Pre-Feasibility Study

WOVEN POLYPROPYLENE SACKS

Small and Medium Enterprise Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
th
6 Floor , LDA Plaza, Egerton Road, Lahore
Tel: (042) 111-111-456, Fax: (042) 6304926, 6370474
Helpdesk@smeda.org.pk

REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE

PUNJAB SINDH NWFP BALOCHISTAN

8st Floor, LDA Plaza, 5TH Floor, Bahria
Egerton Road Lahore. Complex II, M.T. Khan Road,
Tel: (042) 111-111-456 Karachi.
Fax: (042) 6304926, 6370474 Tel: (021) 111-111-456
helpdesk@smeda.org.pk Fax: (021) 5610572
Helpdesk-khi@smeda.org.pk
Ground Floor Bungalow No. 15-A
State Life Building Chaman Housing Scheme
The Mall, Peshawar. Airport Road, Quetta.
Tel: (091) 9213046-47 Tel: (081) 831623, 831702
Fax: (091) 286908 Fax: (081) 831922
helpdesk-pew@smeda.org.pk helpdesk-qta@smeda.org.pk

May 2005
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. Therefore,
the content of this memorandum should not be relied upon for making any decision,
investment or otherwise. The prospective user of this memorandum is encouraged to
carry out his / her own due diligence and gather any information he/she considers
necessary for making an informed decision.

The content of the information memorandum does not bind SMEDA in any legal or other
form.

DOCUMENT CONTROL
Document No. PREF-10
Revision 1
Prepared by SMEDA-Sindh
Approved by Provincial Chief - Sindh
Issue Date May, 2005
Issued by Library Officer
1 PURPOSE OF THE DOCUMENT ............................................................................................... 1

2 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT..................... 1

3 PROJECT PROFILE.................................................................................................................... 1
3.1 OP
PORTUNITY RATIONALE ........................................................................................................................ 1
3.2 PROJECT BRIEF ....................................................................................................................... 2
3.3 MARKET ENTRY TIMING ......................................................................................................... 2
3.4 PROPOSED BUSINESS LEGAL STATUS ....................................................................................... 2
3.5 PROJECT CAPACITY AND RATIONALE ....................................................................................... 2
3.6 PROJECT INVESTMENT ............................................................................................................. 2
3.7 PROPOSED PRODUCT MIX ........................................................................................................ 2
3.8 RECOMMENDED PROJECT PARAMETERS ................................................................................... 3
3.9 PROPOSED LOCATION .............................................................................................................. 3
3.10 KEY SUCCESS FACTORS/PRACTICAL TIPS FOR SUCCESS ............................................................ 3
3.11 STRATEGIC RECOMMENDATIONS ............................................................................................. 3
4 SECTOR & INDUSTRY ANALYSIS........................................................................................... 3
4.1 SECTOR CHARACTERISTIC ....................................................................................................... 3
4.2 SUB SECTOR INFORMATION ..................................................................................................... 4
4.2.1 Sub sector Performance ..................................................................................................... 4
4.3 LEGAL ISSUES REGARDING INDUSTRY ..................................................................................... 5
5 MARKET INFORMATION ......................................................................................................... 5
5.1 MARKET POTENTIAL ............................................................................................................... 5
5.2 TARGET CUSTOMERS .............................................................................................................. 6
5.3 TRADE STATISTICS .................................................................................................................. 6
6 PRODUCTION PROCESS........................................................................................................... 6
6.1 RAW MATERIAL REQUIRED ..................................................................................................... 6
6.2 PRODUCT MIX OFFERED .......................................................................................................... 6
6.3 PRODUCTION PROCESS FLOW .................................................................................................. 7
6.4 TECHNOLOGY AND PROCESSES ................................................................................................ 8
6.4.1 The Polypropylene Tape Making Process ........................................................................... 8
6.4.2 The Polypropylene Fabric Weaving Process....................................................................... 8
6.4.3 Technology/Process Options.............................................................................................. 8
6.5 MACHINERY REQUIREMENT .................................................................................................... 8
6.6 MACHINE MAINTENANCE ........................................................................................................ 9
6.7 MACHINERY SUPPLIER ............................................................................................................ 9
6.8 PRODUCT/PROJECT STANDARDS AND COMPLIANCE ISSUES ...................................................... 9
7 LAND & BUILDING REQUIREMENT ...................................................................................... 9
7.1 LAND REQUIREMENT .............................................................................................................. 9
7.2 COVERED AREA REQUIREMENT ............................................................................................... 9
7.3 CONSTRUCTION COST ............................................................................................................. 9
7.4 RECOMMENDED MODE ............................................................................................................ 9
7.5 UTILITIES REQUIREMENT ........................................................................................................ 9
7.6 SUITABLE LOCATION............................................................................................................. 10
8 HUMAN RESOURCE REQUIREMENT................................................................................... 10

