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PROTIEN RICH BISCUITS 2009 EXECUTIVE SUMMARY

India has the second largest arable land of 161 million hectares and has the highest acreage under irrigation. Next to China, India ranks second largest food producer in the world and has the potential to immerge the biggest with its food and agricultural sector. India accounts for less than 1.5% of international food trade despite being one of the worlds major food producers, which indicates huge potential for both investors and exporters. Indias GDP is expected to grow in the range of 8-8.5% in the coming fiscal year, fuelled by robust investments and buoyant consumer spending. According to Goldman Sachs projections, Indias GDP will exceed Italys in 2020, Frances in 2020, Germanys in 2025 and Japans in 2035. Excessive controls, low public investment, inadequate infrastructure, poor agri-input management, distorted pricing and incentives structures, and inadequate credit weighed down Indias agricultural sector for several decades. The share of agriculture in Indias GDP has fallen by more than 60% in the past five decades. However, the policy environment is changing with increase in public investment, fading controls on product marketing and distribution, better pricediscovery mechanisms and improvement in credit availability. Indian agriculture, particularly food processing and allied activities is thus going through a major transformation with the government targeting 4% growth for the agri-sector from 2005-2020. In this project we have tried to make a plan of starting a new venture in this demanding industry. In this industry we have particularly chosen the Biscuit Industry. We have done research on almost every aspect of the Biscuit Industry. Then we have prepared the plan of capturing market phase wise, launching of products, developing Product Mix. After this we have prepared the feasibility report of the proposed project through financial analysis.

PROTIEN RICH BISCUITS 2009 OBJECTIVES OF THE STUDY


Through this project, I have taken an opportunity to learn the various aspects a business. Primarily, this project was more about to get a feel of entrepreneurship and learn the responsibilities of an entrepreneur. The project was about on-board planning of starting a Biscuit Manufacturing and Marketing firm. The Project was in four different phases. The first phase of the project was about taking decision regarding industry to enter and which product category to be chosen. This included the study of the industry and the growth prospect in it. Here, based on the study we have decided to enter the Biscuit Industry in Food Processing Industry. The second phase of the project was to prepare the strategy to enter the market. It included two things one was to prepare the strategy to enter the market in different phases geographically and the other was to decide that what should be the unique proposition in our product which will help us to enter this highly competitive industry on a high note. The third phase of the project was about financial planning of the proposed project of setting up a Biscuit Manufacturing and Marketing firm. This included Cost of Project, Working Capital Requirement, Estimation of Capital Inputs, Profitability Projection, Break Even Analysis, and working with different ratios. The fourth and last phase was to prepare the implementation schedule.

PROTIEN RICH BISCUITS 2009 OVERVIEW OF FOOD PROCESSING INDUSTRY


The Food Processing Industry in India is a sunrise sector that has gained prominence in recent years. Availability of raw materials, changing lifestyles and relaxation in policies has given a considerable push to the industrys growth. This sector is among the few that serves as a vital link between the agriculture and industrial segments of the economy. Strengthening this link is of critical importance to improve the value of agricultural produce; ensure remunerative prices to farmers and at the same time create favourable demand for Indian agricultural products in the world market. The Indian food processing industry holds tremendous potential to grow, considering the still nascent levels of processing at present. Though Indias agricultural production base is reasonably strong, wastage of agricultural produce is sizeable. Processing of fruits and vegetables is as low as 2%, of milk is around 35%, of meat is 21% and of poultry products is 6%. By international comparison, these levels are significantly low - processing of agriculture produce is around 40% in China, 30% in Thailand, 70% in Brazil, 78% in the Philippines and 80% in Malaysia. Value addition to agriculture produce in India is just 20%, wastage is estimated to be valued at around US$ 13 billion (Rs 580 billion). Considering the wide-ranging and large raw material base that the country offers, along with a consumer base of over one billion people, the industry holds tremendous opportunities for large investments. Food-processing industry is facing constraints like non-availability of adequate infrastructural facilities, lack of adequate quality control & testing infrastructure, inefficient supply chain, and seasonality of raw material, high inventory carrying cost, high taxation, high packaging cost, affordability and cultural preference of fresh food. Unprocessed foods are prone to spoilage by biochemical processes, microbial attack and infestation. Good processing techniques, packaging, transportation and storage can play an important role in reducing spoilage and extending shelf life. The challenge is to retain the nutritional value, aroma, flavour and texture of foods, and presenting them in near natural form with added conveniences. Processed foods need to be

