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Pre-Feasibility Study

CORRUGATED PACKAGES

Small and Medium Enterprise Development Authority


Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
Waheed Trade Complex, 1st Floor , 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore
Tel: (042) 111-111-456, Fax: (042) 5896619, 5899756
Helpdesk@smeda.org.pk
REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE
PUNJAB SINDH NWFP BALOCHISTAN
Waheed Trade Complex,
st
1 Floor, 36-Commercial Zone, 5TH Floor, Bahria Ground Floor Bungalow No. 15-A
Phase III, Sector XX, Complex II, M.T. Khan Road, State Life Building Chaman Housing Scheme
Khayaban-e-Iqbal, DHA Lahore. Karachi. The Mall, Peshawar. Airport Road, Quetta.
Tel: (042) 111-111-456 Tel: (021) 111-111-456 Tel: (091) 9213046-47 Tel: (081) 831623, 831702
Fax: (042) 5896619, 5899756 Fax: (021) 5610572 Fax: (091) 286908 Fax: (081) 831922
helpdesk@smeda.org.pk Helpdesk-khi@smeda.org.pk Helpdesk-pew@smeda.org.pk helpdesk-qta@smeda.org.pk

September, 2004
Pre-feasibility Study Corrugated Packages

1 INTRODUCTION TO SMEDA.................................................................................................... 5

2 PURPOSE OF THE DOCUMENT ............................................................................................... 5

3 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT..................... 6


3.1 STRENGTHS ............................................................................................................................ 6
3.2 WEAKNESSES.......................................................................................................................... 6
3.3 OPPORTUNITIES ...................................................................................................................... 6
3.4 THREATS ................................................................................................................................ 6
4 PROJECT PROFILE.................................................................................................................... 6
4.1 OPPORTUNITY RATIONALE ...................................................................................................... 6
4.2 PROJECT BRIEF ....................................................................................................................... 7
4.3 MARKET ENTRY TIMING ......................................................................................................... 7
4.4 PROJECT CAPACITY AND RATIONALE ....................................................................................... 7
4.5 PROJECT INVESTMENT ............................................................................................................. 8
4.6 RECOMMENDED PROJECT PARAMETERS ................................................................................... 8
4.7 PROPOSED LOCATION .............................................................................................................. 8
5 SECTOR & INDUSTRY ANALYSIS........................................................................................... 8
5.1 SECTOR CHARACTERISTICS ..................................................................................................... 8
6 MARKET INFORMATION ......................................................................................................... 9
6.1 MARKET POTENTIAL ............................................................................................................... 9
6.2 TARGET CUSTOMERS .............................................................................................................. 9
7 PRODUCT................................................................................................................................... 10
7.1 PRIMARY FUNCTIONS ............................................................................................................ 10
7.1.1 Protective Function.......................................................................................................... 10
7.1.2 Loading and Transport Function...................................................................................... 10
7.2 SECONDARY FUNCTIONS ....................................................................................................... 10
7.2.1 Sales Function ................................................................................................................. 10
7.2.2 Promotional Function...................................................................................................... 10
7.3 SERVICE FUNCTION ............................................................................................................... 10
7.4 PRODUCTION PROCESS FLOW ................................................................................................ 10
7.5 PRODUCT MIX ...................................................................................................................... 12
7.6 RAW MATERIAL REQUIREMENT ............................................................................................. 12
7.6.1 Take Up Factor (Liner Paper).......................................................................................... 13
7.6.2 Waste Margin .................................................................................................................. 14
7.6.3 Major Suppliers of Raw Material ..................................................................................... 14
7.7 SALES PRICE ......................................................................................................................... 14
8 TECHNOLOGY AND PROCESSES.......................................................................................... 14
8.1 MACHINERY & EQUIPMENT REQUIREMENT ............................................................................ 15
8.2 REPAIR & MAINTENANCE ...................................................................................................... 16
8.3 ERECTION & INSTALLATION .................................................................................................. 16
8.4 OFFICE EQUIPMENT ............................................................................................................... 16
8.5 FURNITURE AND FIXTURES .................................................................................................... 17
8.6 MOTOR VEHICLES ................................................................................................................. 17
9 LAND & BUILDING REQUIREMENT .................................................................................... 17
9.1 COVERED AREA REQUIREMENT ............................................................................................. 17
9.2 RENT COST ........................................................................................................................... 17

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9.3 UTILITIES REQUIREMENT ...................................................................................................... 18


10 HUMAN RESOURCE REQUIREMENT................................................................................... 18

11 PROJECT COSTS ...................................................................................................................... 18


