2 Friends Oil & Ghee Mil Pvt. Ltd.

A FEASIBILITY REPORT ON

FRIENDS GHEE & OIL MILLS (PVT) LIMITED

3 Friends Oil & Ghee Mil Pvt. Ltd.

Submitted to:
Maam Rabia Mumtaz

Submitted by:
Ishfaq Chohan Mohammad Atif Osama Khan Mishal Aqdas Munawwar Saeed 5624 5630 5619 5617 5616

MohammaduLLAH 5612

BBA IIIV
(Morning)

University Of Education Lahore, Multan Campus

Preface
4 Friends Oil & Ghee Mil Pvt. Ltd.

To understand the Project Appraisal an integral part of BBA (Hons) Accounting & Finance Program because it gives us practical knowledge of what we have learnt during our study period. This report is being written to fulfill the requirement of degree BBA (Hons). This report process is valuable in course of learning. This report is also a step of some chance of practical experience form. In this report we will be covering all vital information and their scanning exposures in the form of our observation. In this report we have tried our levels best effort to encompass and elaborate the necessary inferences suitable to enhance the knowledge. We hope our effort of transfer of knowledge through this report will be information gaining for readers.

Acknowledgement:
We owe our heart-felt thanks to God Almighty who enabled us to discharge such an onerous responsibility with due care and caution in the prime interest of the general public and to the great credit of our worthy teacher and Maam Rabia Mumtaz who is the main source of the enlightens of our minds and the development of our natural potentialities. We also feel highly indebted to our parents who guided us at every stage and whose pains are repaid in the form of what we are today. Our thanks are bound even to our beloved country Pakistan the sacred soil of which goes to the making of our whole personality and character by providing every possible facility and golden opportunity of ideal education and training.

5 Friends Oil & Ghee Mil Pvt. Ltd.

6 Friends Oil & Ghee Mil Pvt. Ltd.

Table of Contents

CONTENTS Executive Summary Vision and Mission Statement Objectives & Key Success Factors Introduction Management Technical Analysis Market Analysis Economic Analysis Assumptions underlying Earning Forecast Projected Financial Statements Auditing Plan Exit Strategy and Risk Assessment

PAGE# 06 09 12 14 15 17 26 33 40 41 53 54

7 Friends Oil & Ghee Mil Pvt. Ltd.

EXECUTIVE SUMMARY
The proposed project contemplates to set up a new Ghee & Oil Mill Unit at Mukhdoom Rasheed Vahari Road Mulatn. The production of, Refined Oil, and Oil Dirt (By-Product) will be obtained by crushing Cotton Seed as input. The entire production of the firm will be sold locally to the local Ghee Mills. The proposed project site enjoys the benefits of 1) Easy availability of raw material, 2) Quick access to main road, 3) Sources of power, water, fuel etc., 4) Availability of Transport and modern Communication systems, 5) Availability of Skilled and Un-Skilled labor, and 6) Free from environmental hazards like water logging and salinity and floods. The demand of the project is sophisticated enough on the basis of which project will make sales of Rs. 256,244,000 in its first year of Operations, Rs. 286,813,000 in its 2nd year of Operations whereas it will make sales of Rs. 304,795,000 in its 3rd and subsequent years of operations. The annual rated crushing capacity of the plant is estimated about 21,600,000 kilogram of Cotton Seed working 360 days a year and tripled shift per day of 8 hours each. The project shall be equipped with latest locally manufacturing plant and Machinery. The plant of the proposed project will be capable of crushing 10,000/kg/expeller/day. Of the total production of sunflower seed and cotton seed of the country the share of Multan, Bahawalpur and D.G. Khan Division is more than 60%. Further Multan division consisting of Sahiwal, Vehari, Khanewal, and Lodhran is the major cotton seed production area, nearly 40% of the total production of cotton seed is produced by this division. The basic raw materials of the proposed project are

Cotton Seed and Caustic Soda of which later is used to refine crude oil. The proposed project is located at Mukhdoom Rasheed Vahari Road Multan. The project will contribute in eliminating unemployment and will best make the use of available resources. This project will create employment opportunities for Skilled, Semi-Skilled and Unskilled labor along with the Factory administrative and Marketing Staff.

8 Friends Oil & Ghee Mil Pvt. Ltd.

The total cost of the project have been estimated to be Rs. 33,053,000 consisting of Land, Building Machinery (including installation and other cost), Vehicle, Furniture, Office Equipment, Pre-Production Expenses, Interest during construction and the initial net working Capital Requirement. The completion time period of the project is estimated to be 6 months. A plot of land measuring 1 Acre has been purchased in the name of the company at the proposed site. The cost of land including cost of registration and development etc. is Rs. 1,590,000. The land is considered to be sufficient for the proposed project. Building and Other Civil Works consist of mainly Factory Building, Ware house, and Administrative Staff. The erection and installation cost is estimated amounting to Rs. 838,000. The debt equity ratio fulfills the maximum requirement i.e. 60 : 40of the bank even though the current government policy is leaner towards easy loan and lower equity requirement. The ratio of debt in the cost is such that it allows for easy servicing of the loan. The debt equity-ratio is considered satisfactory and long term loan would have a safe equity margin. The total manufacturing cost of the project have been bifurcated Rs. 211,410,000 in respect of raw material consumption, Rs. 9,666,000 for labor and Rs. 5,532,000 for Factory overheads rated at 75% Capacity. The financing cost of the project is estimated to be is to be 14% of the debt obtained from the financial institution. Firm's total administrative, General and Selling Expenses have been estimated to be Rs. 14,416,000.

9 Friends Oil & Ghee Mil Pvt. Ltd.

VISION, MISSION & CORE VALUES

Our Vision
To be the premier Pakistani enterprise with a global reach, Passionately pursuing value Creation for all stakeholders

Our Mission
To develop and deliver the most ideal oil products, manage customer experience, deliver quality service that contributes to brand strength, establishes a competitive advantage and enhances Leadership profitability, thus providing value to the stakeholders of the company. 10 Friends Oil & Ghee Mil Pvt. Ltd.