PROTIEN RICH BISCUITS 2009


offered to the consumer in hygienic and attractive packaging, and at low incremental costs. Major Challenges for the Indian Food Processing Industry are: Consumer education on nutritional facts of processed foods Low price-elasticity for processed food products Need for distribution network and cold chain Backward-forward integration from farm to consumers Development of marketing channels Development of linkages between industry, government and institutions Taxation in line with other nations Streamlining of food laws

Fig 1: Share of Food Processing Industry in Manufacturing Sector

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Fig 2: Structure of the Indian Food Processing Industry

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OVERVIEW OF BISCUIT INDUSTRY


Bakery products are being made since long, with bread and biscuits being the main constituents. India is one of the largest biscuit producers in the world and last few years have witnessed substantial increase in the consumption of bakery products including biscuits. Biscuit industry is the largest segment of the grain milling industry and constitutes about 55-60% of the entire bakery range. This industry has major share from the organized sector. Biscuits of different varieties are popular in all age groups as they are cheap compared to many other ready-to-eat food items, enjoy longer shelf life and can provide nutrients. Size The size of biscuits market in India is Rs 5,000 crores of which Rs 3,000 crores is accounted for by the organised sector. Glucose and milk biscuits account for 25% each and Marie biscuits 20% of the biscuits market. Annual Growth The biscuit industry in India witnessed annual growth as below:2003-04 - 15% 2004-05 - 14% 2005-06 - 14% 2006-07 - 13% 2007-08 - 15% 2008-09 - 17% (April June)

PROTIEN RICH BISCUITS 2009

Growth (%)
18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Growth (%)

Fig 3: Annual Percentage Growth of Biscuit Industry in India While the growth rate has been stagnating during 2003-2007, it has picked up momentum during the 2007-08 and the first quarter of 2008-09 mainly on account of exemption from Central Excise Duty on biscuits with MRP up to Rs.100/per kg, as per Union Budget for 2007-08. Indian Biscuit Manufacturers Association (IBMA), instrumental in obtaining the excise duty exemption, estimates annual growth of around 20% in the year 2008-09. Growth in biscuit marketing has been achieved also due to improvement in rural market penetration. The penetration in Rural Market is around 50-65% and in urban market is around 75-85%. Key Players Britannia Parle-G Sunfeast Anmol Priya Gold Bisk farm Cookieman Raja

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Structure Organized & Unorganized The organized and unorganized sector of the biscuit industry is in the proportion of 60-40. The organized biscuit manufacturing industrys annual production (in lakh metric tonnes) figures are given below:

Production (in lakh tonnes)


18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 2003-04 2004-05 2005-06 2006-07 2007-08

Fig 4: Annual Production of Organized Segment in lakh metric tonnes Factors affecting the Industry Imposition of Value Added Tax (VAT) by the State Governments @ 12.5% compared to VAT at 4%/0% levied on other similar food products has also adversely affected biscuit industry. IBMA estimates annual growth in the range of 25% and above in the event of reduction in the rate of VAT on Biscuits to 4%. The poor efficiency of Supply Chain Management in our country is also affecting this industry adversely. Biscuits generally have shelf life of 6 months and the distribution of them takes around 15-20 days. Moreover, this increases the inventory holding cost too. Per capita consumption of Biscuits in the country is only 1.8 kg, as compared to 2.5 kg to 5.5 kg in South East Asian countries and European countries, and 7.5 kg USA. The per capita industry should increase for a huge market prospect.

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Exports & Imports Exports of Biscuits are estimated to be around 15% of the annual production during the year 2007-08.Imports of biscuits into India has not shown any significant growth during years and has not affected production/sales by the Indian Biscuit industry Distribution of Consumption Distribution of Biscuit Consumption (On Zonal basis) in the country is as below: Northern Zone Western Zone Southern Zone East and North East Zone Critical Success Factor The key factor to succeed in this industry is to maintain quality and healthy relations within the distribution channel. Again, Advertisements and Promotions also play a huge role in the success. - 25% - 23% - 24% - 28% the last two

PROTIEN RICH BISCUITS 2009 METHODOLOGY OF THE STUDY


The most prominent methodology during the project was the Brainstorming sessions with my mentor, Mr. Nazmul Hossain. These sessions helped me to think on a particular point from various aspects. For Example, if I have to decide that I will be running factory in 2 shifts then his question use to be What will be the production at 1 or 3 shifts? What will be the Payback Period in 2 and 3 shifts? He moves on further asking that if the production is done at 2 shifts then will my market be able to absorb the total production or my Inventory Holding cost will be increasing? These questions helped me to think on various aspects before taking a decision what ideally an entrepreneur should do. In this way we always tried to grow a decision tree. Moreover, during the project I had one to one sessions with the industry experts with the likes of Marketing Person and Technical Person of a Biscuit Manufacturing and Marketing firm. I also visited a Biscuit Manufacturing Unit. Internet based study also helped me to explore the various ideas for implementation in my project.

