retail prices of some of the R-20, R-14, and R-6 Sizes or similar types of dry cell batteries in local market (Kathmandu).

Table 2.4Retail Price of different types of dry cell batteries

Brand and size specifications Price Range / PairEveready (Nepalese) R20 –D 18Lark (Chinese) R-20 –D 15Seagull ( Chinese) R14 –D 14Swan ( Chinese) UM -2C 12Maxwell (Japanese) R6 / AA 12National Hyder ( Japanese) UM-3 / AA/ R6 16HW (Hongkng) UM-3 / AA 14Tiger (Nepalese) R-20 / D 17

Source- Retail Shop.

The retail price of different brand of R20 and R14 sized dry cell batteries are within the ranges of Rs.14 to 18 per pair and that R6 (UM-3 or AA sized ) of brands other than Eveready in the range of Rs.12 to 16 per pair. The margin to revels varies between 10 -15 percent.

2.6 Plant Capacity and Production Plan. The demand for dry cell batteries will rise along with the increase in consumption of portable electrical and electronic devices or applications that requires or use dry cell batteries as power supply source.

An analysis of the trend of domestic production and imports of dry cell batteries as well as the future demand pattern and its estimates gives an indication that the proposed project which envisages to manufacture 18 million Pcs of dry cell batteries should be able to market its products. It should be however be price and quality wise comparable or at least at par to similar products existing or proliferating in the market. The plant envisages to sell its products at an ex- factory price of Rs.11.95 per pair of dry cell batteries and with reasonably an attractive distribution margins of 10 to 15 percent of ex- factory price at each stages of marketing channels. The average price of

the batteries (R6/R14/R20) produced by the proposed plant would be at Rs.14.80 per pair. The plant anticipates its operation initially at 60 percent capacity utilization with an increment by 10 percent point each years achieving full capacity from fifth years and onwards.

CHAPTER -IIITECHNICAL ASPECTS

3.1 General Backgrounds. Dry cell batteries are mostly the modification of lechalanche cell types. They are manufactured in two basic designs: Cylindrical, Flat or Layer Constructions. Dry Cells are largely made in cylindrical shapes whether it is pen or the largest standard size. Layers or flat constructions, provides higher voltage in smaller package but with in lower current capacity.

In terms of chemical composition, dry cell batteries of leclanche type (acidic dry cell) , alkaline manganese dioxide and mercury cells are manufactured in large volume. Silver chloride and silver oxide cells are made lesser quantities while other types of dry cells are manufactured very limitedly.

The three most widely used cylindrical dry cell batteries are of the sizes R-20 or UM-1, R-14 or UM-2, and R-6 or UM-3 and these finds applications in a wide range of portable equipments such as lamps, radios, tape recorders, calculators, cameras, hearing aids and other miniature equipments.

3.2 Manufacturing Process Description Basically, there are two types of processes available for the

manufacture of dry cell batteries. They are:-1. Pasting System ; and2. Paper lined system.

The pasting system involves the use of pastes to insulate the internal part from the external part. The thickness of paste may very between 1mm to 2 mm and this reduces filling volume. The paste system

primarily consists of manual operations where as paper lined system consists of manual operations is either semi automatic or the more recent manufacturing is either semi automatic or fully automatic. In paper lined system, a thin sheet of paper is used in place of the paste and it results into manufacturing of dry cells displaying larger capacity and output.

Dry cell batteries manufacturing is essentially an industry based on assembling of constituent parts. The raw materials and component parts such as electrolytic solution, cathode mix, separator, zinc can, metal jacket and other components are separately manufactured.

The basic steps involved in assembling process of paper lined technology with semi automatic operation are briefly explained as below.

a. The lining paper is cut to required size and the bottom insulating cap is blanked from the same material, both components then being inserted into the can; these operations are fully automatic but it is a matter of choice as to whether the zinc cans are fed in to the machine automatically or by hand.

b. The lined cans are transferred to a press in which a slug of depolarizer mix is injected in to can. A washer made of waxed board is then placed directly in contact with the depolarizer slug.

c. The carbon rod is inserted through the washer into the depolarizer and this action contributes to the general consolidation of the latter. The protruding paper sleeve is then trucked in over the washer.

d. The cells finally pass to a finishing machine on which a plastic bung seal and brass contact cap are added, the top of the can then being curled inwards on to the plastic seal. The finishing process also involves the examining of open and closed circuit voltage, proper inspections, covering and sealing of the product by corrosive films.

The process flow sheet of battery manufacturing process and construction are shown in chart C1 and c2 respectively.