We value leaders of high integrity, energy and enthusiasm who have the necessary managerial, professional and people skills to inspire a group or an organization to set high goals and achieve them willingly. We believe that leadership skills need to be strengthened at all levels within our organization and that managerial and professional competence is a necessary foundation. Teamwork and Partnership We believe that high performing teams containing appropriate diversity can achieve what individuals alone cannot. Consciously using the diversity of style, approach and skills afforded by teams is strength we must continue building into our organization. Diversity We value differences in gender, race, culture, personality and style because diverse solutions, approaches and structures are more likely to meet the needs of customers and achieve our business goals. Quality and Continuous Improvements We believe that quality and relentless commitment to continuous improvements are essential to our ongoing success. To this end, we define quality as understanding the customers expectations, agreeing on performance and value, and providing products and services that meet expectations 100 percent of the time. Our motto is, Quality in all we do. Ethics and Integrity We do care how results are achieved and will demonstrate honest and ethical behavior in all our activities. Choosing the course of highest integrity is our

intent and we will establish and maintain the highest professional and personal standards. A well-founded reputation for scrupulous dealing is itself a priceless asset.

11 Friends Oil & Ghee Mil Pvt. Ltd.

Candid and Open Communication We value communications that are courteous, candid and open and that enables each of us to do our jobs more effectively by providing information that contributes to the quality of our judgment and decision making. Effective communication should provide the means for gaining understanding of the companys overall objectives and plans and of the thinking behind them. Innovation Success requires us to continually strive to produce break through ideas that result in improved solutions and services to customers. We encourage challenges to the status quo and seek organizational environment s in which ideas are generated, nurtured and developed. Individual Growth and Development We strongly believe in the dignity and value of people. We must consistently treat each other with respect and strive to create an organizational environment in which individuals are encouraged and empowered to contribute, grow and develop them and help to develop each other. Enjoyment and Fun We believe that excitement, satisfaction and recognition are essential elements of a healthy, creative and high performing work environment. Having fun in our work should be a normal experience for everyone

12 Friends Oil & Ghee Mil Pvt. Ltd.

OBJECTIVES AND KEY SUCCESS FACTORS

The main objectives of the development of project are:

Capitalize on excellent opportunity to extract maximum revenue in a branch out market. To launch the oil unit with a highly targeted publicity campaign and in a grand opening event in the mid September of 2008. To maintain tight control of costs, operations, and cash flow through diligent management and automated computer control. To maintain a high standard of product and service provided.

Capitalize on excellent location opportunity. Maintain tight control of costs, operations, and cash flow through diligent management and automated computer control. To be the premier company that achieves the goals of profit maximization and value maximization for all the stakeholders of the company.

The keys to success in achieving our goals are: Provide an exceptional service and product that leaves an impression. Consistent utilizing of ingredients that creates product quality. Managing our internal finances and cash flow to enable upward capital growth. Strict control of all costs at all times, without exception. The Company will be strategically located to maximize the revenue derived from the sales of the quality product. Provide exceptional product that leaves an impression with our core customers. Consistent entertainment atmosphere and product quality. Managing our internal finances and cash flow to enable upward capital growth. Strict control of all costs, at all times, without exception. 13 Friends Oil & Ghee Mil Pvt. Ltd.

Accelerated sales growth experienced in the category of sachet packs. Extensive distribution channel for the sachet packs focusing even on small kiosks in the urban and rural areas.

The product would be focusing the price conscious segment of the market by providing similar and better quality branded product at lesser price. Emphasizing on excellent service to the other wholesalers. Adapting to the rapid social and economic changes. Regular flow of local as well as Export orders is the key success factor for efficiently running of the project. Selection and procurement of consistent quality raw material would be another contributing factor for carrying out successful operations of proposed project.

Production of quality products meeting the Health Standards of International level is necessary for Export sales. Competitive price of end products. Abundant supply of raw material. Cost efficiency through better management. Media campaign for the awareness of the retail customers. Availability of low cost skilled labor. The main elements of export strategy are reducing cost of doing business, increasing market access, technology, environmental & Security Compliance, encouraging export-oriented foreign investment, region-specific strategy, country & business image building and value addition.

INTRODUCTION

14 Friends Oil & Ghee Mil Pvt. Ltd.

The proposed project contemplates to set up a new Oil Mill Unit at Mukhdoom Rasheed Vahari road Multan. The annual rated crushing capacity of the plant is estimated about 21,600,000 kilogram of Cotton Seed working 360 days a year and tripled shift per day of 8 hours each. The project shall be equipped with latest locally manufacturing plant and Machinery. The total Capital Cost of the project is estimated to be Rs. 34,059,907. This total Cost of the project comprises of Fixed Assets Rs. 25,162,873 and Initial Net Working Capital of Rs. 8897034. The Cost of the Project is proposed to be financed by Debt and Equity in the ratios of 60 : 40 respectively.The remaining cost of the project will be financed by the sponsor's share capital of Rs. 13623963.

The partner will contribute in the equity of the project and participate in the profit and loss of the firm's business according to her capital contribution ratio.

Technical Analysis Location of the Project

The project is proposed to set up at Vehari Road Multan . The site enjoys the following advantages:- Easy availability of raw material - Access to the main road, Sources of Power, water, fuel etc. - Availability of transport & communication like telephone, telex, Internet etc. - Availability of skilled and Un-Skilled manpower - Free from other environmental hazards like water logging, floods, salinity etc SCOPE OF BUSINESS: This business has widely scope in the field of Ghee mills. This business provides the raw material to the Ghee Mills, from which they make the cooking oil & Ghee from it and then they provide us in final shape.

CRUCIAL FACTORS & STEPS IN DECISION MAKING INVESTMENT.

15 Friends Oil & Ghee Mil Pvt. Ltd.

Before making any investment decision it is admissible to evaluate the associated risk factor by taking into consideration certain key elements. These may include Availability of resources Technical know-how Past experience Managerial skills At the time of evaluation and analysis of strength, weakness, opportunities & threats [SWOT] for a particular business serves the of basic tools in investment decision making

KEY SUCCESS FACTORS/ PRACTICAL TIPS FOR SUCCESS:

Availability of trained and professional staff Reasonable prices against the competitors High stander environment for the staff and customers

OPERTUNITIES:
Availability of raw material easily. Availability of labour at low cost. Transportation facilities Availability of electricity easily. Skilled person is available easily.

THREATS:
One of the major threat to business is highly salary pakge should be competitive.