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PROTIEN RICH BISCUITS 2009 MARKET POTENTIAL


Bakery is an old-age industry manufacturing Breads and Biscuits. With changes in the lifestyles of people and tendency to spend more, many products have become very popular since last few years. Spending on fast food items or ready-to-eat snacks has gone up substantially during last few years and the rural and semi-urban areas are not an exception. Biscuit, which covers substantial part of this industry, has become an important part of the diet of an individual. The main reasons of the success of Biscuits are Low Water Content Biscuits typically have a moisture content of less than 4% and when packaged in moisture-proof containers has a long shelf life, perhaps six months or more. Healthy Food Biscuits due to their glucose and fat content are also healthy food with addition to good taste. Again, some specific Biscuits carry Vitamins too (e.g. Britannias Vita Marie). Thus, Biscuits are nutritious part of an individual diet. Today, although Biscuit Industry has a presence of so many players with so many different variants there is still a gap in the Biscuits market. The gap is of absence of Protein content in Biscuits. Majority of the biscuits are manufactured from wheat flour. Addition of soya flour would increase the protein contents substantially. Protein rich biscuits can thus serve the purpose of providing additional nutrition at a reasonable price. So, we have decided to fill this gap with the launch of our Biscuits. This can be done in varieties like Marie and Cream Biscuits to start with. This will help to cover all the Segment of potential consumers (from Child to Youth to Old Age). Appropriate Marketing network backed up with adequate publicity are critical aspects. One more major check will be the proportion of soya flour that will be in the total ingredients. This is to ensure that Biscuits dont get bitter due to the addition of soya flour. The Proportion will be discussed later in detail in the when we will be discussing Ingredients.

MANUFACTURING PROCESS
Biscuits are a traditional type of flour confectionery which were, and can still be, made and baked in a domestic kitchen. Now they are made mostly in factories on large production plants. These plants are large and complex and involve considerable mechanical sophistication.

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Forming, baking and packing are largely continuous operations but metering ingredients and dough mixing are typically done in batches. There is a high degree of mechanisation in the biscuit industry. In our production line there will be some dependence of operators to start and control production plants. Also packaging will also be somewhat manual. It is essential that operators are skilled in the tasks they have to do and this involves responsibility for product quality. As part of their training they must know about the ingredients and their roles in making biscuits. They must be aware of .the potential ingredient quality variations and the significance of these. Again some semi-skilled workers will also be there as helpers. There are basically two types of biscuit dough, hard and soft. The difference is determined by the amount of water required to make dough which has satisfactory handling quality for making dough pieces for baking. Hard dough has high water and relatively low fat (and sugar) contents. The dough is tough and extensible (it can be pulled out without immediately breaking), like tight bread dough. The biscuits are either crackers or in a group known as semi-sweet or hard sweet. Soft dough contains much less water and relatively high levels of fat and sugar. The dough is short, (breaks when it is pulled out) which means that it exhibits very low extensible character. It may be so soft that it is pourable. The biscuits are of the soft eating types which are often referred to as cookies, creams, glucose, etc. There are a great number of biscuit types made from soft dough and a wide variety of ingredients may be used. The machinery used to make biscuits is designed to suit the type of dough needed and to develop the structure and shape of the individual biscuits. Hard Dough needs Lamination and Sheeting while the Soft Dough needs Moulding. Secondary processing, which is done after the biscuit has been baked, and packaging biscuits are specific to the product concerned. There is normally a limited range of biscuit types that can be made by a given set of plant machinery. Many biscuit production plants bake at the rate of 1000-2000 kg per hour and higher rates are not unusual. Given this and the sophistication of the production line it is most economical to make only one biscuit type for a whole day or at least an eight hour shift. Start-ups and changeovers are relatively inefficient.