3.3 Plant and Machinery & Equipments. The proposed plant envisages manufacturing 18 million Pcs of dry cell batteries annually based on three shift of operation for 300 days in a year. The main section of the plants is:a. Mixingb. Can Makingc. Jacket Makingd. Making and finishinge. Testing and packingf. material handing; and g. Utilities such as air compressor, transformer etc.

The plant’ main machinery and equipments are: Mix and electrolyte mixer White mix stirrer Dolly Press Can loader and conveyor Electrolyte pouring and bottom washer machine

Hot setting and cooking unit Top washer blanking and sealing unit Capping & buffing unit Cell loader Cell testing machine Paper jacket finishing machine Inner jacket and sealing machine Cell insertion in metal jacket Cell testing machine Paper slitting machine Paper tube winding machine Tube trimming machine Gluing machine Waxing machine Body forming machine Extrusion Press Machine Edge Trimming Machine

The total costs of plant, machinery and equipments have been estimated at Rs.26.86 million.

CHAPTER -IVRAW MATERIAL

4.1 Requirement of Raw Materials The main raw materials of the proposed project are Black Carbon, MMD.IND,

EMD, Zinc Chloride, Carbon Rod, Metal Jacket, Steel Cap, Zinc Clot, Plastic Top, and AMM. Chloride, Zinc Oxide, Craft Paper, Gray Board, and Mill board etc. which would be entirely imported from India and third countries. The requirement of raw materials and its costs per 1000 Pcs of batteries has been given in Table 4.1

Table 4.1Direct Raw Material Cost Per 1000 Pcs of Batteries

Material UOM Usage for Paper ORD. Batteries Usage for Leak Proof BatteriesCarbon Black Kgs 2.956 349.79 2.956 295.00E.M.D Kgs 2.479 197.83 7.437 595.00N.M.D IND. Kgs 22.130 343.00 17.172 267.00AMM. Chloride Kgs 7.160 93.87 7.160 94.00Zinc Chloride Kgs 8.130 143.09 8.130 143.00Mercuric Chloride Kgs 0.014 7.84 0.014 8.00Gum Karya Kgs 0.129 6.82 0.129 7.00Zinc Oxide Kgs 0.232 17.31 0.420 32.00Asphalt Kgs 2.575 32.96 2.575 33.00Carbon Rod Kgs 1030 165.00 1030 165.00Tissue Paper Kgs 0.043 17.20 0.043 18.00Kraft Paper Kgs 3.240 77.76 3.840 155.00Poly Kraft Paper Kgs - - -Gray Board 300 Gram Kgs 2.160 51.84 2.160 52.00Mill Board 500 Gram Kgs 2.160 51.84 2.160 52.00Label Metal Jacket Pcs 1030 82.40 1030 580.00Metal Bottom Pcs - 1030 185.00Metal Top Pcs - 1030 206.00Brass / Steel Cap Pcs 1030 136.78 - -Plastic Top Pcs 1030 82.50 - -Glue Kgs 0.205 15.50 0.205 16.00Zinc Calot Kgs 16.872 1217.49 16.872 1218.00Wheat Flour Kgs 0.430 4.13 0.430 4.13

Corn Starch Kgs 1.205 19.28 1.205 20.00H.P.Wax Kgs 1.030 40.51 1.030 41.00

3103.00 4134.00

4.2 Utilities 4.2.1 Requirement of Power

The total power required for proposed project has been estimated at 220 KW which be produce from national Grid. The total consumption of power would be 8,91,000 units per annum at 60 % capacity utilization. The fixed charges and the unit costs of power would stand Rs.238 thousand and 3118 thousand respectively.

4.2.2 The requirement of packaging materials has been estimated at Rs.200 per 1000 Pcs of batteries. The total cost of packaging materials has been estimated to Rs.3600 Thousand Per annum.

4.2.3 The tentative cots of lubricants, oils, greases, fuel, water etc has been estimated at Rs. 240 thousand per annum.

4.2.4 A lump sum amount of Rs.100 thousand has been estimated as miscellaneous expenses on raw materials.

CHAPTER -VFINANCIAL EVALUATION

5.1 TOTAL INVESTMENT The total investment of the proposed project is estimated at Rs.64367 thousand of which investment in the fixed assets accounts around 78 percent and working capital 22 percent. The break down of total investment is briefly summarized below.