IMPORTANCE OF OIL MILLS:

16 Friends Oil & Ghee Mil Pvt. Ltd.

The oil mills have an important role in the economy of our country, because our country is an agricultural country, in this way we are producing more cotton. The cotton seed is taken from raw cotton which is used in oil mills for the purpose of oil and as well as seed cake. This oil is sent to the Ghee Factories for ghee & cooking oil purpose which we use in daily cooling. The seed cake is sold to the farmers for animals requirement & the wastage is sent to the soap factories for making soaps. The usage of oil is very high in shape of cooking oil & ghee. Oil Mills are performing very high level of business. They are providing the employment opportunities in the country. They are contributing in GOVT taxes as the GOVT revenue. It is also a profitable business, so that I have decided to start an Oil Mill.

Manufacturing Process
Some vegetable oils, such as olive, peanut, and some coconut and sunflower oils, are cold-pressed. This method, which entails minimal processing, produces a light, flavorful oil suitable for some cooking needs. Most oil sources, however, are not suitable for cold pressing, because it would leave many undesirable trace elements in the oil, causing it to be odiferous, bitter tasting, or dark. These oils undergo many steps beyond mere extraction to produce bland, clear, and consistent oil.

Cleaning and grinding

Incoming oil seeds are passed over magnets to remove any trace metal before being dehulled, deskinned, or otherwise stripped of all extraneous material. In the case of cotton, the ginned seeds must be stripped of their lint as well as dehulled. In the case of corn, the kernel must undergo milling to separate the germ.

The stripped seeds or nuts are then ground into coarse meal to provide more surface area to be pressed. Mechanized grooved rollers or hammer mills crush the material to the proper consistency. The meal is then heated to facilitate the extraction of the oil. While the procedure allows more oil to be pressed out, more impurities are also pressed out with the oil, and these must be removed before the oil can be deemed edible.

Pressing
The heated meal is then fed continuously into a screw press, which increases the pressure progressively as the meal passes through a slotted barrel. Pressure

17 Friends Oil & Ghee Mil Pvt. Ltd.

generally increases from 68,950 to 20,6850 kilopascals as the oil is squeezed out from the slots in the barrel, where it can be recovered.

Extracting additional oil with solvents

Soybeans are usually not pressed at all before solvent extraction, because they have relatively little oil, but most oil seeds with more oil are pressed and solvent-treated. After the initial oil has been recovered from the screw press, the oil cake remaining in the press is processed by solvent extraction to attain the maximum yield. A volatile hydrocarbon (most commonly hexane) dissolves the oil out of the oil cake, which is then recovered by distilling the light solvent out. The Blaw-Knox Rotocell is used to meet the demands of the United States soybean oil industry. In using this machine, flakes of meal are sent through wedge-shaped cells of a cylindrical vessel. The solvent then passes through the matter to be collected at the bottom. Also still in use by a significant number of manufacturers is the Bollman or Hansa-Muhle unit, in which oilseed flakes are placed in perforated baskets that circulate continuously. The solvent percolates through the matter which is periodically dumped and replaced.

Removing solvent traces

Ninety percent of the solvent remaining in the extracted oil simply evaporates, and, as it does, it is collected for reuse. The rest is retrieved with the use of a stripping column. The oil is boiled by steam, and the lighter hexane floats upward. As it condenses, it, too, is collected.

Refining the oil

The oil is next refined to remove color, odor, and bitterness. Refining consists of heating the oil to between 107 and 188 degrees Fahrenheit (40 and 85 degrees Celsius) and mixing an alkaline substance such as sodium hydroxide or sodium carbonate with it. Soap forms from the undesired fatty acids and the alkaline additive, and it is usually removed by centrifuge. The oil is further washed to remove traces of soap and then dried. Oils are also degummed at this time by treating them with water heated to between 188 and 206 degrees Fahrenheit (85 and 95 degrees Celsius), steam, or water with acid. The gums, most of which are phosphatides, precipitate out, and the dregs are removed by centrifuge. Oil that will be heated (for use in cooking) is then bleached by filtering it through fuller's earth, activated carbon, or activated clays that absorb certain pigmented material from the oil. By contrast, oil that will undergo refrigeration (because it is intended for salad dressing, for example) is winterizedrapidly chilled and filtered to remove waxes. This procedure ensures 18 Friends Oil & Ghee Mil Pvt. Ltd.

that the oil will not partially solidify in the refrigerator. Finally, the oil is deodorized. In this process, steam is passed over hot oil in a vacuum at between 440 and 485 degrees Fahrenheit (225 and 250 degrees Celsius), thus allowing the volatile taste and odor components to distill from the oil. Typically, citric acid at. 01 percent is also added to oil after deodorization to inactivate trace metals that might promote oxidation within the oil and hence shorten its shelf-life.

Packaging the oil By products/Waste

The most obvious byproduct of the oil making process is oil seed cake. Most kinds of seed cake are used to make animal feed and low-grade fertilizer; others are simply disposed of. In the case of cotton, the lint on the seed is used to make yarn and cellulose that go into such products as mattresses, rayon, and lacquer. Coconut oil generates several byproducts, with various uses: desiccated coconut meat(copra) is used in the confectionery industry; coconut milk can be consumed; and coir, the fiber from the outer coat, is used to make mats and rope. Since corn oil is derived from a small portion of the entire kernel, it creates corn meal and hominy if it is dry milled, and corn starch and corn syrup if it is wet milled. Lecithin is a byproduct of the degumming process used in making soybean oil. This industrially valuable product is used to make animal feed, chocolate, cosmetics, soap,

paint, and plasticsto name just a few of its diverse uses. Recent research has focused on utilizing the residual oil seed cake. The cake is high in protein and other nutrients, and researchers are working to develop methods of processing it into a palatable food that can be distributed in areas where people lack sufficient protein in their diets. This goal requires ridding (through additional processing) the oil seed cake of various undesirable toxins (such as gossypol in cotton seed, or aflatoxin in peanut meal). Initial results are promising.