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Various Ingredients needed are Wheat flour/Maida - 60-65% Soya bean flour - 8-10% Sugar - 8-10% Vanaspati & Oil 2-4% Starch, Soda, Salt and Preservatives - 3-4% These ingredients are thoroughly mixed with the help of water in mixing machine and properly kneaded dough is set on biscuit moulds manually and then baked in an oven. On completion of baking oil sprinkling is done and then biscuits are cooled, weighed and packed in standard poly wrappers. Then these packets are sealed in cartons. Then these cartons are moved to Finished Goods storage area.

PRODUCTION UNIT
A typical Production unit consists of the following Raw Material Storage House Mixing Area Main Factory or Production Line Poly House Finished Goods Storage House Administration House Power House Water House or Tank or Plant Open Area or Partly Shaded Area for Loading and Unloading Typically the Main factory is long and, for the most part, normally on only one floor. The reason for the length is principally due to the oven. Tunnel ovens have baking bands that are usually between 800- 1400mm (31-55 in) in width. The length of the oven determines the output capacity of the plant. Ovens have been made up to 150 m in length but 60 m (about 200 feet) is probably the average length. Ideally, and normally, the ingredients are stored and handled at one end of the factory. Next to the ingredients store is the mixing area and next to that are the

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continuous production plants. The baking plants feed cooling conveyors, which are often multitiered to save space, and the baked and cooled biscuits are then packed using high speed machines. In some factories secondary processes are involved after baking. It is also possible that only semi-automatic packaging is used which requires manual feeding of the wrapping machines. In these cases biscuits may be taken from the baking line and placed temporarily in boxes or stored in other ways. These activities are typically labour intensive. Generally, the Production Line consists of following machinery Vertical or Horizontal Laminator Combination Sheeter Gauge Roll Rotary Cutter or Reciprocating Cutter Rest Conveyor Vertical & Horizontal Rotary Moulder Drive and Panner Salt / Sugar Sprinkler Oven Drive and Oven Tension Oven (Direct Gas fire or electric Oven) Oil Filter Oil Spray Machine Cooling Conveyor Biscuit Stacking Machine Packing Conveyor Side scrap return system Reciprocating Distribution A sample of Typical Production line is given below.

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Fig 5: Typical Biscuit Manufacturing/ Production Line

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PROTIEN RICH BISCUITS 2009 THE PLANNED MARKET COVERAGE


In this project we have developed the plan of starting a new Business unit in the Biscuit Industry which will be involved in manufacturing of biscuits under its own Brand. The Phase wise plan of the project is shown below:
PHASE 1 2 3 GEOGRAPHIC MARKET West Bengal & Orissa Phase 1 + Chhattisgarh & Bihar Phase 2 + North East Biscuits Biscuits Biscuits & Cookies PRODUCT CATEGORY

Table 1: Phase Wise Plan of Market Coverage Market (volume wise) of the targeted Geographic Market
Figures in Lakh Tonnes 1 2 3 4 5 6 Annual Production of the Industry in 2007-08 Annual Production of the Industry in 2009-10 (Growth is assumed to be 15% annually) Share of East Zone & North East Zone [28% of (2)] Share of the Phase 1 Coverage Area [35% of (3)] Share of the Phase 2 Coverage Area [{75% of (3)}*1.15] Share of the Phase 3 Coverage Area [{100% of (3)}*1.15 2] 17.44 23.06 6.45 1.94 5.56 8.53

Table 2: Market (volume wise) of the targeted Geographic Market

THE PLANNED PRODUCT MIX


As discussed earlier we will be producing only Biscuits in Phase 1 & 2. In Phase 3 we will be adding Cakes and Cookies in our Product Mix. So, in Phase 1 the Product Mix width will contain only Biscuits. The Product length & depth will be as follows
Marie 90 gm 180 gm 360 gm Glucose 90 gm 500 gm Snack 115 gm 180 gm Milk 70 gm 225 gm Sweet 70 gm 225 gm Cream Orange 45gm, 90gm, 180gm Bourboun 45gm, 90gm, 180gm Milk 45gm, 90gm, 180gm Strawberry 45gm, 90gm Elaichi 45gm, 90gm

Table 3: Product Mix Length and Depth

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PROTIEN RICH BISCUITS 2009 THE PLANNED CAPITAL INPUTS


1) Land and Building The Factory and Administration Office will be set up at same place in Dankuni (15km from Kolkata). The total area required will be 30,000 sq.ft.