5.2 FIXED ASSETS

The major included in the fixed assets investment are stated below

Description Value in Rs.’000Land and Land Development 4680.00Building and Civil Construction 11950.00Machinery and Equipments 24552.00Auxiliary Machinery and Equipments 2310.00Transport Vehicles 800.00Furniture, Fixtures and Office Equipments 700.00Preliminary and Pre- Operative Expenses 6373.00

Total 51365.00

Table 5.1Statement of sources of financing in the Project

Rs.in’000Description Owner’s Equity Bank Loan Total

Land and Land Development 1872 2808 4680Building and Civil Construction 4780 7170 11950Plant , Machinery and Auxiliary Equipments

10745 16117 26862

Transport Vehicles 320 480 800Furniture, Fixtures and Office 280 420 700

EquipmentsPreliminary and Pre-Operative Expenses 1721 2582 4303Sub- Total 19718 29577 49295Capitalized Interest - 2070 2070Total Cost of the Project – Phase 19718 31647 51365Working Capital Initial 5201 7801 13002Total Project Costs 24919 39448 64367

Interest capitalization of long term loan is estimated for six months only.

The long term loans (Project Loan) will be repaid with in five years (semi- annual basis) at 14 percent interest. The grace period shall be one year.

The Minimum working capital required in the initial year of operation would amount to Rs.13002 thousand of which short term loan from commercial bank would comprise of 60 percent and promoter’s equity’s of 40 percent. The interest rate on short term would be at 15 percent.

5.3 ANNUAL OPERATING COSTS AND EXPENSES. The annual operating cost and expenses of the project based on three

shift operation for 300 days at 100 percent capacity utilization has been estimated at Rs.90748 thousand. Of this the fixed operating cost would amount to Rs.12709 thousand and variable cost Rs.78039 thousand. The summary of fixed and variable cost is presented below.

Fixed Costs Value In Rs.’000

Depreciation 3345.00Insurance 403.00Amortization 637.00Interest on LTL 4325.00Office Overheads 1197.00Fixed Electricity Charges 238.00Direct / Indirect Labour 2574.00

Total – A 12709.00Variable CostsRaw Material 68833.00Direct Labour 3216.00Utilities 3358.00Repair and Maintenance 732.00Interest on STL 1900.00

Total- B 78039.00Grand Total (A+B) 90748.00

5.4 FINANCIAL EVALUATION.

5.4.1 Sales Revenue

The proposed project is to have an annual production capacity of 18000 thousand Pcs of dry cell batteries of which 50 percent paper jacket type and balance 50 percent of metal jacket type. The ex- factory selling price would be Rs.10.80 per pairs of paper jacket dry cell batteries and Rs.13.10 per pair of metal jacket dry cell batteries (The average ex- factory price being Rs.11.95 per pair). The annual sales revenue accrued to the unit is estimated at Rs.107550 thousand.

5.4.2 PROFIT AND LOSS ACCOUNT. The projected profit and loss statement demonstrates that the

project will accrue a net profit of Rs.4034. thousand in the initial year of operation, which would reach to Rs.14269 thousand in the 10 th year. The statement also indicates that the project is capable of paying the interest on loan of the commercial banks.

5.4.3 CASH FLOW PROJECTION The cash flow projection shows that the unit will have positive

cash balance of Rs.1072 thousand in the first year of operation which increase to Rs.16260 thousand in 10th year.

5.4.4 PROJECTED BALANCE SHEET The projected balance sheet exhibits a net increase in the assets

from Rs.60700 thousand by the end of the first year to Rs.158211 thousand by end of the 10th year. It also indicates the ability of the project to repay its commercial loan and interest thereon with in stipulated time period.

5.4.5 BREAK – EVEN POINT. The Break even point at 100 percent capacity utilization has

been estimated at 43.10 percent.

5.4.6 PAY BACK PERIOD The project will recover its fixed assets investment with in the

period of 3 years and 11 months from the date of commencement of its operation.

5.4.7 NET PRESENT VALUE AND INTERNAL RATE OF RETURN The net present value discounted at 18 percent is estimated at

Rs.35880 thousand. The internal rate of return of the project has been estimated to be 34.64 percent.

5.4.8 VALUE ADDED The value added contribution as a percentage of sales revenue has been estimated at 32.7 percent.

5.4.9 PROFITABILITY RATIOS. The profitability ratios indicate the return on investment at 41

percent and return on equity 95.2 percent at 100 percent capacity utilization from fifth year of operation. The average rate of return on investment and equity over the period of 10 years has been worked

out to be 28.3 percent and 62.8 percent respectively. The debt service coverage ratio demonstrates that the project can meet all the debt including commercial loans and interest thereon.

5.4.10 CONCLUSION The detail of financial analysis shows that the project

contemplated production program and financial plan of the proposed dry cell batteries plant is commercially viable. Therefore, its promotion is recommended.