11.1 ESTIMATED TIME FOR PROJECT COMPLETION .......................................................................... 19
12 FINANCIAL ANALYSIS............................................................................................................ 20
12.1 PROJECT COSTS .................................................................................................................... 20
12.2 PROJECTED INCOME STATEMENT ........................................................................................... 21
12.3 PROJECTED BALANCE SHEET ................................................................................................. 22
12.4 PROJECTED CASH FLOW STATEMENT ..................................................................................... 23
12.5 RAW MATERIAL COSTS ......................................................................................................... 24
13 KEY ASSUMPTIONS................................................................................................................. 25

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DISCLAIMER

The purpose and scope of this information memorandum is to introduce the subject
matter and provide a general idea and information on the said area. All the material
included in this document is based on data/information gathered from various sources and
is based on certain assumptions. Although, due care and diligence has been taken to
compile this document, the contained information may vary due to any change in any of
the concerned factors, and the actual results may differ substantially from the presented
information. SMEDA does not assume any liability for any financial or other loss
resulting from this memorandum in consequence of undertaking this activity. The
prospective user of this memorandum is encouraged to carry out additional diligence and
gather any information he/she feels necessary for making an informed decision.

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

DOCUMENT CONTROL
Document No. PREF-79

Prepared by SMEDA-Punjab

Approved by Provincial Chief Punjab

Issue Date September, 2004

Issued by Library Officer

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1 INTRODUCTION TO SMEDA
Small and Medium Enterprise Development Authority (SMEDA) was established with
the objective to provide fresh impetus to the economy through the launch of an
aggressive SME support program.

Since its inception in October 1998, SMEDA had adopted a sectoral SME development
approach. A few priority sectors were selected on the criterion of SME presence. In depth
research was conducted and comprehensive development plans were formulated after
identification of impediments and retardants. The all-encompassing sectoral development
strategy involved recommending changes in the regulatory environment by taking into
consideration other important aspects including finance, marketing, technology and
human resource development.

SMEDA has so far successfully formulated strategies for sectors including, fruits and
vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear,
textiles, surgical instruments, transport and dairy. Whereas the task of SME development
at a broader scale still requires more coverage and enhanced reach in terms of SMEDAs
areas of operation.

Along with the sectoral focus a broad spectrum of business development services is also
offered to the SMEs by SMEDA. These services include identification of viable business
opportunities for potential SME investors. In order to facilitate these investors, SMEDA
provides business guidance through its help desk services as well as development of
project specific documents. These documents consist of information required to make
well-researched investment decisions. Pre-feasibility studies and business plan
development are some of the services provided to enhance the capacity of individual
SMEs to exploit viable business opportunities in a better way.

This document is in the continuation of this effort to enable potential investors to make
well-informed investment decisions.

2 PURPOSE OF THE DOCUMENT


The objective of a 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.

This particular pre-feasibility relates to Corrugated Packages. Before studying the whole
document one must consider following critical aspects, which form the basis of any
investment decision.

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3 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR


INVESTMENT
Before making the decision, whether to invest in the corrugated packaging business or
not, one should carefully analyze the associated risk factors. A SWOT analysis can help
in analyzing these factors which can play important role in making the decision.

3.1 Strengths
Corrugated packages provide efficient and convenient unit for marketing of the
product.
They allow weighing of produce as well as handling and transport to be
accomplished in fewer steps.
When compared with wooden crates, corrugated boxes are light to carry and are
preferred by air freight companies.
They are recyclable unlike non-recyclable packaging that has to be burnt at the
end of its life.
3.2 Weaknesses
Corrugated packages are not reusable.
They cannot be produced economically on a small scale. Cost of labour for each
batch and cost of overheads keep on decreasing with the increasing production.
They are easily damaged by water and rough handling unless impregnated with
wax at extra cost.
They offer most practical and economic choice for packaging but availability of
suitable designs at the right price remains the greatest challenge to improvements.
3.3 Opportunities
Corrugated packages allow for easy printing of labels and can be manufactured to
a wide range of sizes, shapes and strength specifications.
Manufacturing sector of Pakistan showed a record growth of 13.4% in the year
2003-2004, which in turn increases the demand for packaging facilities as well.
3.4 Threats
Innovations in the packing industry like plastic crates, plastic bags etc. may affect
the market demand for corrugated packages.

4 PROJECT PROFILE
4.1 Opportunity Rationale
Corrugated Packaging is visible wherever goods are produced, transported and displayed.
Since its invention years ago, corrugated packaging has ensured efficient safe and
sanitary transit of goods, protecting and wrapping about 70% of the worlds liquid and
solid materials from producer to consumer.

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In Pakistan, the demand for corrugated packages is increasing, as the growth in the
manufacturing industry touched a level of 13.4%1 last year Corrugated packaging
protects the product during storage, transportation and handling. Thus the package, by
virtue of its protective function-becomes a vital link in the distribution chain. Also
corrugated cartons offer the most practical and economic choice for packaging for inter
island trade.
Product range includes consumer packages, food and non food-packages, transport
packages.