Quality Control
The nuts and seeds used to make oil are inspected and graded after harvest by licensed inspectors in accordance with the United States Grain Standards Act, and the fat content of the incoming seeds is measured. For the best oil, the seeds should not be stored at all, or for a only very short time, since storage increases the chance of deterioration due to mold, loss of nutrients, and rancidity. The seeds should be stored in well-ventilated warehouses with a constantly maintained low temperature and humidity. Pests should be eradicated, and mold growth should be kept to a minimum. 19 Friends Oil & Ghee Mil Pvt. Ltd.

Seeds to be stored must have a low moisture content (around 10 percent), or they should be dried until it reaches this level (dryer seeds are less likely to encourage the growth of mold). Processed oil should be consistent in all aspects such as color, taste, and viscosity. Color is tested using the Lovibund Tintometer or a similar method in which an experienced observer compares an oil's color against the shading of standard colored glasses. Experienced tasters also check the flavor of the oil, and its viscosity is measured using a viscometer.

RAW MATERIAL AVAILABILITY

Amongst the oil seeds cultivated in Pakistan, the most important is the cotton seed, like some other oil seeds cotton seed is also a by-product as the crop is mainly cultivated for fiber. Its contribution, however, to the local domestic oil production is about 57%. Next to the cotton seed is the rape and mustard which account for about 31% of the vegetables by-production in the country. In addition to these, production of other non traditional oil seeds such as sunflower, sesamem, groundnuts, linseed & castor is also increasing. Out of total production of sunflower seed and cotton seed of the country the share of Multan, Bahawalpur and D.G. Khan Division is more than 60%. Further Multan division consisting of Sahiwal, Vehari, Khanewal, and Lodhran is the major cotton seed production area, nearly 40% of the total production of cotton seed is produced by this division. On the basis of the information collected, the yearwise production of cotton seed based on 3% Growth Rate is given below:-

Production of Cotton seed

YEAR 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 COTTON SEED (000 Tons) 2369 2523 2687 2862 3049 3141

PROJECTED AVAILABILITY OF COTTON SEED (3% growth)

YEAR COTTON SEED (000 Tons) 20 Friends Oil & Ghee Mil Pvt. Ltd.

2008-09 2009-10 2010-11 2011-12 2012-13

3141 3235 3332 3432 3535

Against the requirement of the proposed project of cotton seed at 10000 Kg/Expeller/day the estimated production of cotton seed is 3141000 tons during 2008-09. Keeping in view the past trend, the available production of cotton seed in Bahawalpur Division the proposed Project would not face any problem.

PRODUCTION CAPACITY
The Plant is capable of crushing 10000 Kg/Expeller/day of Cotton seed. It is based on 360 working days per annum and tripled shift per day of eight hours. The break up of the Capacity is given as under:-

Crushing of Cotton Seed (10000/Expeller/Day for 360 Days)

Materials Cotton Seed Caustic Soda Annual Production (Kgs) (000) 21,600 648

80% of the Crushing of Cotton Seed will produce Ghee, 10% would be Refined Oil, whereas the 5% would be Oil Dirt obtained after applying Caustic Soda over Crude Oil and the 5% would be Wastage.

Production of: Items

Oil Cake Refined Oil Oil Dirt Wastage 17,280 2,160 1,080 1,080

(000) Annual Production (Kgs)

MARKET ANALYSIS INTRODUCTION 21 Friends Oil & Ghee Mil Pvt. Ltd.

In Pakistan at present, the edible oil industry includes the manufacture of compound cooking oils (which is a recent development) table or salad oils (this process is still in its infancy) margarine and refined oils. Important products of this industry are mustard oil, cotton seed oil, groundnut oil and newly developed sunflower seed oil, sunflower seed oil and soyabean Oil of late a number of modern oil mills have been set up for the production of solvent extraction oils. At present, major sources of raw materials are cotton seed (about 50%) (Rape and mustard seed about 36%) and other about (6%). Traditionally the edible oil industry started operation at small and cottage industry scale. At the village level, there was bullock driven "Kohlu" which was the oldest way of extracting oil. Later few crushing units of much bigger size were established which were equipped with locally manufactured expellers which were equipped with locally manufactured expellers. These units produced edible oil in raw form and oil meal or oil cakes, food for animals or exported. Both these processes were inefficient and left much oil unrecovered. It is estimated that about one third of oil was left in the oil cakes. PRODUCTION Actual Production is very low about 457000 tons a year. The following table shows the output of edible oil in recent years from various oil seeds:-

REFINED OIL PRODUCTION ("000" Tons)

TOTAL PRODUCTION 2,286 1,836 2,826 3,060 3,111 3,134 COTTON SEED 1,341 774 1,746 1,935 1,977 2,090

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

OTHER 945 1062 1080 1125 1134 1044

IMPORTS
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Since the domestic availability of refined (5 red to 7 red) oil is below the requirement, Pakistan has to import it to meet the gap. The vegetable oil imported in the country can be grouped as edible and non-edible or the soft and technical oils. The refined oil, particularly is imported every year against a lot of foreign exchange. Imports are being made from several sources including the U.S.A., Brazil, Indonesia, Malaysia, and Singapore. The refined oil imports and value since 1981-82 are shown in the table:-

IMPORT OF REFINED OIL

YEAR 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 QUANTITY (000 Tons) 1872 1968 2571 1992 2475 2654 AMOUNT ($ 000) 10350 11010 19554 20862 18387 19861

FUTURE DEMAND
According to the Nutritional Plan of the Federal Government per capital availability of cooking medium should be at least one ounce per day or 365 ounce per year. As such present consumption of edible oils comes very high. Refined Oil serves as input for edible oil. The consumption of edible oil is directly proportionate with population. Therefore, future projection is made on the basis of population only, which is increasing about 3.00% a year. Yearwise future Demand and Supply gap is given below:-

PROJECTED DEMAND FOR REFINED OILS (In "000" Tons)