2) Machinery for Production Vertical or Horizontal Laminator Combination Sheeter Gauge Roll Rotary or Reciprocating Cutter Rest Conveyor Vertical & Horizontal Rotary Moulder Drive and Panner Salt / Sugar Sprinkler Oven Drive and Oven Tension Oven (Direct Gas fire or electric) Oil Filter Oil Spray Machine Cooling Conveyor Biscuit Stacking Machine Packing Conveyor Side scrap return system Reciprocating Distribution

3) Utilities Manufacturing of Biscuits will be through Electric Ovens. So our full plant will be dependent on Electricity. In case there is any power cut from the Electricity supplier then we have to immediately start the generator and this should not be delayed by more than 60 seconds. This is so because if biscuits remain inside the oven for more than 60 seconds then the whole lot will get burnt. Therefore, we will require a Power House where a generator will be kept and sufficient amount of fuel will also be stored. Again, our factory will be located in the industrial region so maybe there will be no supply of corporation water. Then we will require a Water Softner Plant. Here, the underground water will extracted and then it will be purified so that we ca use for our production purpose.

4) Miscellaneous Assets We will require some other assets too for both office and factory. For Office Furniture & Fittings, Electrical Equipments, Computers & Accessories

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For Factory Furniture & Fittings, Electrical Equipments, Exhaust Fans, Laboratory Instruments

5) Raw Materials & Packing Materials Wheat flour would be the basic raw material followed by soya flour. Others like starch, salt, sugar, ghee, baking soda, colours, flavours etc. shall be required in small quantity. Packing material like printed wrappers, plastic bags, cartons, box strapping etc. shall be required.

6) Manpower Requirements For Factory Skilled Labours Helpers Supervisors For Office Clerks Accountants Personal Manager Personal Department Finance Head Finance Department Marketing Head Marketing Department Sales Man Commercial Department Piaons & Guards Manager Electrical Guy Mechanical Guy

DUMPING
Now, the question is what we should of any scrap production, sub-standard production, or any production which flows back to the factory from retailers. For this we have thought of to sell these to the dairy or to the individuals as cow feed. This can be done at the rate of Rs. 25/kg. This will help us to lower our normal loss as these kinds of losses are very general to the biscuit industry.

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PROTIEN RICH BISCUITS 2009 COMMERCIAL AND LEGAL REQUIREMENTS


Laws relating to Food Processing Industries

There are a number of food laws being implemented by various Ministries/Departments. These are primarily meant for two purposes namely (1) Regulation of Specifications of food and (2) Regulation of Hygienic condition of Processing/Manufacturing. Some of these food laws are mandatory and some are voluntary. The details of various food laws in operation in India are as under:-

A. Food Laws

1. Prevention of Food Adulteration Act (Ministry of Health) The Act lays down specifications for various food products and is mandatory. The Ministry of Health in 1995 had constituted a Task Force under the chairmanship of Shri E.S. Venkataramaiah, Chief Justice of India (retired). The Task Force recommended that there should be emphasis on good manufacturing practices instead of detection of adulteration and prosecution. It also expresses concern about lack of laboratory equipments and quantified persons. In addition it also suggested that the name of PFA Act be changed to Food Safety Act.

2. Agriculture Produce (Grading & Marking) Act (Ministry of Rural Development) This Act is commonly known as AGMARK and is voluntary. The Act lays down the specifications for various agricultural commodities including some processed foods.

3. Laws being operated by Bureau of Indian Standards (BIS) BIS is the largest body for formulating standards for various food items. These standards are also voluntary.

4. Essential Commodities Act A number of quality control orders have been issued under Essential Commodities Act such as FPO, MMPO, Meat Product Order and Vegetable Oils Control Order. These orders are

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mandatory and primarily meant for regulating the hygienic conditions. They need to be clubbed under one order which may call Food Products Order.

B. Harmonization of Food Laws

The review of multiple laws is necessary to have a uniform and logical approach for regulating the quality of food. The following action is being taken by various Ministries:-

1. The Ministry of Civil Supplies & Consumer Affairs has brought out a paper for consideration of Committee of Secretaries (COS). The paper recommends that BIS should formulate standards for all food items in the country. This will be a major step towards harmonization of food laws and is still under consideration of COS for finalization.

