COMMUNITY BASED LIVELIHOODS RECOVERY PROGRAM (CBLRP)

FOR EARTHQUAKE AFFECTED AREAS OF AZAD JAMMU AND KASHMIR

AND NWFP

CBLRP-UNIDO

INVESTMENT OPPORTUNITY PROFILE

FOR
CHIPBOARD MANUFACTURING
IN
AJK

SEPTEMBER 2007

SUBMITTED TO
AYESHA KHAN
CHIEF TECHNICAL ADVISOR
Community Based Livelihood Recovery Program (CBLRP)
United National industrial Development Organization (UNIDO)

BY
Sardar Shahid Farid
Chartered Accountant

Disclaimer

All material included in this document is based on data/information gathered from various sources and certain
assumption. Due care and diligence has been taken to compile this document. The document may contain
human, mechanical error or non accuracy of the information at the source. No liability for error, or omission or
unintentional misrepresentation will be accepted. We reserve the right to make correction and changes
wherever desired in this document or its subsequent versions.
1. PROJECT EXECUTIVE SUMMARY

1.1 PROJECT BRIEF

The Chipboard manufacturing plant presents an investment opportunity in Mansehra.
Gluing together wood particles with an adhesive, under heat and pressure makes chipboard.
This creates a rigid board with a relatively smooth surface. Chipboard is available in
different densities i.e. 25mm, 19mm, 8mm, 5mm and 3mm. One of the most common uses
of chipboard is that it is the back piece, which provides stiffness on a scratch pad.
Chipboard is the major input for the furniture industry and also used for kitchen tops and
work surface. The project is proposed to be located at Mansehra or any appropriate site in
the area, where all the required infrastructure and amenities are available. Due to increase
in population and need of constructing new houses it is expected that demand for chipboard
will rise ultimately. Chipboard industry is a growing industry of Pakistan, which can
contribute positively in the GDP.

The plant can produce 62,400 m3 chip board in a year, at 100% capacity the sale is
calculated to the tune of Rs 450 Million. The operations will carried out in three shifts. The
target market is NWFP and down country.

The capital cost of the project is Rs 134 Million the project should be ready for
production in six months. This project is labor intensive and employs managerial, skilled as
well as non skilled 46 workers directly. Even more jobs can be anticipated indirectly
related to the project.

1.2 FINANCIAL SUMMARY

• Sales Rs 449,817,500 per annum
• Gross Profit Margin 35%
• Payback period 2.61 Years
• Net Profit Margin before tax 20%
• Internal Rate of Return 24%
Foreign collaboration sought Joint – Venture Management expertise
Loan Technical expertise
Market access Marketing expertise
Sub contracting Technology transfer
Buy – back arrangement Joint R&D
Equipment purchase Other :-

Studies Available Feasibility study Project description

Other Specify

Date: 25th October 2007

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2. PROJECT RATIONALE
The Project will utilize the wood particles that are glued together under heat and pressure.
There will be a lot of value addition to the final product. The construction style has
absolutely changed and demand of chipboard and laminated board has significantly
increased. The Afghanistan Development Program after the war has also contributed in
opportunities to enhance considerable export by taking part in the development of
Afghanistan. Construction business is a demanding area. Trade has opened for all the world
economies from 2005 and it is visualized that demand will increase more in future.

There is easy availability of raw material at low costs. Increase in per capita income
resulting in more spending toward basic need like housing, which means growth in the
demand of chip board. The plant and machinery is easily available, however if a modern
plant is required the custom duties are very minimum.

This project has single product in which possibility of changes and innovations are very
less. High advertisement costs are anticipated. There is price sensitivity and low
consciousness towards quality amongst consumers. If the product is to be exported there
will be high cost to meet the international quality standards.

3. MARKET OPPORTUNITY
Pakistan is facing a housing problem since its inception because of the migration of millions
of people from India to Pakistan. Many macro and micro construction works are underway
to meet the shortfall of 6.0 million houses both by the private and public sector, which is a
healthy sign for many industries in chipboard industry. On the basis of all the factors
relating to the growth rate of population, housing industry and export potential, we can
anticipate a reasonable growth rate in demand of the chipboard and laminated board in
coming future. On the basis of the population growth and housing industry, 6% growth in
demand till 2010 is anticipated. The following table is showing the demand projections

Year Demand (Million Sheets)

2004-2005 6.993
2005-2006 7.413
2006-2007 7.857
2007-2008 8.328
2008-2009 8.828
2009-2010 9.355

4. BUSINESS PLAN
In the initial years the low cost of raw material would be profited and as the expertise
develops, exports would be initiated. There is an abundant availability of human resources
and these too will be utilized.

4.1 PRODUCT SALE

Sale Price Assumptions for Chipboard are detailed below:
Laminated Sheets
19mm – (per sheet) Rs. 939
13mm – (per sheet) Rs. 861
Non-Laminated Sheets
19mm – (per sheet) Rs. 470
13mm – (per sheet) Rs. 391

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4.2 RAW MATERIALS
This project will requires about 225 tons (approx) of wood per day at 60% operating level
apart from glue and lamination sheet. The wood to be used in the making of chip board can
be purchased at Rs 150 per 40 Kg. This wood will be procured from areas around the
project site and glue will also be available locally; whereas lamination sheet shall be
imported.