9 FINANCIAL ANALYSIS............................................................................................................ 10
9.1 CAPITAL COSTS .................................................................................................................... 10
9.2 WORKING CAPITAL ............................................................................................................... 11
10 KEY ASSUMPTIONS................................................................................................................. 11
10.1 REVENUE ASSUMPTIONS ....................................................................................................... 11
10.2 RAW MATERIAL EXPENSE ..................................................................................................... 11
10.3 INVENTORY ASSUMPTIONS .................................................................................................... 11
11 PROJECTED FINANCIAL STATEMENTS ................. ERROR! BOOKMARK NOT DEFINED.
11.1 PROJECTED INCOME STATEMENT ......................................................................................... 122
11.2 PROJECTED BALANCE SHEET ................................................................................................. 13
11.3 PROJECTED CASH FLOW STATEMENT ..................................................................................... 14
11.4 RATIO ANALYSIS .................................................................................................................. 15
Pre-Feasibility Study Woven Polypropylene Sacks

1 PURPOSE OF THE DOCUMENT

The objective of the 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 is regarding polypropylene sacks which come under
plastics sector. Before studying the whole document one must consider following critical
aspects, which forms the basis of any investment decision.

2 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT

Before making any investment decision, it is advisable to evaluate the associated risk
factors by taking into consideration certain key elements. These include availability of
resources, academic knowledge, past experience and specific managerial and technical
skill set. At times evaluation and analysis of strengths, weaknesses, opportunities and
threats (SWOT) for a particular project serves the purpose of a basic tool in investment
decision making. The most critical factor in this project would be to generate sufficient
demand. The polypropylene sacks market is based on high volumes and low prices. If an
agreement or a contract with a few high volume buyers can be arranged the business is
most likely to succeed.
This pre-feasibility study tries to capture all the important factors that can play an
instrumental role in the success of a project but all factors should be evaluated by the
investor for their own specific project design with its unique parameters.

3 PROJECT PROFILE
3. 1 Opportunity Rationale
Older packaging methods like multi-ply paper sacks, cotton bags, jute bags, etc had been
used to cart away agricultural produce and industrial products. Due to the inadequacy of
these packaging methods to withstand various atmospheric conditions, much of the
produce spoils to the financial loss and frustration of the farmers and producers. A heavy
loss occurs to the economy through the non-utilization of the available agro-based raw
materials inputs, great fluctuation in prices of food stuff and industrial products etc is the
result.
Polypropylene sacks are suitable for almost all the products that have used paper sacks,
cotton bags, jute bags for packaging. These sacks are better suited for storage due to their
strength, durability and ability to withstand water and pests.
The use of polypropylene sacks is steadily increasing in the agricultural sector, with
increasing agricultural yields and related industries, the scope of the industry is
increasing.
The industry has a high employment to capital ratio i.e. 5 person per 10 ton of
production. The inputs required are also low, with one significant advantage being the

PREF-10/May, 2005/Rev1 1
Pre-Feasibility Study Woven Polypropylene Sacks

lower cost of energy i.e. 1 unit of energy per unit of production as compared to 3.4 for
steel, 3.9 for zinc and 4.9 for aluminum.

3. 2 Project Brief
Polypropylene woven sacks manufacturing units import polypropylene granules, convert
it into tape yarn and this tape yarn is woven on an automatic loom to produce
polypropylene cloth. The average weight of a bag is 100 grams. Polypropylene sacks are
used to store and transport industrial and agricultural products like animal feeds,
fertilizers, salt, cement, sugar, millet, dyes, pigments, maize, sorghum, plastic granules,
rice, flours, pulses, polymers etc. Polypropylene sacks are usually suitable for packing
most of the goods that have been traditionally packed in jute bags
3. 3 Market Entry Timing
Various products and services have high dependence on their commercialization timing
and delivery to the customers. Example can be a school setup, sweater production, ice
cream production etc. The suitable timings for starting services of a school would be the
month of March. Similarly production of cold drinks should be starting in spring or end
of winter.