4.2 Project Brief


The proposed project will be producing corrugated packages. Corrugated packages are
paperboard made from one or more plies of fluted paper, which is glued onto, paper or
cardboard. The said business will be producing 7-ply corrugated sheets.
Different sizes of boxes will be produced to facilitate the customers nationwide. The
proposed business will be manufacturing corrugated boxes for meeting the local demand.

4.3 Market Entry Timing


Corrugated Packages are used in so many different sectors that the demand never gets
affected with seasons, changing trends and emerging attributes. So the proposed business
can be started at any time of the year.
At the commencement of the proposed business, it is important that the entrepreneur must
have good public relations in the market and should have some orders in hand.

4.4 Project Capacity and Rationale


The proposed corrugated packaging facility will handle 3000 boxes per day in 8 hours
shift. Details are given in the following table.

Table 4-1 Project Capacity


Hours utilized by one batch 2
Number of product lines 4
Maximum box capacity per day per shift 3,000
The industry norm is to run the unit for one shift per 8 hours. However, it can vary
depending on the level of orders received from the market. This feasibility is based on one
shift of 8 hours.

1
Economic Survey Of Pakistan 2003-2004

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4.5 Project Investment


Total project cost is Rs. 5.37 million.

4.6 Recommended Project Parameters


Capacity Human Resource Technology/Machinery Location
3,000 boxes 28 Local Lahore
Financial Summary
Project Cost IRR NPV (Rs.) Payback Period
Rs. 5.37 million 42% Rs. 8.80 million 4 Yrs.
Total cost of the project is worked out in the table below:

Table 4-1 Project Costs


Capital Investment 4,311,000
Working Capital Requirement 1,056,000
Total Investment 5,367,000
4.7 Proposed Location
Selection of a district or a particular city for a project has an imperial effect on fixed and
operational costs. The proposed location should be located near the industrial areas as this
would reduce the transport cost. Suitable locations in Pakistan for setting up the proposed
business are mentioned in the table below:

Table 4-2 Suitable Locations


City Location
Lahore Kot Lakhpat, Bund Road, Multan Road,
Sheikhupura Road, Kasur Road,Raiwand Road
Rawalpindi Peshawar Road, Peer wadhai
Karachi Korangi Industrial Area, Landhi Industrial Area
Faisalabad Sargodha Road, Jharanwala Road

5 SECTOR & INDUSTRY ANALYSIS


5.1 Sector Characteristics
The numbers of corrugated packaging facilities in Pakistan has increased at a rapid pace
over the last few years. The size of this sector is still growing. Large corrugated
packaging facilities have been set up in the industrial areas of Pakistan. Approximately
2,000 corrugated packaging facilities are being operated in Lahore. Few of them are as
follows:
Fine Packages
Packages Limited

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Roshan Packages
Al-sheikh Packages
Convertec Packages
Bismillah Packages
General Packages
Similarly, large corrugated packaging facilities are also working in prime business
locations in Karachi and Rawalpindi.
6 MARKET INFORMATION
6.1 Market Potential
The trend for packaging has changed from the primitive packaging (wooden boxes) to a
modern and up-to-date packaging (corrugated packaging). Nowadays, corrugated
packaging is used by almost every manufacturer and supplier or perishable, non
perishable and fragile products. Corrugated Packages have inherent benefits as they are
environment friendly and have recycling capability. This is the major reason, the
international market prefers corrugated packages.

Table 6-1 Global Trade of Corrugated Packages2


Year US $ (000)
1998 2,685,150
1999 2,694,482
2000 2,899,206
2001 2,739,371
2002 2,869,572
Pakistans share in the global trade is not very high but Pakistan has been exporting
corrugated Packages to UAE and Somalia in the year 2000 and 2001.
6.2 Target Customers
As mentioned above, the target customers are manufacturers and suppliers of all types of
goods. Following are some of the target clients for a manufacturer of corrugated
packaging.
Pharmaceutical Industry
Textile Industry
Home Appliances
Garments
Dairy Products
Fruits and Vegetables and
Shoes

2
Trade Analysis System 2001-2002
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7 PRODUCT
The proposed project will be producing 7 ply corrugated packaging boxes of different
sizes which will be serving several purposes. The functions of the product can be
classified into three different categories.

7.1 Primary Functions

7.1.1 Protective Function


The protective function of packaging essentially involves protecting the contents from the
environment and vice versa. This is intended to ensure full retention of the utility value of
the packaged goods or in other words it is intended to protect the goods from loss,
damage and theft.

7.1.2 Loading and Transport Function


Convenient goods handling entails designing transport packaging in such a manner that it
may be held, lifted, moved, set down and stowed easily, efficiently and safely. Packaging
thus has a crucial impact on the efficiency of transport, handling and storage of goods.