23 Friends Oil & Ghee Mil Pvt. Ltd.

YEAR 2008-09 2009-10 2010-11 2011-12

POPULATION 167,753,406 170,819,939 173,942,527 177,122,197

PROJECTED DEMAND 5,780 5,898 6,006 6,115

SUPPLY 1,445 1,475 1,502 1,529

GAP 4,335 4,423 4,504 4,586

OIL CAKE
The Cotton seed actually result in two main products one is the crude oil and the other is Oil Cake. Crude oil is further converted into refined oil by applying Caustic Soda which separates the Oil Dirt from Crude Oil. This Oil Dirt is by-product which is being sold to Soap Manufacturing firms for the production of Soap. The Oil Cake is mainly used as raw material in poultry and animal feed. It is an excellent source of nutrition having almost double the protein content over the undlinted and undecortecated expeller cakes. It is mainly used to increase the nutritional value and balance the cattle and poultry feed. The establishment of modern "Diary" cattle and poultry farms, the demand for specially prepared feed is increasing rapidly. The ever increasing demand for milk and meat has led to the establishment of large scale cattle farms in urban areas. This in turn has created the demand for proper animal feed. It is very clear that in order to improve the growth performance and productivity of livestock population; it is necessary that balanced diet in the form of un-conventional feed be provided to the animals. The growth of poultry feed industry started with the growth of commercial poultry industry after 1963. This in turn resulted in the generation of demand for mixed feeds for commercial hybrid chickens which have exact nutritional requirements. The

present installed capacity of poultry feed and cattle feed is around 2595000 Tons per annum. In Pakistan, about 15% of the total areas is meant for fodder crop. This is decreasing rapidly mainly because other cash crops are high yielding products. The demand for compound feed is increasing due to the more development of livestock and its products. It can therefore, be reasonable assumed that the meal, hull and husk etc. shall be readily sold to the feed milks.

OIL DIRT OR SOAP FOOTING

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Soap footing or Oil dirt is obtained as a by-product in the process of refining crude oil obtained from extraction. Caustic Soda is then applied for refining the Crude Oil which in turns refines the Crude Oil into three categories ranging from "5 red to 8 red" (the oil is red to the extent of these numbers, however it is the refined oil quality, considered to be one of the good quality refined oils) and separates Oil Dirt from the Crude Oil. The application of Caustic Soda over improves the Color of the Oil. The by-Product obtained is being sold to soap manufacturing firms who further process the Oil Dirt and manufactures soap. This soap is being sold in the market under the name of "KALA SOAP". There is large consumption of this "KALA SOAP" in our country. it is widely produced all over in the country at cottage industry level and in the unorganized sector.

CONCLUSION
To conclude, it is evident that nothing obtained as main product or by-product, fro the proposed unit goes waste or has no outlet. All the products serve directly of indirectly human needs as well as they are involved in the development of overall economic outlook. Hence the market viability of the project being based on local raw material will result in substantial saving in valuable foreign exchange.

PRICING ANALYSIS Main Products

OIL CAKE The Cotton Seed Oil Cake will be sold in the Grain Market to the dealers @ of 12.00/Kg. The prices of Oil Cake have been computed on average of past five years. REFINED OIL The Cotton Seed Refined Oil will be sold to the local ghee mills in bulk quantities @ 170.00/kg. OIL DIRT Oil Dirt will be sold to Soap Manufacturing Firms @ 7.00/kg. Oil Dirt will be sold in large bulk quantities but will not be kept as inventory, however a provision of 5% inventory has been assumed at the end of every year.

Following is the table showing prices of the products and by-products:25 Friends Oil & Ghee Mil Pvt. Ltd.

TABLE SHOWING THE PRICES OF PRODUCTS AND BY-PRODUCTS S. No. Product Prices (Per Kg)

2 3

Refined Oil

170.00 Oil Dirt 7.00

NOTE: The current prevailing prices of Cotton Seed and Caustic Soda are Rs. 12.00/kg and Rs. 35.00/kg. Moreover, these prices have been computed on average of past five years.

Economic Analysis
Economic evaluation is considered prominent yardstick to measure the viability of a project. This analysis is directed towards determining whether the project is likely to contribute significantly to the development of the economy as a whole and the contribution of the project would be great enough to justify the use of available resources. This aspect is reviewed under the following:INITIAL IMPACT In order to pursue a theory of balanced growth of the economy the current government is putting an emphasis on industrialization of our inherently agrarian economy. Industrialization of substantial dynamic benefits is important for changing the traditional structure of our less developed economy, while providing employment for a rapidly increasing labor force, and saving scarce foreign exchange by import substitution and creating export potentials. A capital expenditure creates incomes for people engaged in the fabrication of capital goods, who in turns spend their incomes on consumer goods. An initial original capital investment creates a wave of income and spending which has multiplied effect on the national income, increasing it by several times, the original investment. The initial original capital investment of Rs. 34,174,000 in local currency would have a healthy impact on the GNP of the country, the extent of which depends on the degree of multiplied effect. EMPLOYMENT OPPORTUNITIES The project would create employment opportunities for the following staff: Detail Total Nos. Skilled Labor 18 Semi-Skilled Labor 18 Factory Administrative Staff 26 Marketing Staff 05 BENEFIT COST ANALYSIS 26 Friends Oil & Ghee Mil Pvt. Ltd.

The benefit/Cost ratio of the project is worked out in times which are considered satisfactory. The NPV of the expected benefit and costs has been taken into account for the calculation of this ratio. Freindsl Ghee & Oil Mills (Pvt) Limited Estimated Cost of Land

Sr. No. 1 2 3 4 5

Description Land Registration & Legal Requirements 10% of cost of Land Stamp Duty 5% of Cost of Land District Council Fee 2.5% of Cost of Land Development Charges 15% of Cost of Land Total Cost of Land

Area in Marlas 160 160 160 160 160

Unit Cost 7,500 750 375 188 1,125 9,938

Rs ("000") Total Cost 1,200 120 60 30 180 1,590

27 Friends Oil & Ghee Mil Pvt. Ltd.

Friends Ghee & Oil Mills (Pvt) Limited Estimated Cost of Civil Works

Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12

Description Oil Cake Store 1 Expeller Room (G/Floor) Expeller Room (F/Floor) Refinery Room Office Block and Corridor Machinery Covered area Store Guest Rooms Cost of Jumbo Lon for insulation Boundary Wall and Gate Brick Pavement Contingency Total Cost of Civil Works

Type of Building RCC RCC RCC RCC RCC RCC RCC RCC Open area

Unit of Construction Square feet Square feet Square feet Square feet Square feet Square feet Square feet Square feet Square feet Running feet Running feet

Covered Area 7,065 2,214 2,214 196 694 403 714 492 42,174 503 901 833 57763

Rate Per Unit 575 575 575 575 575 575 575 500 45 -

Rs ("000") Total Cost 4,062 1,273 1,273 113 399 232 411 246 1,898 276 690 544 10,872