In this case the project should be started in the time of the products that will be targeted,
for instance, if main customers are to be sugar mills or the producers of other seasonal
goods, then the project should be started in a time that coincides with the requirement of
the sacks so that the business starts off in an efficient manner
3. 4 Proposed Business Legal Status
Selection of the business status is totally dependent on the choice of the entrepreneur.
Since the scope of this project is relatively small, the business can be launched as a sole
proprietorship or as a partnership with relative ease.
3. 5 Project Capacity and Rationale
The plant under consideration can produce 6,000,000 bags per annum. One can buy the
plant and machinery to meet the planned level of operation.
Different sizes of sacks can be made to meet the demands of particular customers. For
instance sacks of 2 kg, 10 kg, 50 kg, 100 kg etc. are possible by carrying out the required
adjustment of the equipment.
3. 6 Project Investment
Initial Financing Rs. in Actual
Debt 17,351,030
Equity 17,351,030
Total Investment 34,702,060
3. 7 Proposed Product Mix
The product will be polypropylene sacks but the colors and printing will be according to
the requirement of the clients. The dimensions of the sacks can also be changed within

PREF-10/May, 2005/Rev1 2
Pre-Feasibility Study Woven Polypropylene Sacks

the operating range of the looms. The operating range is the minimum and maximum
widths between which the loom can operate.

The width of the sacks will depend on the operating range of the loom while the length
can be changed at will since the sacks can be cut and stitched according to requirements.
3. 8 Recommended Project Parameters
Capacity Human Resource Machinery Location
6,000,000 50 Taiwan Sind

Financial Summary
Project Cost IRR NPV Payback Period Cost of Capital(WACC)
34,702,060 24% 17,261,650 4.78 16%
3. 9 Proposed Location
The plant can be located anywhere where there is a supply of water and electricity is
available. It is suggested however that the plant is located near the region where demand
is generated. This would be in near factories producing fertilizers, chemicals, or near
agricultural locales where grains are harvested and processed.
3. 10 Key Success Factors/Practical Tips for Success
Critical success factors would be the maintenance of product quality and standards since
the core issue in packaging material is that it should be effective in protecting the
contents from the environment.
Strict quality control and following of the product specifications are key points for any
product. Securing a regular source of polypropylene granules will also be of advantage.
3. 11 Strategic Recommendations
1. Marketing.
Marketing of the project would be required as there are a number of manufacturers
already in the industry. The entrepreneur will have to position the project in terms of
price and quality.

2. Pricing.
Pricing would be based on the market rates and would be dependent on the world price of
polypropylene which is in turn linked with the world oil prices. Pricing would have to be
competitive and if possible kept below market averages in order to attract a steady
clientele. The other alternative is to get long term purchase agreements with some buyers
which will be useful in utilizing capacity.

4 SECTOR & INDUSTRY ANALYSIS

4. 1 Sector Characteristic
Plastic industry in Pakistan is expanding at an average annual growth of 15%. The
significant growth rate, in addition to entrepreneurial efforts, is also due to simplified tax

PREF-10/May, 2005/Rev1 3
Pre-Feasibility Study Woven Polypropylene Sacks

policy on local production and reduction in import tariff on plastic raw material. Plastic
industry is contributing more than Rs 7.5 billion annually to the national exchequer in
shape of custom duty, sales tax and income tax.

Plastic is a mother industry to hundreds of manufactured components and products like

automobiles parts, televisions, refrigerators, other electrical goods, furniture, house-ware,
defense products, agricultural pipes, woven sacks, packages, sanitary ware, etc.

Plastic consumption has traditionally been the highest in USA, Europe and Japan
amounting to 75% of global consumption. This however, decreased to 70% in 1985,
50% in 1998 and is expected to decrease to 40% by 2010. This is primarily due to a
spread-out effect as consumption in other parts of the world has increased. Consumption
in China, Taiwan, Korea, Thailand, Malaysia and India has increased manifold during the
last few years. In addition to domestic consumption, these countries have become
leading exporters of plastic products to USA Europe, Japan and other regions. The
reason for this shift is the comparatively low cost of production in these countries.
Comparative per capita consumption of plastics is given below:

Country Unit 1999- 1999-2000 Pakistan

2000 10%
India
11%
Pakistan
Pakistan Kg. 3.1 World
56% India
India Kg. 3.3 China
China
China Kg. 7 23% World

World Kg. 17

4. 2 Sub sector Information

There are about 600 - 700 medium sized plastic processing units scattered all over
Pakistan. There are over 5000 small scale plastic processing units providing employment
to approx. 600,000 people.