7.2 Secondary Functions

7.2.1 Sales Function


The purpose of the sales function of a package is to enable or promote the sales process
and to make it more efficient

7.2.2 Promotional Function


Promotional material placed on the packaging is intended to attract the potential
purchaser and to have a positive impact upon the purchasing decision.

7.3 Service Function


The various items of information printed on packaging provide the consumer with details
about the contents and use of the particular product i.e. dosage information on medicines.

7.4 Production Process Flow


A 7 ply corrugated box consists of 7 layers of sheets. 2 sheets of kraft paper are used on
both sides and 5 sheets of flutter paper are used in between them. 3 three sheets of flutter
paper will be lined and 2 sheets will be of plain flutter paper. A 7 ply sheet is shown in
the figure below:

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Figure 7-1 7 Ply corrugated sheet


Kraft Paper Flutter paper (plain)

Kraft Paper
Flutter Paper (lined)
The process of manufacturing starts from corrugating followed by cutting in accordance
with different shapes and sizes, pasting, rotary, bending according to the design and
finally stapling to form a shape and to remain strongly intact.

Figure 7-2 Process Flow

Corrugating Cutting Pasting

Slanting/
bending Rotary Printing

Stapling

The above process takes approximately 8 hours to complete from corrugation to stapling.
Each process is explained as below:
a) Corrugation: - In this process the flutter paper is firstly heated up, then passed over
the tray, which contains pasting fluid, along with the kraft paper. It is then passed
through a corrugating machine, where 5-ply paper corrugated board is manufactured
by using glue making unit and reel stand.
b) The Liner paper can also be used instead of Flutter paper for better quality upon
clients special request.
c) Cutting: - The sheet is cut according to the required size using a paper cutter.
d) Pasting: - The corrugated sheet is then pasted on to another set of corrugated sheet,
making it 7 Ply.

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e) Printing: - It is then printed as required by the customers i.e. fragile, some object,
recycle after use etc.
f) Rotary: - In this process the flaps and the Four Corners of the box are made using
rotary machine.
g) Slanting: - The sheet is bent in this process, forming a box shape.
h) Stapling To give the box a firm and a proper shape, they are finally stapled.

7.5 Product Mix


Different sizes of boxes are produced for various target industries. They are as follows:

Table 7-1 Product Range


Sizes Measurements Target Industry
A 24 x 24 x 8 Textile Sector
B 14.54 x 10.5 x 6.25 Pharmaceutical Sector
C 19.69x17.72x13.78 (50cm x 45cm x 35cm) Multi purpose
D Others Fridge, Electronic products etc.
Production capacity varies with the size of the box. Production for each size of box will
be taking one batch of two hours. Proposed production for each size at 100% capacity
will be as under:

Table 7-2 Product Mix


Box Sizes Per Day Production Per Annum Production
24x24x8" 750 225,000
14.54x10.5x6.25 1,000 300,000
19.69x17.72x13.78 750 225,000
Others(avg.) 500 150,000
Total 3,000 900,000
7.6 Raw Material Requirement
Following raw material are used in corrugated packages.
Kraft Paper
Flutter or Liner Paper
Pasting fluid
Printing Ink
Raw material used for each size of box and their costing is shown in the tables below 3:

3
Calculations for quantity required are provided in the Financial Analysis section.

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Table 7-3 Raw Material Costing for 24x24x8


Raw Material Used No. of Quantity Rs./Kg Total Cost
Papers Required (Kg.) (Rs.)
Kraft Paper 2 0.55 48 26.29
Flutter Paper (Plain) 2 0.52 12 6.31
Flutter Paper (Liner) 3 1.10 12 13.25
Total 7 45.85
Table 7-4 Raw Material Costing for 14.54x10.5x6.25
Raw Material Used No. of Quantity Rs./Kg Total Cost
Papers Required (Kg.) (Rs.)
Kraft Paper 2 0.16 48 7.51
Flutter Paper (Plain) 2 0.15 12 1.80
Flutter Paper (Liner) 3 0.32 12 3.79
Total 7 13.11
Table 7-5 Raw Material Costing for 19.69x17.72x13.78
Raw Material Used No. of Quantity Rs./Kg Total Cost
Papers Required (Kg.) (Rs.)
Kraft Paper 2 0.07 48 3.43
Flutter Paper (Plain) 2 0.07 12 0.82
Flutter Paper (Liner) 3 0.14 12 1.72
Total 7 5.97
Table 7-6 Raw Material Costing for Miscellaneous Sizes
Raw Material Used No. of Quantity Rs./Kg Total Cost
Papers Required (Kg.) (Rs.)
Kraft Paper 2 0.55 48 26.29
Flutter Paper (Plain) 2 0.53 12 6.31
Flutter Paper (Liner) 3 1.10 12 13.25
Total 7 45.85
7.6.1 Take Up Factor (Liner Paper)
A 7 plied corrugated sheet consists of 2 kraft papers on both sides, 2 plain flutter papers
and three sheets of lined flutter paper. The proposed business will only be buying kraft
paper and plain flutter paper from the market. A plain flutter paper is converted into a
lined flutter paper during the process of corrugation. A lined flutter paper consumes more
flutter paper and the take up factor is 40% on average. In other words, a lined flutter
paper is 40% heavier than a plain flutter paper.
While costing for lined flutter paper it is very important that the cost of additional take up
of flutter paper is considered.