28 Friends Oil & Ghee Mil Pvt. Ltd.

Friends Ghee & Oil Mills (PVT)Limited Estimated Cost of Machinery Rupees ("000") Sr.No. 1 Description Oil Expeller Bearing Type duty weight (100 Mon) with Crude Oil. Production 250 m/24 hrs. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Electric Motor for Expeller 40 HP/950 RPM made China new. Electric Motor Pully V-Belt type Local Small Crude Tank for Expeller material 1/4 thickness Local Big Crude Tank cap (500 Mon) Local Material Storage Tank Cap (500 Mon) Local Material M.S. Refined Tank Cap (250 Mon) heavy material (3/8 plate Local) Electric Motor 10 HP/950 RPM China Electric Motor 5 HP/950 RPM China Refined Pump with Motor Gear Pump 2" X 2" Local Electric Cables with tape fitting Electric Panel Expeller Bolt & Motor Bolts foundation bolts Capacitor 40 HP Motor Electric Pump Gear with 5 HP Motor Contingency Total Cost of Machinery 6 6 6 6 1 2 3 2 2 1 2 1 3 4 1 200,000 45,000 4,000 7,500 60,000 55,000 85,000 20,000 13,000 16,000 9,500 275,000 75,000 20,000 13,000 1,200 270 24 45 60 110 255 40 26 16 19 275 225 80 13 133 2,791 Qty Unit Cost Total Cost

29 Friends Oil & Ghee Mil Pvt. Ltd.

Annexure - V

Friends Ghee & Oil Mills (PVT)limited Estimated cost of the Project

Sr.No. 1 2 3 4 5 6 7 8 9 10 11

Description Land Building Machinery Installation & Erection of Machinery Insurance 5% of Cost of Machinery Transportation 10% of Machinery Vehicles Furniture and Fixture Office Equipment Pre-operating expenses Interest during construction

LCY 1,590 10,872 2,791 419 140 279 6,270 300 150 980

Total cost ("000") 1,590 10,872 2,791 419 140 279 6,270 300 150 980 1,377 25,167 9,006 34,174

Estimated fixed cost Add: Net Initial Net Working Capital

Total Estimated Cost of Project

30 Friends Oil & Ghee Mil Pvt. Ltd.

Initial Net Working Capital Requirement

Rs. "000" A. 1 Current Assets: Inventories: a) Raw Material 5 Days Requirement: I) Cotton Seed II) Caustic Soda b) Finished Goods c) Spares & Stores Total Cost of Inventory 2 3 4 Advances and Deposits, & Prepayments Accounts Receivables (2% of Sales) Cash 1% of Amount withdrawn from Bank for Inventory Total Current Assets B. Possible Current Liabilities: Less: Bank Borrowing 75% of Inventories Initial Net Working Capital 10,832 9,006 2,700 150 11,450 142 14,442 85 5,202 108 19,838

31 Friends Oil & Ghee Mil Pvt. Ltd.

Friends Ghee &Oil Mills (PVT)Limited

Estimated Income Statement

Less:

Years ending September 30 : Sales COST OF SALES Raw Material Labor Manufacturing Overheads Depreciation Total Cost of Goods Manufactured Inventory Adjustment Less Cost of Sales Gross Profit OPERATING EXPENSES: Administrative Expenses General Expenses Selling Expenses Total Operating Expenses Operating Profit OTHER EXPENSES: Financial Charges on: Long Term Loan Bank Borrowings Amortization of Pre-Production Expenses Total Other Expenses Profit Before Tax and Worker's Fund Worker's Fund Profit/(Loss) Before Tax Tax Provisions @ 45% Net Profit Ratios:

2014 260,091 212,382 10,797 5,822 2,250 231,251 11,563 219,688 40,403 2,621 1,980 10,404 15,004 25,398

2015 291,119 225,504 12,416 6,031 2,250 246,202 748 245,454 45,665 3,014 2,277 11,645 16,936 28,729

2016 309,371 239,598 14,279 6,241 2,250 262,368 12,371 249,997 59,374 3,466 2,619 12,375 18,459 40,915

3,076 327 3,402 21,996 1,760 20,236 9,106 11,130

2,768 327 3,095 25,634 1,794 23,840 10,728 13,112

2,461 327 2,787 38,128 2,669 35,459 15,956 19,502

32 Friends Oil & Ghee Mil Pvt. Ltd.

ASSUMPTION UNDERLYING EARNING FORECAST PRODUCTION AND SALES 1. The proposed Oil Mill Unit would be equipped with 6 most modern Oil Expeller Bearing Type duty weight (100 Mon) with Crude Oil, Production 250 m/24 hrs, Electric Motor for Expeller 40 HP/950 RPM, Electric Motor Pully V-Belt, Small Crude Tank for Expeller material 1/4 thickness. The project will be capable of crushing 60000 kg/day of Cotton Seed. However, immediate target is to meet the current demand level of the Ghee Mills. 2. Operating efficiency of the project is assumed at 75% for the first year and 80% for the second 85% for third and subsequent years. In line with recent experience of other units based on the most modern oil mills machinery, 100% of the production would be sold locally In Pakistan to Ghee Mills particularly located in Bahawalpur Division. Year-end Inventory is assumed at 5% of the production of that particular year. Selling Prices are assumed in accordance with the current prevailing rates in the local market. These selling prices are based on average of last five years. Based over these assumptions, following is the year-wise detail of production, Sales and Sales Revenue of the proposed project:-

3.

4. 5.