The organized sector is capable of producing quality products whereas the unorganized
sector produces low quality cheap products through excessive use of plastic scrap. During
the last decade, the un-organized sector has grown much more rapidly than the organized
sector.

4.2.1 Sub sector Performance

The industry is presently fragmented into organized and un-organized sectors. About
60% of the units are located in and around Lahore and the remaining at Karachi, Hattar,
Gadoon, Faisalabad, Multan and Quetta. Percentage-wise units in different locations are
shown in the graph below.

PREF-10/May, 2005/Rev1 4
Pre-Feasibility Study Woven Polypropylene Sacks

Name Of
City % units

Lahore 40
Karachi 25
Gujranwala 12
Faisalabad 7
Multan 4
Hattar 3
Gadoon 3
Quetta 3

Others 8

There are about 600 – 700 medium sized plastic processing units scattered all over
Pakistan. Besides these units, there are over 5000 small scale plastic processing units
providing employment to approx. 600,000 people. Plastic industry in the un-organized
sector is totally self-financed

4. 3 Legal Issues Regarding Industry

Legal environment plays a crucial role in the workings of any sector. In Pakistan
awareness about regulations and policy framework is very minimal and limited access to
information effects negatively on the business operations.

The government is encouraging the setting up of manufacturing facilities and has reduced
import duties on machinery as well as on the imported polypropylene granules. This
encouragement is expected to continue. The custom duty on the import of the
polypropylene granules is 10% and on machinery imported is 5 %. Sales taxes is 15 %.

5 MARKET INFORMATION
5. 1 Market Potential
The market for plastic materials is growing rapidly due to varied and rising use of plastic
goods over recent years, substituting wood, tin, aluminum, glass, china clay, etc. Import
of polyethylene, polyester, polypropylene, polyvinyl chloride, acrylic polymer,
polystyrene and poly ether forms three fourths of the total imports. Polyethylene, the
largest item, is mainly imported as raw material in granular form, which is then converted
into films, liners, bottles, drums, household articles, toys and sporting goods. Imports of

PREF-10/May, 2005/Rev1 5
Pre-Feasibility Study Woven Polypropylene Sacks

low density and high density polyethylene and derivatives account for 23 percent of total
imports.

In the early 1990’s, imports from the U.S. averaged around 8 percent of the total but have
gradually fallen in percentage. Imports from the United States include a wide spectrum
of products namely polyethylene, polyvinyl chloride, polyester, polypropylene,
polyurethane, polyvinyl chloride, polyvinyl alcohol, silicone, and polymerization
products in primary form. Importers prefer cheaper goods and therefore procure
substantially from Far Eastern countries where the freight cost is lower and transportation
time is less.

Other supplier countries are South Korea, Saudi Arabia, Thailand, Japan, Germany,
Hungary, China and Belgium, which dominate the import market because of lower
prices, transport costs and shipment time. Nevertheless, the respective share of each
country has varied widely between 1994 and 1996. For example, Market share of
Hungary has fallen from 11.4 percent to 3.2 percent. Similarly, share of Thailand has
jumped from less than 1 percent to over 7 percent during this period.
5. 2 Target Customers
The target customers will be any producers, distributors and manufacturers of agricultural
goods, industrial goods that can be packed in polypropylene sacks. Major target
customers can be the sugar, rice, wheat, cotton, fertilizer, chemicals and other industries.
The production line can be expanded further to cater to the cement industry as well but
this will require some expansion in the production line and additional machinery will be
needed.
5. 3 Trade Statistics
This section of the report will provide trends and statistics of Pakistan as well as
international imports, exports and consumption level. It will also compare price levels of
Pakistan’s exports with international average and top exporting countries.

6 PRODUCTION PROCESS
6. 1 Raw Material Required
The raw materials required are ;
1. The polypropylene granules that are made into the tape yarn and then woven into the
sacks
2. Colors or dyes for giving the polypropylene sacks the required colors.