2. The Task Force constituted by the Prime Minister under the chairmanship of Shri Nulsi Wadia has submitted its report which is under the consideration of the Government. The Task Force had advocated promotion of food safety and quality. The Task Force has further made following suggestions:

Food Regulation Authority (FRA) be set up to formulate and update food standards for domestic and export market.

FRA should replace the PFA to conform to international standards. The Task Force has given ten specific recommendations such as provision of storage simplicitor, simplification of sampling procedure, simplification of procedure for nominee, time limit for prosecution, standard methods of analysis to be prescribed, penalty should graded according to the gravity of offences and provision of adequate/infrastructure and laboratories.

Harmonisation of Indian standard with quality norms of Codex and WTO. The Central Committee of food Standard (CCFS) should be replaced by FRA Governing Body for expeditious decisions.

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General Laws and Commercial Requirements

Following Licences will be required 1) Licence will be required to set up factory. 2) Licence will be required under Water Pollution Act. 3) Licence will also be required for Labour Employment.

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ANALYSIS FOR DECISION MAKING REGARDING THE LEVEL OF PRODUCTION

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Here we have developed 4 strategies 1) To produce with 1 Machine in 2 Shifts 2) To produce with 1 Machine in 3 Shifts 3) To produce with 2 Machines in 2 Shifts 4) To produce with 2 Machines in 3 Shifts Each Machine has a capacity of producing 1,000 tonnes per month of 25 days at 100% efficiency when working in 3 shifts. The Annual Production and Efficiency which can be achieved with each of the strategies is given below -

Excel Files\23.xls

Note: 1) Annual Production (under capacity utilisation) = Annual Production (under installed Capacity)*Efficiency*No. of Shifts/3 2) Total Working Days = 25*12 = 300

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On the coming page, Basis for selecting Raw Material Stock in days has been shown. Here, first we have taken 15 days and then 10 days and on the basis of Cost of Holding the decision has been made. Moreover, calculation for Annual requirement of Raw Materials (both in terms of volume and money involved) has been shown. The calculations are on the basis of following 1) Contents in percentage terms for manufacturing biscuits Wheat Flour Soya Flour Sugar Vanaspati & Edible Oil Preservatives, etc Total - 65% - 12% - 30% - 3% - 2% 112%

2) Rates of the Raw Materials are taken as Wheat Flour @ Rs. 15,000 per ton Soya Flour @ Rs. 30,000 per ton Sugar @ Rs. 24,000 per ton Vanaspati & Edible Oil @ Rs. 70,000 per ton Preservatives, etc @ Rs. 20,000 per ton

Excel Files\24A.xls

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In the next page, calculation for Man power Requirement for both factory and administration has been shown. The monthly cost incurred on that has also been shown. The calculations are on the following basis. 1) Numbers of man power required is on the basis of discussions with the industry experts. 2) Rates for different labours are as For Factory Skilled Labours @ Rs. 150 per day Helpers @ Rs. 100 per day Supervisors @ Rs. 10,000 per month Manager @ Rs. 25,000 per month Electrical Guy @ Rs. 15,000 per month Mechanical Guy @ Rs. 15,000 per month For Office Clerks @ Rs. 6,000 per month Accountants @ Rs. 12,000 per month Personal Manager @ Rs. 40,000 per month Personal Department @ Rs. 15,000 per month Finance Head @ Rs. 45,000 per month Finance Department @ Rs. 15,000 per month Marketing Head @ Rs. 45,000 per month Marketing Department @ Rs. 15,000 per month Sales Man @ Rs. 8,000 per month Commercial Department @ 15,000 per month Piaons & Guards @ Rs. 3,000 per month

Excel Files\25A.xls

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On the coming page, calculations for Working Capital Investment, Operative & Administrative Expenses and other Administrative Expenses have been shown. Basis for Calculation of Working Capital Investment 1) Raw Material Days are taken as 10 days. 2) Pacing Materials Days are taken as 15 days. 3) Finished Goods days are taken as 25 days. 4) Working Expenses are taken for full month. 5) Average Collection Period is taken as 10 days. 6) Average Payment Period is also taken as 10 days. Basis for Calculation of Operative & Administrative Expenses 1) The Electricity and Water Supply Expenses are purely on the basis of experience of the Industry Experts. 2) For transportation cost it is taken that there will be 10 tonnes truck. Each tuck will charge Rs. 3,500 per trip. The trucks will be full load. 3) Wages & Salaries for Factory & Administration is taken as the figures calculated on Pg 16A. 4) The Repairs & Maintenance and Stores & Spares are taken as Rs. 100,000 fixed and 0.25% of Sales as variable.

