259.

PROFILE ON PRODUCTION OF DEXTRIN AND DEXTROSE

259-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

259-3

II.

PRODUCT DESCRIPTION & APPLICATION

259-3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

259-4 259-4 259-6

IV.

RAW MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

259-7 259-7 259-8

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

259-8 259-8 259-9

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

259-11 259-11 259-12

VII.

FINANCIAL ANLYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS

259-12 259-12 259-13 259-14 259-15

259-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of dextrin and dextrose with a capacity of 300 tonnes per annum.

The present demand for the proposed product is estimated at 330 tonnes per annum. The demand is expected to reach at 591 tonnes by the year 2017.

The plant will create employment opportunities for 30 persons.

The total investment requirement is estimated at Birr 5.32 million, out of which Birr 2.93 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of present value (NPV) of Birr 1.46 million, discounted at 8.5%.

14 % and a net

II.

PRODUCT DESCRIPTION AND APPLICATION

Dextrin (starch gum) is a group of colloidal products formal by hydrolysis of starches of corn. It is available in more than 100 different blends and types varying from pure white to light yellow in colour. Dextrose (corn sugar, D. glucose) is the sugar found in blood and is our primary energy food.

Dextrin is used as adhesive, thickening agent, sizing paper and textiles, substitute for natural gum, food industry, printing ink, substitute for lactose in penicillin manufacture. Dextrose is used in baking, preserved food, soft drinks, candy and ice creams, infant feed, viscose rayon spinning bath, in leather tanning, in tobacco conditioning, in fermentation, etc.

259-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

There is no plant that manufactures dextrin and dextrose in the country. As a result, the entire requirement of the product is met through import. Import of dextrin's and its modified starches is presented in Table 3.1.

Table 3.1 IMPORT OF DEXTRIN & ITS MODIFIED STARCH (TONNES)

Year 1999 2000 2001 2002 2003 2004 2005 2006

Import 26 116 56 131 99 213 234 425

Source:- Customs Authority

The data presented in Table 3.1 shows two characteristics. During the initial periods, i.e., 1999-2003 import has been fluctuating from year to year. A lower level of import in one year is preceded by high import in another year or vice versa. For instance, imported quantity during year 1999 was 26 tonnes and followed by 116 tonnes in the year 2000 and again declined to 56 tonnes in the year 2001. Similarly, imported quantity during year 2002 was very high which amounts to 131 tonnes but declined to 99 tonnes in the following year, i.e, 2003.

259-5

The situation since 2004 has changed with consistent increase. The imported quantity during the period 2004 was 213 tonnes and increased to 234 tonnes and 425 tonnes in the year 2005 and 2006, respectively.

In order to determine the current demand, the recent two years average has been considered conservatively. Accordingly, current demand is estimated at 330 tonnes.

2.

Projected Demand

The demand fro dextrine and dextrose is highly influenced by the growth of the manufacturing sector mainly textiles, glass, printing ink, food, soft drink, tanning, tobacco and the like. The manufacturing sector has been growing by more than 6% in the past few years. Assuming the past trend will continue in the future, an annual average growth rate of 6% is applied to forecast the future demand by taking the current effective demand as a base (see Table 3.2.).

Table 3.2 FORECASTED DEMAND FOR DEXTRIN & DEXTROSE (TONNES)

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Forecasted Demand 350 371 393 416 442 468 496 526 557 591

259-6 3. Pricing and Distribution

Based on the average CIF and other charges, Birr 12,560 per tonne is recommended as a factory gate price. As an industrial input, the product can be sold directly to the user

industries without intermediaries.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

The project has two production lines: dextrin and dextrose line. Each line produceds 300 tonnes per annum, based on 300 working days per annum and in a single shift of 8 hour per day.

2.

Production Programme

The production program is indicated in Table 3.3. At the initial stage of the production period, the plant requires some years to penetrate the market. Therefore, in the first and second year of production, the capacity utilization rate will be 70% and 90%, respectively. In the third year and thenafter, full capacity production shall be attained.

Table 3.3 PRODUCTION PROGRAMME

Sr. No. 1 2 3

Product 1 Dextrin (tonnes) Dextrose (tonnes) Capacity utilization rate (%) 210 210 70

Production Programme 2 270 270 90 3-10 300 300 100

259-7 IV. RAW MATERIAL AND INPUTS

A.

RAW AND AUXILIARY MATERIAL

In this profile the major raw material required to produce the two product is starch from corn. This is because.

a)

There exists another study titled as corn / maize starch among the 300 project profiles and

b)

The initial investment cost for producing dextrin and dextrose from corn will be very high which may not attract potential investors. In addition, the financial viability of such complex projects will be doubtful. Therefore, the output/product of the corn starch project is used as an input /raw material for the Dextrin and Dextrose project

Table 4.1 below indicates the annual raw and auxiliary materials requirement and cost at full production capacity.

Table 4.1 ANNUAL RAW & AUXILIARY MATERIALS REQUIREMENT AND COST

Sr. No. 1 2 3 4 5

Raw Material

Qty (Tonnes FC

Cost (000 Birr) LC 135 250 385 1,387.5 27 50 18 300 1,782.5 Total 1,387.5 164 300 18 300 2,167.5

Maize starch Activated carbon Hydrochloric acid (31%) Caustic soda Packing materials Grand Total

555 9 125 3 -

259-8 B. UTILITIES

The utilities of the project are electricity, furnace oil and water. Table 4.2 indicates the annual utility requirement and cost at full capacity.