6. 2 Product Mix Offered

The products offered will be the sacks of various sizes, fabric can also be made by slitting
one side of the woven fabric which is in the form of a tube. This fabric is used for
packing purposes in the textile industry and specially for export products. There is also a
market for polypropylene bags like shopping bags and luggage bags made from
polypropylene which are often used.

PREF-10/May, 2005/Rev1 6
Pre-Feasibility Study Woven Polypropylene Sacks

6. 3 Production Process Flow

PP RESIN MIXER PIGMENT

FLAT YARN
MAKING M/C

CIRCULAR LOOM

CUTTING &
SEWING MACHINE

PRINTING
MACHINE

BALING PRESS
MACHINE

PREF-10/May, 2005/Rev1 7
Pre-Feasibility Study Woven Polypropylene Sacks

6. 4 Technology and Processes

6.4.1 The Polypropylene Tape Making Process

The polypropylene tapes are manufactured by slitting films of PP or HDPE which are
produced by blown extrusion technique. In this process, the granules of plastic are fed to
the extruder through the hopper. Molten plastics are extruded through circular die and the
tube is inflated by blowing with air to a desired diameter, and pulling it away with a pair
of nip rolls.

The extruded PP film is then coded and the bubble is collapsed. The film thus formed is
then slit to desired width. These tapes are stretched in orientation water bath which is at
its boiling point. Alternatively orientation can be carried out by using hot plate. The
HDPE/PP tape, after orientation, is stabilized and then wound on bobbins.
6.4.2 The Polypropylene Fabric Weaving Process
From bobbins carrying polypropylene yarn, fabric is made using warping and yarn
winding machine. The fabric is then woven on looms and finally cut to size and stitched
to sacks of required dimensions.

Whenever required, the sacks are screen-printed using specially prepared ink. In some
cases, laminated sacks are required and as such before stitching and printing the fabric
has to be laminated by extrusion coating of LDPE. Lamination should be done from
outside.
6.4.3 Technology/Process Options
The technology is relatively uniform amongst suppliers of machinery. The granules are
fed into the extruder with the color granules and extruded into tape yarn which is then
woven into the fabric with circular looms which produces the fabric in the form of a tube.
6. 5 Machinery Requirement

The types and number of different machines required for the proposed project are listed
below:

Type of Machinery Quantity $ Price per unit $ Price Value in Rs

Tape making machine 1 114,950 114,950 6,834,927
Circular Loom Machine 9 9,570 86,130 5,121,290
Auto Conversion Line 1 26,000 26,000 1,545,960
2 color printing machine 1 21,000 21,000 1,248,660
Baling Press 1 11,000 11,000 654,060
Total Cost of machinery 259,080 15,404,897

PREF-10/May, 2005/Rev1 8
Pre-Feasibility Study Woven Polypropylene Sacks

6. 6 Machine Maintenance
Machinery will be set up and initial training conducted by technicians that the machinery
manufacturer will send to start off the plant. A machinery maintenance schedule will
have to be maintained by the maintenance and technical staff on a regular basis.
6. 7 Machinery Supplier
Machinery suppliers are numerous and are located in Austria, US, Taiwan, China, some
manufacturers are also available in India. Agents of some machinery manufacturers are
located in Pakistan. The machinery that we have considered is supplied by the For Dah
Industry Co. Ltd, Taiwan.
6. 8 Product/Project Standards And Compliance Issues
As the time progresses compliance with quality, environment and social standards is
becoming integral factor for a business survival. These standards also effect choice of
supplier and contractor for any business inputs.

Most large buyers have specifications regarding the type of sacks that they need, the
weight, color and density of the sack’s weave are usually key issues. The coloring has to
be used after determining the end use of the sacks because certain types of dyes are
unsuitable for use with chemical compounds, and some types of dyes are unsuitable for
exposure to sunlight

7 LAND & BUILDING REQUIREMENT

7. 1 Land Requirement
Land of approximately 7200 square feet is required for the machinery alone and the
whole project would require about 8240 square feet of space in total. Land in the form of
Grounds has been allocated for possible future extension in the project.
7. 2 Covered Area Requirement
Covered area of the plant would have 840 sq. feet for office space and storing raw
material and finished goods.
7. 3 Construction Cost
The construction cost of the plant would be Rs. 3,530,000. This includes the construction
of the plant area as well as the office and warehouse.
7. 4 Recommended Mode
The preferable mode of acquisition for the land and building would be to purchase the
land because rented premises would be insecure and could led to problems in the long
run.
7. 5 Utilities Requirement
The major utility required is electricity as the machinery is run on electric motors. Water
is also required in a few stages of the production process but in small quantities.