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7.6.2 Waste Margin


Wastage is a common feature for corrugated packages business. It is estimated that 5% of
the total production goes into waste. But as the wastage occurs during the production
process, it is generally charged to the client. The wastage on the other hand is sold as
scrap by the manufacturer at the rate of Rs.4.50 per kg.

7.6.3 Major Suppliers of Raw Material


The raw materials are easily available in Lahore and other major cities. Some of the
suppliers in Lahore are having their sales point on Bund road and Gunpat road.

7.7 Sales Price


It is generally observed in the corrugated packages business that the sales price is fixed
35% above the cost of raw material consumed for the proposed box size. This 35%
includes the profit margins, cost of pasting fluids and printing costs.
On the other hand, cost of printing is approximately Rs.1 per box and pasting fluids are
available at the rate of Rs.5 per kilogram. Consumption of pasting fluids depends upon
the size of the box.
This particular pre-feasibility assumes that the sales prices are 35% above the cost of raw
material which include the costs of printing and pasting fluids.
Table 7-7 Sales Prices
Box Sizes Sales Prices (Rs.)
24x24x8" 62
14.54x10.5x6.25 18
19.69x17.72x13.78 8
Others(avg.) 62

8 TECHNOLOGY AND PROCESSES


In Pakistan, there are several manufacturers of corrugated packaging machines. There are
around 10 suppliers in Lahore i.e. Muhammad Hussain in Misree Shah, Mr. Shafiq in
Shah Jamal, almost 42 suppliers in Karachi and 2 suppliers are in Islamabad. These
machines can also be imported from the following countries. However, the cost of
imported machinery is too high as compared to local machinery.
Brazil
Sweden
USA
Russia
China
Norway
The locally manufactured machinery is comparable to the imported machinery in terms of
production and quality of the output, whereas price wise, local machinery has an edge

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over imported machinery. Some of the corrugation machinery manufacturers are listed
below:
Chughtai Engineering Works, Lahore
Prime Tech International, Lahore
Sama Engineering works, Karachi
The above mentioned suppliers also export the corrugated packaging machinery to
Tashkent and South Africa, which proves the fact that local machinery is comparable to
international standards.

8.1 Machinery & Equipment Requirement


The major cost involved in establishing a well-equipped corrugated packaging facility is
primarily the cost of plant and machinery. Basically there are three types of machineries
available in the market, which are as follows:

Table 8-1 Machinery Types


Machine type Estimated Cost of Plant
Manually operated corrugation machine set Rs. 1.5 million
Semi automated corrugation plant Rs. 3.5 million
Fully automated corrugation plant Rs. 6 million
Production capacity for the three types varies. Fully automated machinery employs lesser
labor and gives the highest production but as the proposed business will be order based, it
is recommended that initially it should concentrate on capturing the market while keeping
the project costs at lower end therefore the proposed project will be operating on
manually operated corrugation machine.

There is a huge difference in the costs of the three types of machineries. As the total
project cost is directly related with the cost of machinery, the proposed project will be
using manually operated corrugation machine set.
Manually operated corrugation machine set comprises of 9 machines to form a complete
corrugated setup.
Details of required machinery are shown in the table below:

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Table 8-2 Details of Machinery


Machines No. of Machines Price per Machine Total Cost(Rs.)
(Rs.)
Corrugation Machine 1 225,000 225,000
Pasting 105 1 55,000 55,000
Rotary 105 1 45,000 45,000
Rotary 65 1 35,000 35,000
Came Slote 85 1 100,000 100,000
Flexo Printing Machine 1 600,000 600,000
Hand Cutter 80 2 30,000 60,000
Dye Cutting Machine 1 450,000 450,000
Total 9 1,570,000
8.2 Repair & Maintenance
A regular inspection is imperative for the smooth running of machines. The maintenance
cost can be suppressed by these regular checkups. However, maintenance will be required
to ensure its long life and better output.
Annual repair & maintenance of the plant and machinery is estimated to be 1 % of the
total machinery cost in the initial year and this rate is expected to grow at 0.05% in the
proceeding years.
Spare parts i.e. Rollers, Bearings and Cutter Blade are easily available from the suppliers
of the machinery.