33 Friends Oil & Ghee Mil Pvt. Ltd.

Crushing Of Cotton Seed:

10000 Kg of Cotton Seed/day/Expellers Oil Cake Refined Oil Oil Dirt

No. of Expellers 6 6 6

% Output 80 10 5

Units ("000") 17,280 2,160 1,080

Projected Financial Statement:

34 Friends Oil & Ghee Mil Pvt. Ltd.

Wastage Total

5 100 21,600

1,080

Production at 100% Capacity

Yearending 30th September: Capacity Utilized 2014 2015 75% 80% Quantity ("000") 12,960 12,960 648 12,312 1,620 35 Friends Oil & Ghee Mil Pvt. Ltd. 13,824 648 14,472 691 13,781 1,728 2016 85%

a) Add: Less:

Production of Oil Cake: Number of Units Manufactured Opening Inventory Total Units available for Sales Closing Inventory 5% of Production Units Sold Production of Refined Oil: Number of Units Manufactured

14,688 691 15,379 734 14,645 1,836

b)

Add: Less: c) Add: Less:

Opening inventory Total Units available for Sales Closing Inventory 5% of Production Quantity Sold Production of Oil Dirt: Number of Units Manufactured Opening Inventory Total Production available for Sales Closing Inventory 5% of Production

1,620 81 1,539 810 810 41 770 Rupees 75% 160,056 95,418 4,617 260,091

81 1,809 86 1,723 864 41 905 43 861

86 1,922 92 1,831 918 43 961 46 915

Quantity Sold Sales Revenue: Description a b c Oil Cake Refined Oil Oil Dirt Unit Price 27 159 6

80% 179,150 106,801 5,168 291,119

85% 190,382 113,497 5,492 309,371

Total Sales (a+b+c)

Raw Material: Years Capacity Utilized 2014 75% 2015 80% 2016 85%

Consumption of Raw Material: Quantity ("000") 36 Friends Oil & Ghee Mil Pvt. Ltd.

Description

a) b)

Cotton Seed 10000kg/day/Expeller Caustic Soda Total Quantity Consumed

16,200 486 16,686

17,280 518 17,798

18,360 551 18,911

Cost of Raw material: Description Cotton seed @ 12/kg Caustic soda @ 37/kg Total Cost Rs. ("000") 194,400 17,982 212,382 207,360 18,144 225,504 220,320 19,278 239,598

Labor Cost: a) Direct Labor: No. of Sr. No. 1 2 3 Add: Plant Labor Skilled Semi-Skilled Un-Skilled Total Fringe Benefits (45% of Basic Salary) 37 Friends Oil & Ghee Mil Pvt. Ltd. Employees 18 18 18 54 Salary/Month /Worker 14,000 9,000 5,000 28,000 Annual Salary ("000") 3,024 1,944 1,080 6,048 2,722

Total Cost of Plant Labor No. of Sr. No. 1 2 3 Add: Production Labor Plant Manager Electricians Peon/Sweeper Total Fringe Benefits (45% of Basic Salary) Total Cost of Production Labor Assumptions: 1 Direct labor will increase every year @ 15%. Employees 2 6 5 13 Salary/Month /Worker 20,000 9,000 4,500 33,500

8,770 Annual Salary ("000") 480 648 270 1,398 629 2,027

Year Wise Wages of Labor: Sr. No. 1 2 Description Plant Labor Production Labor Total Cost of Labor Years 2014 Rs ("000") 8,770 2,027 10,797 2015 10,085 2,331 12,416 2016 11,598 2,681 14,279

38 Friends Oil & Ghee Mil Pvt. Ltd.

Manufacturing Overhead Cost: Rs ("000")

Description a) Fixed Cost: Power: @ 365/200/KW/Month Insurance: @ 3% of Fixed Assets Cost Maintenance and Depreciation: Overhauling Expenses @ 16000 Per Expeller Maintenance of Building @ 5% of Cost of Building Maintenance of Vehicles @ 5% of Cost of Vehicles Total Fixed Cost b) Variable Manufacturing Expenses: Power: @ 4.87/unit of 200/KW/Monthx90% Machinery Re. 1.00 Per 40/Kg on Crushing of Cotton Seed Total Variable Cost

876 849

96 544 314 2,678

3,787 405 4,192

The fixed cost has been projected as constant while the variable cost has been budgeted as per operational level for the corresponding years. Following is the detail:-

Year ending Manufacturing Overheads as per Different Capacities: Years Description 2014 75% 2,678 3,144 5,822 2015 80% 2,678 3,354 6,031 39 Friends Oil & Ghee Mil Pvt. Ltd. 85% 2,678 3,563 6,241 2016 Rupees ("000") Fixed Cost Variable Cost Total Cost of Manufacturing Overheads

Administrative And General Expenses Rupees ("000") Annual Salary 600 180 576 120 216 180 1,272 572 1,844

Sr. No. 1 2 3 4 5 6 Add:

Designation Managing Director Accountant Clerk Cashier Chowkidar/Godown Keeper Peon/Sweeper Total Fringe Benefits @ 40% Total Cost of Administrative Staff

No. of Employees 1 1 4 1 3 3 12

Salary/ Month 50,000 15,000 12,000 10,000 6,000 5,000 48,000 21,600 69,600

General Expenses: Sr. No. 1 2 3 4 5 6 7 Total Description Traveling Expenses Printing & Stationary Telephone, Telex, Postage Rents, Rates and Taxes Entertainment Legal & Audit Miscellaneous Year Exp. ("000") 250 80 500 400 100 150 500 1,980

Assumptions: 1 Administrative Salaries will increase @ 10% every year.

40 Friends Oil & Ghee Mil Pvt. Ltd.

Year Wise Administrative Salaries: No. of Sr. No. 1 2 3 4 5 6 Total Add: Fringe Benefits @ 40% Total Administrative Salaries per Year General Expenses: Sr. No. Description 1 Traveling Expenses 2 3 4 5 6 7 Total Selling Expenses: Selling Expenses are assumed to be 2% of Sales Sr. No. 1 Printing & Stationary Telephone, Telex, Postage Rents, Rates and Taxes Entertainment Legal & Audit Miscellaneous Designation Employees 1 1 4 1 3 3 13 Rupees ("000") 2014 600 180 576 120 216 180 1,872 749 2,621 2015 690 207 662 138 248 207 2,153 861 3,014 2016 794 238 762 159 286 238 2,476 990 3,466

Managing Director Accountant Clerk Cashier Chowkidar/Godown Keeper Peon/Sweeper

Rupees ("000") 250 288 80 500 400 100 150 500 1,980 92 575 460 115 173 575 2,277

331 106 661 529 132 198 661 2,619

Description Selling Expenses 4% of Sales Revenue

Rupees ("000") 10,404 11,645 12,375

41 Friends Oil & Ghee Mil Pvt. Ltd.

Depreciation Schedule of Fixed Assets:

Sr. No. 1 2 3 4 5

Description Plant & Machinery 10% Building 5% Vehicles 20% Furniture & Fixture 20% Office Equipment 20% Total

Total Cost (Rs.) 3,628 10,872 6,270 300 150 21,220

Rs. ("000") 363 544 1,254 60 30 2,250

Note:-

Depreciation will be constant over the life of assets.