PREF-10/May, 2005/Rev1 9
Pre-Feasibility Study Woven Polypropylene Sacks

7. 6 Suitable Location
The most suitable location will be where there is adequate infrastructure and preferably
near the source of demand.

8 HUMAN RESOURCE REQUIREMENT

The plant would require 50 people in total out of which 6 people would be the
administrative and managerial staff and 44 would be the plant workers. The number of
plant workers is higher due to the 24 hour working of the plant.

Personnel # of personnel Salary Ann. Salary Costs

General Manager 1 50,000 600,000
Production Manager 1 25,000 300,000
Engineers/Fitters 2 12,000 288,000
Extruder Operators 2 8,000 192,000
Winder Operators 4 5,000 240,000
Weavers 6 6,000 432,000
Cutting Machine Operator 4 6,000 288,000
Printing Supervisor 2 6,000 144,000
Stitcher 2 6,000 144,000
Baling press worker 2 5,000 120,000
Helpers 16 4,000 768,000
Marketing Executives 1 8,000 96,000
Accounts Officer 1 10,000 120,000
Electrician 2 12,000 288,000
Office Boy 1 3,000 36,000
Driver 1 4,500 54,000
Guards 2 4,000 96,000
Total 50 4,206,000

9 FINANCIAL ANALYSIS
9. 1 Capital Costs
Capital Investment Rs. in actual
Land 975,203
Building/Infrastructure/Modification 3,530,000
Machinery & equipment 23,653,188
Furniture & fixtures 155,640
Office equipment 101,500
Pre-operating costs & project promotion cost 628,266
Total Capital Costs 29,043,797

PREF-10/May, 2005/Rev1 10
Pre-Feasibility Study Woven Polypropylene Sacks

9. 2 Working Capital
Working Capital Rs. in actual
Equipment spare part inventory 20,507
Raw material inventory 4,607,775
Upfront insurance payment 118,266
Cash 1,000,000
Total Working Capital 5,746,547

10 KEY ASSUMPTIONS
10. 1 Revenue Assumptions
Revenue Assumptions
Sale Price per unit Rs. 11.50
Sale price growth rate 7%
Production capacity utilization 85%
Production capacity utilization growth rate 2%
Maximum capacity utilization 95%

10. 2 Raw Material Expense

Polypropylene is the key variable in the expenses as it is imported and can fluctuate
widely in connection with the world oil prices. Currently the international market prices
are $1150-1200 per ton.

Expense Assumptions
Cost /ton 1440 $
Cost /ton 85800 Rs.
Cost per Kg 1.44 $
Cost per Kg 85.8 Rs.

10. 3 Inventory Assumptions

Inventory Assumptions
Equipment spare part inventory 0.5 Months
Raw material inventory 1.0 Months
Finished goods inventory 0.5 Months

PREF-10/May, 2005/Rev1 11
Pre-Feasibility Study Woven Polypropylene Sacks

11.1 Projected Income Statement

Statement Summaries SMEDA
Income Statement
Rs. in actuals
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Revenue 71,785,156 80,251,672 87,844,241 96,106,537 105,095,118 114,871,178 122,966,093 131,573,720 140,783,880 150,638,752
Cost of goods sold 62,529,912 68,745,693 74,006,647 79,635,106 85,655,842 92,095,289 97,090,473 102,323,531 107,851,528 113,692,201
Gross Profit 9,255,245 11,505,979 13,837,595 16,471,432 19,439,277 22,775,889 25,875,620 29,250,189 32,932,352 36,946,550