8.3 Erection & Installation


Erections and installation cost is assumed to be 5% of the total cost of machinery.

8.4 Office Equipment


Following office equipment will be required for the proposed project:

Table 8-3 Details of Office Equipment


Description No. Cost Per Unit(Rs.) Total(Rs.)
Split Unit 1 25,000 25,000
Computer 2 15,000 30,000
Printer 1 5,000 5,000
Telephone Sets 4 750 3,000
Fire Extinguish 2 4,000 8,000
Fax Machine 1 14,000 14,000
Total 85,000
Depreciation on office equipment will be charged at 10% per annum on straight-line
basis.
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8.5 Furniture and Fixtures


Following furniture and fixtures will be required for factory and sales outlets.

Table 8-4 Details of Furniture and Fixtures


Description No. Cost Per Unit(Rs.) Total(Rs.)
Sofa Set 2 seat 2 3,000 6,000
Chairs 10 500 5,000
File Cabinets 3 9,000 27,000
Office Table 3 5,000 15,000
Total 53,000
Depreciation on furniture and fixtures will be charged at 10% per annum on straight-line
basis.

8.6 Motor Vehicles

Along with the above mentioned machinery and equipment the proposed business will
also be using two shehzore trucks. Each truck will cost approximately Rs. 750,000.
Motor vehicles will be depreciated at 10% on straight-line method.

9 LAND & BUILDING REQUIREMENT


9.1 Covered Area Requirement
Covered area requirement and construction costs are listed in the table below.

Table 9-1 Covered Area Requirement


Section Total Area (Sq. ft.)
Production Hall
Storage Area 1,125
Finished Goods Area 900
Plant & Machinery Area 5,625
Wastage Area 900
Total Production Area 8,550
Administrative Block 900
Total Covered Area 9,450
Free Area 1,800
Total Area Requirement 11,250
9.2 Rent Cost
As no major construction costs are involved in the proposed building so it is
recommended that the area should be acquired on rent basis. The rent cost for the
business varies with location. This project is proposed to be located in Kot Lakhpat

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industrial area, Lahore. An area of 2.5 kanal can be obtained on monthly rent of
approximately Rs. 50,000 to 60,000.

9.3 Utilities Requirement


Electricity
Telephone
Gas
Water

10 HUMAN RESOURCE REQUIREMENT


Following staff would be required for the proposed project:

Table 10-1 Human Resource Requirement


Staff No. of Salary per month Annual Salary
Employees (Rs.) (Rs.)
Accountant 1 8,000 96,000
Purchase Manager 1 8,000 96,000
Marketing Manager 1 10,000 120,000
Production Supervisor 1 7,000 84,000
Semi-skilled workers 21 3.500 882,000
(helper/operator/Loaders)
Peon 1 3,500 42,000
Security Guard 1 3,500 42,000
Driver 1 4,000 48,000
Total 28 1,410,000

11 PROJECT COSTS
Break down of total project cost is in the table below:

Table 11-1 Project Costs


Description Rs. in Thousands
Capital Cost
Plant and Machinery 1,570
Pre-production expenses 925
Furniture, fixture, and equipment and Vehicles 1,638
Erection and Installation 79
Contingencies 99
Total Capital Costs 4,311
Working Capital
Inventory 562

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Pre-paid rent 300


Cash 194
Total Working Capital 1,056
Total Cost 5,367
11.1 Estimated time for project completion
The proposed project will be taking around 7 to 8 months for completion. Activities to be
performed before the regular operations start are as under:
1. Fifteen days for completion of initial formalities, i.e., selection of suitable
location and renting of building etc.
2. One month for sanction of loan (in case, if financing has to be arranged through
bank).
3. Five to Six month for purchase of machinery.
4. One month for furnishing and staff appointments.
This project can take-off within five to six months as well, as some of the activities will
be in progress simultaneously.

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12 FINANCIAL ANALYSIS
12.1 Project Costs
CORRUGATED PACKAGES
Project Summary Rs. (1000)
Plant and Machinery 1,570
Furniture an dFixture and Vehicles 1,638
Pre operating Expenses 925
Erection and Installation ( 5% of total machinery Cost) 79
Contingencies 99
Fixed Assets 4,311

Initial working Capital 1056

Total Project Costs 5,367


Financing

Debt 50% 2,683


Equity 50% 2,683
Total Financing 5,367
Project Returns
IRR % 42%
Pay Back period Yrs. 4
NPV Rs. 8,807

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12.2 Projected Income Statement


CORRUGATED PACKAGES
Projected Income Statement Rs. (1000)
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Sales
Corrugated Boxes 15,225 17,920 20,917 24,247 27,940 32,031 36,558 41,562 47,087 53,182
Waste 120 135 150 166 182 199 216 234 253 273
15,345 18,055 21,067 24,412 28,122 32,230 36,774 41,796 47,340 53,455
Cost of Sales 12,719 14,572 16,582 18,759 21,117 23,668 26,425 29,403 32,619 36,088
Gross Profit 2,626 3,483 4,486 5,653 7,005 8,562 10,349 12,393 14,721 17,367