Year Wise Depreciation:

Years Description 2014 Rupees ("000") Depreciation 2,250 2,250 2,250 2015 2016

Pre-Production Expenses: Sr. No. Description 1 2 3 4 5 6 6 Registration Charges Sales Tax Registration Charges Consultancy & Report Preparation Charges Printing & Stationary Conveyance Charges Telephone & Postage Salaries and Wages during Construction 42 Friends Oil & Ghee Mil Pvt. Ltd.

Rs. ("000") 150 85 120 25 50 50 500

Total Pre- Preproduction Expenses

980

Friends Ghee & Oil Mills (Pvt) Limited. Cash Flow Statement End of Construction years ending 30th September: SOURCES OF FUNDS: Operating Profits Depreciation Total Funds from Operation Other Sources: Long Term Loan Bank Borrowings Paid-Up Capital Total Sources of Funds APPLICATION OF FUNDS: Investment in Fixed Assets Financial Charges during Construction Pre-Production Expenses Repayment of: Long Term Loan Bank Borrowings Financial Charges On: Long Term Loan Bank Borrowings PAYMENT OF: Taxes Dividends Worker's Fund Short Term Investment Increase in Current Assets (Other than Cash) Total Application of Funds 2013 Operating Years 2014 2015 2016

Add:

20,504 13,669 34,174

25,398 2,250 27,649 27,649

28,729 2,250 30,980 30,980

40,915 2,250 43,165

43,165

22,810 1,377 980 3,000 3,078 31,245

3,076 -

2,050 2,768

2,050

2,461

24,534 27,609 43

9,106 1,760 5,000 2,024 22,709

10,728 1,794 20,000 1,878 38,911

Friends Oil & Ghee Mil Pvt. Ltd.

Cash Surplus/(Deficit) Cash at the Beginning of the Year Cash at the end of the year

2,928 2,928

39 2,928 2,968

8,271 2,968 11,239

4,254 11,239 15,492

Annexure-VIII

44 Friends Oil & Ghee Mil Pvt. Ltd.

Balance Sheet Year ending 30th September: ASSETS: CURRENT ASSETS: Cash and Bank Balance Short Term Investment Accounts Receivable Inventories: Cotton Seed Caustic Soda Finished Goods Stores & Spares Advances, Deposits and Prepayments Total Current Assets FIXED ASSETS: Fixed Assets at Cost Accumulated Depreciation on Fixed Assets Fixed Assets Net Intangibles Total Assets LIABILITIES AND EQUITY: CURRENT LIABILITIES: Bank Borrowings Taxes Payable Dividend Payable Worker's Fund Payable Current Maturity of Log Term Debt Total Current Liabilities LONG TERM DEBTS: Long Term Debt Total long Term Debt EQUITY: Paid-Up-capital Retained Earnings Total Equity Total Liabilities and Equity End of Construction 2013 Rupees ("000") 2,928 3,000 2,700 150 142 85 9,006 24,187 24,187 980 34,174 Operating Years 2014 2015 2016

2,968 3,000 5,202 9,720 899 11,563 142 85 33,579 24,187 2,250 21,937 653 56,170

11,239 8,000 5,822 10,368 907 12,310 142 85 48,874 24,187 4,501 19,687 327 68,888

15,492 28,000 6,187 11,016 964 13,118 142 85 75,006 24,187 6,751 17,436 92,442

20,504 20,504 13,669 13,669 34,174

9,106 1,760 2,050 12,916 18,454 18,454 13,669 11,130 24,799 56,170

10,728 1,794 2,050 14,573 16,403 16,403 13,669 24,242 37,911 68,888

15,956 2,669 2,050 20,676 14,353 14,353 13,669 43,744 57,414 92,442

45 Friends Oil & Ghee Mil Pvt. Ltd.

Friends Ghee & Oil Mills (Pvt) Limited. Financial Plan Rupees ("000) Description Total Fixed cost of the project Initial Permanent working capital Total cost of the project LCY 25,167 9,006 34,174 Total cost 25,167 9,006 34,174

Long Term Debt Equity Participation Total Capital Required Debt/Equity Ratio

20,504 13,669 34,174

20,504 13,669 34,174

Debt-to-Equity Ratio:

60

40

46 Friends Oil & Ghee Mil Pvt. Ltd.

Friends Ghee & Oil Mills (PVT)limited Loan Repayment Schedule Years 1 2 3 4 5 6 7 8 9 10 Opening Balance 20,504 18,454 16,403 14,353 12,303 10,252 8,202 6,151 4,101 2,050 3,076 2,768 2,461 2,153 1,845 1,538 1,230 923 615 308 2,050 2,050 2,050 2,050 2,050 2,050 2,050 2,050 2,050 2,050 Interest Principle Closing Balance 18,454 16,403 14,353 12,303 10,252 8,202 6,151 4,101 2,050 -

47 Friends Oil & Ghee Mil Pvt. Ltd.

Exit Strategy and Risk Assessment. The owners are aware of the highly risky nature of launching a oil unit in the highly competitive market. If the venture fails, the owner's paid-in capital and expenses may not be recovered The venture's actual revenue will be tracked against projections on a month-to-month basis. If net profitability is not in-line with forecasts, management and operational adjustments will be made to address the issues. If the venture is undercapitalized and requires more working capital, the owner will consider bringing on investment partners. The owner will also review the return-oninvestment for personally providing more paid-in capital. In the event that net profitability cannot be attained, the owner will take the following sequential steps to exit the venture: 1. The owner will attempt to sell the venture outright to a suitable buyer. 2. If a buyer cannot be found, the owner will liquidate all viable assets, including the computers, play stations etc. 3. Capital raised through asset liquidation will be used to reduce possible debt. All debt will be negotiated prior to settlement. 4. If debts cannot be eliminated, the owner will discuss corporate bankruptcy options with legal counsel.

48 Friends Oil & Ghee Mil Pvt. Ltd.