Table 4.2 ANNUAL UTILITIES REQUIREMENT & COST

Sr. No. 1 2 3

Utility

Unit

Qty

Cost (000 Birr)

Electricity Furnace oil Water Total

kWh Kg m
3

120,000 10,000 3,000

56.88 59.51 30 146.39

V.

TECHNOLOGY & ENGINEERING

A.

TECHNOLOGY

1.

Process Description

a)

Dextrin Production Line

The raw starch is charged into the air suspended fluidizer The starch is heated in the upper part of the fluidizer where the temperature is 165-170oC. HCl vapor is introduced into the recirculation air stream and depolymerzation continue for 7-8 hours. The mass is then

cooled and dextrin is taken out from the bottom and analysed. Dextrin is packed in moisture proof bags each containing 50 kg.

259-9 b) Dextrose Production Line

Dextrose or liquid glucose is made by reacting maize starch with hydrochloric acid. The resulting reaction product is neutralized, refined and packed.

The actual process consists of the following steps:

1) 2)

35-40% slurry is prepared from starch in water The slurry is treated with hydrochloric acid in a converter. The reaction is carried out at 150oC, and maintained for about 15 minutes.

3)

The mass is then transferred into the wooden vat and is necetralized with soda solution:

4)

The slurry after neutralization is filtered and the filtrate is sent to a refining tank where a small amount of activated carbon (1-5%) is added for refining and colour removal.

5)

The liquor after filtration is concentrated to 30-32% under vacuum. It is then cooled and packed.

2.

Source of Technology

The following company may be ready to submit its offer for the turnkey plant.

Universal Industrial Plants Manufacturing Company A 104/2, Okhla Industrial State Tel. +91-11-4386250 Fax. +91-11-4386234

259-10 B. ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment is indicated in Table 5.1. The total cost of machinery is estimated at Birr 2,930,850. of which Birr 2,442,375 is required in foreign currency

Table 5.1 LIST OF MACHINERY & EQUIPMENT

Sr. No. 1 1.1 1.2 1.3 1.4 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2. Fluidizer

Description Dextrin production line

Qty. No. 1 1 4 Lumsum 1 1 1 1 1 1 1 1 1 Lumpsum

Hydrochloric gas sparger (with steam heater) Storage tanks Miscellaneous Dextrose production Slurry tank Converter Blow tank Wooden vat Filter press Refining vessel Vacuum evaporator Boiler Miscellaneous

Land, Building & Civil Works

The total area of the project is 1,500 m2, of which the built-up are is 700m2. Therefore, the cost of building is estimated to be Birr 1,050,000. The lease value of land is about Birr 120,000 at a rate of 1 Birr/m2/year for 80 years.

259-11

3.

Proposed Location

Sodo town is the best location for its proximity to infrastructures.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The list of manpower and annual labour cost are indicated in Table 6.1. The total annual cost of labour is estimated at Birr 382,500.

Table 6.1 MANPOWER REQUIREMENT & LABOUR COST

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

Manpower

Req. No.

Monthly Salary (Birr) 3,000 800 1,500 2,000 4,500 1,500 2,000 4,200 4,000 2,000 25,500 6,375

Annual Salary (Birr) 36,000 9,600 18,000 24,000 54,000 18,000 24,000 50,400 48,000 24,000 306,000 76,500 382,500

General manager Secretary Sales officer Accountant Chemists Mechanic Production head Operators Labourers General service Sub-total Benefits (25% BS) Total

1 1 1 1 3 1 1 6 10 5 30

30

31,875

259-12

B.

TRAINING REQUIREMENT

Training of the workforce will take place during plant erection by the experts of machinery supplier. The cost of training is estimated at Birr 35,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the dextrin and dextrose project is based on the data presented in the previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Raw material, import Work in progress Finished products Cash in hand Accounts payable

3 years 8% 8.5% 30 days 30days 90days 5 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 5.32 million, of which 29 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

259-13

Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (000 Birr) 120 1,050.00 2,930.85 100 250 397.06 476.41 5,324.3 29

* N.B Pre-production expenditure includes interest during construction ( Birr 247.06 thousand ) training (Birr 35 thousand ) and Birr 130 thousand costs of registration,

licensing and formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 3.39 million (see Table 7.2). The material and utility cost accounts for 68.14 per cent, while repair and

maintenance take 3.35 per cent of the production cost.

259-14 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 2,167.50 146.39 113.65 147.24 49.08 98.16 2,722.02 441.58 232.39 3,395.99

% 63.83 4.31 3.35 4.34 1.45 2.89 80.15 13.00 6.84 100

C.

FINANCIAL EVALUATION

1.

Profitability

According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity total investment (return on total

(Return on equity) and net profit plus interest on

investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

259-15

2.

Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full capacity ( year 3) is estimated by using income statement projection.

BE =

Fixed Cost Sales Variable Cost

= 47 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 6 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 14 % and the net present value at 8.5% discount rate is Birr 1.46 million.

D.

ECONOMIC BENEFITS

The project can create employment for 30 persons.

In addition to supply of the domestic

needs, the project will generate Birr 1.04 million in terms of tax revenue. The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.