Operating Expenses 1,464 1,592 1,733 1,887 2,058 2,060 2,266 2,492 2,742 3,016
Operating Profit 1,162 1,891 2,753 3,766 4,947 6,502 8,083 9,900 11,979 14,351
Less:
Financial expenses 671 201 148 94 40
671 201 148 94 40 - - - - -

Profit Before Taxation 491 1,690 2,606 3,672 4,907 6,502 8,083 9,900 11,979 14,351
Income Tax 68 466 787 1,160 1,592 2,151 2,704 3,340 4,068 4,898
Net profit After Taxation 423 1,223 1,819 2,512 3,314 4,351 5,379 6,560 7,912 9,453

Retained earnings - 423 1,646 3,465 5,976 9,291 13,642 19,021 25,582 33,493
Profit transferred to balance sheet 423 1,646 3,465 5,976 9,291 13,642 19,021 25,582 33,493 42,946

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12.3 Projected Balance Sheet


CORRUGATED PACKAGES
Balance Sheet Rs. (1000)
Capital and Reserves Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Share Capital 2683 2683 2683 2683 2683 2683 2683 2683 2683 2683 2683
Reatined Earnings 0 423 1,646 3,465 5,976 9,291 13,642 19,021 25,582 33,493 42,946
2,683 3,106 4,330 6,148 8,660 11,974 16,326 21,705 28,265 36,177 45,630
Long Term Loan 2,683 1,610 1,073 537 -
Current Liabilities
Current portion of long term liabilitites 537 537 537 537 - - - - - -
Tax Payable 68 466 787 1,160 1,592 2,151 2,704 3,340 4,068 4,898
Accounts Payable - 264 305 349 397 449 505 565 631 701 734
- 869 1,308 1,673 2,094 2,041 2,656 3,270 3,971 4,769 5,632

5,367 5,586 6,711 8,358 10,754 14,016 18,981 24,974 32,236 40,945 51,261
Fixed Assets
Fixed Assets 3,386 3,057 2,728 2,400 2,071 1,742 1,414 1,085 756 428 99
Pre-operating expenses 925 740 555 370 185
Current Assets
Advance rent 300 - - - - - - - - - -
Raw Material Inventory 562 649 743 845 956 1,075 1,204 1,344 1,494 1,656 -
A/C Receivable - 355 418 488 566 652 747 853 970 1,099 1,241
Cash/Bank 194 784 2,266 4,255 6,976 10,546 15,616 21,693 29,016 37,763 49,922
1,056 1,789 3,428 5,588 8,498 12,273 17,568 23,889 31,479 40,518 51,163
5,367 5,586 6,711 8,358 10,754 14,016 18,981 24,974 32,236 40,945 51,261
- - - - - - - - - - -

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12.4 Projected Cash Flow Statement


CORRUGATED PACKAGES
Cash Flow Statement Rs. (1000)
Operating activities Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Net profit - 423 1,223 1,819 2,512 3,314 4,351 5,379 6,560 7,912 9,453
Amortization (Pre-operational Expenses) - 185 185 185 185 185
Depreciation - 329 329 329 329 329 329 329 329 329 329
Raw Material Inventory (562) (87) (94) (102) (111) (119) (129) (139) (150) (162) 1,656
Accounts receivable - (355) (63) (70) (78) (86) (95) (106) (117) (129) (142)
Accounts payable - 264 41 44 48 52 56 60 65 70 33
Tax Payable 68 398 321 373 432 558 553 636 728 830
Building rent prepayments (300)
Prepaid Payments 300
Cash provided by operations (862) 1,127 2,018 2,525 3,258 4,106 5,070 6,077 7,323 8,748 12,158
Financing activities
Long term debt principal repayment (537) (537) (537) (537) (537)
Addition to long term debt 2683
Owner's investment 2683
Cash provided by/ (used for) financing activities 5367 (537) (537) (537) (537) (537) - - - - -
Investing activities
Capital expenditure (4,311)
Cash (used for)/ provided by investing activities (4,311) - - - - - - - - - -
Net Cash 194 590 1,482 1,988 2,722 3,570 5,070 6,077 7,323 8,748 12,158
Cash balance brought forward - 194 784 2,266 4,255 6,976 10,546 15,616 21,693 29,016 37,763
Cash carried forward 194 784 2,266 4,255 6,976 10,546 15,616 21,693 29,016 37,763 49,922