Excel Files\26A.xls

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Here, Cost of Project has been computed. All the figures are on the basis of discussions with industry experts. Again, Working Capital Margins are taken as 25% of the total Working Capital Requirement.

Excel Files\27.xls

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Rates for Depreciation on Fixed Assets applicable as per Income Tax Act, 1961 has been preferred over Rates as per Company Act. The rationale behind this is making calculations simpler. Moreover, it also gives the actual picture of the forecast as any government incentives are provided on this basis only.

Excel Files\28.xls

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Fringe Benefit Tax (FBT) is a type of Direct Tax. It is paid on the expenses which are paid from the account of the company but the expenses are not for business purpose instead it is for the personal purposes of employees. 20% of expenses for Telephone, Travelling & conveyance and 20% of Depreciation on Car adds up to Value of Fringe Benefit on which the FBT is paid.

Excel Files\29.xls

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On the following page projection of profit has been made under each strategy. Basis of calculations are 1) Sales Revenue = Annual Production* 93%*Rs.75,000/ton 2) Rate of Rs. 75,000 per ton is taken as industry standard. Generally, a pack of 360gm of Marie is sold at Rs. 20 which gives the per kg rate of Rs. 55 and a pack of 90gm of Cream Biscuits is sold at Rs. 10-11 which gives per kg rate of Rs. 115-120. These are two extremes and so on an average per kg rate of Biscuit comes to Rs. 85-90. Keeping a 10-14% of margin for retailers we get a Rate of Rs. 75 per kg i.e. Rs 75,000 per ton. 3) Selling and Distribution Expenses are taken at 30% of Selling Price. 4) Selling And Distribution Expenses includes the following expenses Carriage Outward C&F Expenses Distributors Margin Advertising Expenses Promotions & Schemes 5) Realization from Scrap Sale = Annual Production*2%*Rs.25,000/ton 6) Scrap Sale here refers to Sale of Biscuits which is either damaged during processing or which are sales return due to damage, expiry, or bad taste.

Excel Files\31A.xls

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Here, the Profitability Ratios ROCE & ROE are computed. ROCE means Return on Capital Employed and ROE means Return on Equity.

Excel Files\32.xls

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Market Share achieved through different strategies STRATEGY I 4,800.00 1,94,000.00 II 6,960.00 1,94,000.00 III 10,400.00 1,94,000.00 IV 15,120.00 1,94,000.00

Annual Sales in tones Volume of the Geographical Market which has to be entered (in tones) Market Share (in %)

2.47

3.58

5.36

7.79

On the basis of analysis on the following page - the Profitability Ratios and Market Share we have decided to go with strategy III initially and if there will be any requirement of increasing the production then we can switch to either strategy IV or we can continue with the same strategy with overtime which ever will be suitable. The rationale behind going for strategy III and not IV is that initially a target of 7.25% market share can put a lot of pressure on the management. It can also lead to high Inventory days for Finished Goods which will put pressure on the Working Capital.

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PROJECTION OF PROFITABILITY FOR NEXT 5 YEARS UNDER STRATEGY III

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Here requirement of Raw Materials and Packing Materials has been projected for the next years. The cost of Packing Materials is taken as 15% of sales. The cost of Raw Materials has been inflated by 5%.

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PROTIEN RICH BISCUITS 2009 RECOMENDATIONS


The Implementation schedule on the next page is recommended for this project. The implementation

schedule has been prepared with starting date of project as 10th of April 2009.

LIMITATIONS OF THE STUDY


The project is entirely based on current situation of the industry. Most of the facts and figures are based on the discussions with Industry Experts. So, projections may not be 100% correct. Moreover, there are some assumptions too, like the inflation is considered constant at 5%. This may not be true. Again, the project if implemented will be implemented after a certain period of time, so the analysis done now may not be valid at that point of time.

SCOPE OF FUTURE IMPROVEMENTS


Over the period of time following improvements can be made in this project We can search for new market places for our product launches We can increase are product mix length by upward integration. Like if instead of purchasing wheat flour we purchase wheat and then produce the flour in our own mill then we can have the by-products as Wheat Daliya, Rusk, etc. This can help us to further decrease our input cost and can help us to use our Brand for other products too. We can increase the product mix length by entering into bakery segment too.

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PROTIEN RICH BISCUITS 2009

Excel Files\43.xls

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