4.3 MANUFACTURING PROCESS

Chip & Flake Manufacturing
Raw material blended for the production is a mixture of chips, shavings and saw dust.
Chips, shaving and saw dust are taken from different heaps into the flaking line in certain
pre- set proposition guarantees the mixing of different types of wood species. Chips and
shavings are transported to Knife-Ring Flakers and the sawdust is taken to a wet chip silo.

Flake Drying & Drying Screening

The flakes are dried in the drying department, which consists of individual dryers. There are
one Buttner dryer and one Bison dryer. All two dryers are equipped with burner for using
both oil and dust as fuel. Using 100% of dust as fuel is possible. The dried material is
screened in 3 Pcs sifters (1 screen for each dryer). All screens are equipped for 3 fractions
(core, surface and dust). It is an option for a second screening in Air Classifier.

Gluing Of Screened Flake

The wooden practical flow is led from the particle silos, one for surface particles (the silos
are not included in the delivery) via a horizontal Dozing Bin to a measuring unit in which
the material flow is registered for the gluing system. The wooden particles are fed into a
gluing drum, and further by belt conveyer to the forming stations. The screened and dried
surface and core particles are separately glued in glue blending machines. There are two
blending machines for core particles and one glue-blending machine for the surface
particles. The Glue Preparation Department consists of mixing, dosing, metering tanks and
pumps for supply of mixed glue to the Glue Blending machines. One mixture of glue for
each layer can be prepared.

Forming & Press

The forming stations consist of two units for the surface layer and one unit for the core
layer. Forming is made on a Forming Belt Conveyor, which is the first part of 3 individual
belt conveyors in front of the main press. The formed mat will be pre-pressed in a Roller
Press with Belt. A Permanent Magnet and a Metal Detector is located before the pre- press.
A trimming saw cuts the formed mat. The press is a multi–opening press with 10 levels in a
frame construction and equipped with thermo oil heating, high- pressure hydraulics and
system for automatic pressing without distance bars. The loading device with its tablet
feeding system will ensure proper loading and unloading of the main press during same
operation. The main press is heated with hot oil by a separate boiler. The boards are taken
out of the unloading devices onto a belt conveyer with scale and through an automatic
thickness meter with measure tolerance of 0.1 mm. The board weight and thickness will be
registered before the board is fed to the cooling wheel.

Trimming Saws and Sanding Lines

After the cooling wheel the boards are taken through a trimming saw for its longitudinal
section before stacking on a Lifting Table. The stacked boards will be transported on a
roller conveyer to the next Trimming Saw for the cross section of the board. The final size
of the board is within the size of 2,400 – 2,500mm x 4,800 –5,200mm.This Trimming Saw
and its feeding station with pusher is the first part of the Sanding Line. Controls

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 The raw material in feed system, Knife-Ring Flakers, Dyers and Sifters are all controlled
from a separate indoors control panel. The automatic control of the production line is based
on PLC system. To guarantee maximum performance of the plant it is divided into
functional sections, which are controlled by separate PLC units. The main process
parameters are monitored on a terminal in the main control room in front of the main press.

4.4 DISTRIBUTION CHANNELS

The marketing of the project will be based on the following strong grounds:

. Contacts with end users and Contractor

. Advertisement
. Promotion schemes
. Point of purchase displays

The final product will directly supplied to wholesaler eliminating role of agencies.
Distribution network of product is illustrated below:

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4.5 HUMAN RESOURCE REQUIRMENT
The Chief Executive officer shall formulate the long-term policies and take strategic
decisions. A team of professionals shall be engaged in order to manage the operational
affairs of this project under the supervision of CEO. The management of this project will
comprise of:

Factory Management
Site Engineers
Corporate Office Management
Marketing Network

Position Strength Salaries/Month

Executive Director 1 75,000
Sales Manager 1 25,000
Senior Managers 2 30,000
Officers 2 8,000
Accounts Officer 1 10,000
Accounts Assistants 2 5,000
Mill Manager 1 30,000
Shift In charge 2 15,000
Supervisors 3 12,000
Purchaser 1 8,000
Skilled Workers 10 5,000
Semi skilled Workers 20 3,000
TOTAL 46 226,000

4.6 PROJECT FINANCIALS

4.6.1 OPERATIONAL DATA

The plant will be run in three shifts for 300 days in a year. In the first year 70% capacity
will be achieved and gradually the 100% will be attained by the end of 4th year.

4.6.2 FIXED COST

The fixed cost is expected to be Rs 44.913 Million as described below.
Amount Rs (000)
Land 10 Kanal @ Rs 500,000 5,000
Building & Civil Works 20,000
Plant & Machinery 100,000
Other, Equipment, Computers & Telephones 7,200
Total Fixed Cost 132,200

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4.6.3 WORKING CAPITAL
The investment in the initial working capital is of Rs 34 Million.

4.6.4 OVERHEAD COSTS

In the first year following overhead cost are estimated.

Administration and marketing salaries 244,400

Utility expenses 60,292
Traveling 24,000
Office Vehicle and running 102,800
Office stationary 20,000
Miscellaneous expenses 11,000
Total 462,492