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12.5 Raw Material Costs


C o n v er sio n F a c to rs
1 m 2 = 1 5 5 0 in ch 2
1 inc h = 2 5 .4 m m

D im en sio n s S ize in In ch e s S iz e in m illim eter s


L e ng th L L x 2 5 .4
W id th W W x 2 5 .4
H eig ht H H x 2 5 .4
W id th req u ired (W +H )+2 5 .4
L e ng th req uired(L +W )x 2 + (2 x 2 5 .4 )

A rea o f sh e et W id th req u ire d x L e n g th re q u ire d


W a ste M arg in 5%
K r a ft P a p er R e q u ir em e n t
W e ig ht o f K raft p a p er (K g s p e r sq u are m eter) 0 .1 2 5
N o . o f kraft p ap e r 2
W e ig ht o f k raft p a p er req u ire d (A re a o f sh ee t x w eig ht o f kraft p a p er x N o . o f k raft p a p er) x
(1 +W aste M a rgin )
P ric e p e r kg . kraft p ap er R s. 4 8
C o st o f kr a ft p a p er p r ice p er k g . x w eig h t o f k ra ft p a p er req u ire d
F lu tte r P a p e r R eq u ir em e n t
W e ig ht o f F lutte r P ap er (K gs p e r sq u are m e ter) 0 .1 2
T a ke up fa cto r fo r lin ed flu tte r p a p er 40%
N o . o f flu tter p ap e r (p la in) 2
W e ig ht o f p la in flutte r p ap er req u ired (A re a o f sh ee t x w eig ht o f flutte r p ap er x N o . o f flutte r p ap e r) x
(1 +W aste M a rgin )
N o . o f flu tter p ap e r (lin er) 3
w e igh t o f L ine d flutter p ap e r req u ired (A re a o f sh ee t x w eig ht o f flutte r p ap er(1 + tak e u p fac to r fo r lined
p ap e r) x N o . o f flutter p ap e r(L in er)) x (1 +W aste M a rg in )
T o ta l w e igh t o f flu tte r p a p er w e igh t o f p la in flutte r p ap er req u ired + w e igh t o f lin ed flu tter p a p er
req u ire d
P ric e p e r kg . F lutte r p ap e r R s. 1 2
C o st o f F lu tte r P a p er p r ice p er k g . x to ta l w e ig h t o f flu tter p a p er

T o ta l ra w m a te ria l c o st co st o f kr a ft p a p er + c o st o f flu tte r p a p e r

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13 KEY ASSUMPTIONS
Table 13-1 Operating Assumptions
Annual production capacity (boxes) 900,000
Operating Shift per day4 1
Operating hours per shift 8
Days operational per year 300
No. of Batches 4
Hours consumed for one batch 2
Table 13-2 Machinery Assumptions
Machine Type Manually operated
Number of Machines Installed 9
Installed capacity 100%
Initial year capacity 50%
Maximum capacity 95%
Annual capacity growth rate 5%
Depreciation rate on machinery (Straight Line Method) 10%

Table 13-3 Revenue Assumptions


Sales prices Industry norms
Sales price growth rate 7%
Wastage sales 5%
Wastage sales growth rate 2%

Table 13-4 Financial Assumptions


Project life (Years) 10
Debt 50%
Equity 50%
Interest rate on long term debt 10%
Debt tenure (Years) 5
Principal debt repayments per year 538,000
No. of installments in a year 2
Amortization (years) 5

4
The industry norm is one shift per day. However, it can vary with the demand

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Table 13-5 Cost of sales Assumptions


Raw Material cost growth rate 5%
Wage and salaries growth rate 10%
Gas Expense for the first year Rs. 54,000
Gas Growth rates 5%
Electricity Expense for the first year Rs. 120,000
Electricity growth rate 5%
Depreciation (straight line method) 10%
Table 13-6 Operating Assumptions
Telephone Expense for the first year Rs. 36,000
Printing & stationery per year Rs. 12,000
Legal & professional charges per year Rs. 10,000
Entertainment per year Rs. 36,000
Factory rent per year Rs.600,000
Advertisement per year Rs. 60,000
Traveling & conveyance per year Rs. 36,000
Miscellaneous expenses per year Rs. 45,000
Administrative expense growth rate 10%
Income Tax (percentage of Net Profit) 35%
Table 13-7 Contingency Expense Assumptions
Erection and Installation 5%
Furniture and Fixture 1%
Pre-operating Expenses 2%
Vehicles 5%
Table 13-8 Cash Flow Assumptions
Accounts Receivable in days 7
Accounts Payable in days 7
Raw Material Inventory (days) 15
Stores and Spares Inventory (days) 30
Minimum Cash Required Rs.194,000
Table 13-9 Pre-operational Expenses
Appraisal fee & Legal Documentation Rs.25,000
Trial run expenses Rs.250,000
Other pre-operating overheads5 Rs.650,000

5
Pre operating expenses include salaries & wages, traveling, and other expenses

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