General administration & selling expenses

Administration expense 1,242,180 1,363,120 1,495,836 1,641,472 1,801,288 1,976,664 2,169,115 2,380,303 2,612,053 2,866,366
Rental expense - - - - - - - - - -
Utilities expense 854,938 914,784 978,819 1,047,336 1,120,650 1,199,095 1,283,032 1,372,844 1,468,943 1,571,769
Travelling & Comm. expense (phone, fax, etc.) 48,240 52,937 58,091 63,747 69,953 76,764 84,237 92,439 101,439 111,315
Office vehicles running expense - - - - - - - - - -
Office expenses (stationary, etc.) 12,060 13,234 14,523 15,937 17,488 19,191 21,059 23,110 25,360 27,829
Promotional expense 71,785 80,252 87,844 96,107 105,095 114,871 122,966 131,574 140,784 150,639
Insurance expense 118,266 106,439 94,613 82,786 70,960 59,133 47,306 35,480 23,653 11,827
Professional fees (legal, audit, etc.) 71,785 80,252 87,844 96,107 105,095 114,871 122,966 131,574 140,784 150,639
Depreciation expense 2,567,533 2,567,533 2,567,533 2,567,533 2,567,533 2,567,533 2,567,533 2,567,533 2,567,533 2,567,533
Amortization expense 111,296 111,296 111,296 111,296 111,296 - - - - -
Property tax expense - - - - - - - - - -
Miscellaneous expense 717,852 802,517 878,442 961,065 1,050,951 1,148,712 1,229,661 1,315,737 1,407,839 1,506,388
Subtotal 5,815,935 6,092,364 6,374,840 6,683,385 7,020,309 7,276,834 7,647,876 8,050,593 8,488,387 8,964,304
Operating Income 3,439,310 5,413,615 7,462,754 9,788,047 12,418,967 15,499,055 18,227,744 21,199,595 24,443,965 27,982,247

Other income 38,758 76,928 187,315 255,647 266,092 467,609 907,465 1,315,673 1,927,504 3,224,070
Gain / (loss) on sale of assets - - - - - - - - - -
Earnings Before Interest & Taxes 3,478,068 5,490,543 7,650,069 10,043,694 12,685,060 15,966,664 19,135,209 22,515,268 26,371,468 31,206,316

Interest expense 1,714,943 1,513,431 1,291,538 1,047,201 778,149 516,410 270,500 - - -

Earnings Before Tax 1,763,125 3,977,113 6,358,532 8,996,493 11,906,910 15,450,254 18,864,709 22,515,268 26,371,468 31,206,316

Tax 617,094 1,391,989 2,225,486 3,148,773 4,167,419 5,407,612 6,531,818 7,812,839 9,238,569 11,000,381
NET PROFIT/(LOSS) AFTER TAX 1,146,031 2,585,123 4,133,045 5,847,720 7,739,492 10,042,642 12,332,891 14,702,429 17,132,899 20,205,936

Balance brought forward 1,146,031 1,865,577 2,999,311 4,423,516 6,081,504 16,194,502 28,191,490 42,500,619 51,426,378
Total profit available for appropriation 1,146,031 3,731,155 5,998,623 8,847,032 12,163,008 16,124,146 28,527,393 42,893,919 59,633,518 71,632,314
Dividend - 1,865,577 2,999,311 4,423,516 6,081,504 8,062,073 - - - -
Balance carried forward 1,146,031 1,865,577 2,999,311 4,423,516 6,081,504 8,062,073 28,527,393 42,893,919 59,633,518 71,632,314

PREF-10/May, 2005/Rev1 12
Pre-Feasibility Study Woven Polypropylene Sacks

11.2 Projected Balance Sheet

Statement Summaries SMEDA
Balance Sheet
Rs. in actuals
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Assets
Current assets
Cash & Bank 1,000,000 550,328 2,526,806 4,965,782 5,260,101 5,383,591 13,522,501 23,172,724 37,804,599 46,917,803 80,716,353
Accounts receivable - 5,900,150 6,248,089 6,908,051 7,559,621 8,268,561 9,039,711 9,774,134 10,460,540 11,192,778 11,976,273
Finished goods inventory - 1,330,424 1,432,888 1,542,527 1,659,825 1,785,297 1,919,494 2,022,718 2,131,740 2,246,907 2,368,588
Equipment spare part inventory 20,507 23,622 26,642 30,033 33,839 38,110 42,035 46,344 51,094 56,331 -
Raw material inventory 4,607,775 5,307,689 5,986,314 6,748,294 7,603,585 8,563,312 9,445,194 10,413,327 11,480,692 12,657,463 -
Pre-paid annual land lease - - - - - - - - - - -
Pre-paid building rent - - - - - - - - - - -
Pre-paid lease interest - - - - - - - - - - -
Pre-paid insurance 118,266 106,439 94,613 82,786 70,960 59,133 47,306 35,480 23,653 11,827 -
Total Current Assets 5,746,547 13,218,652 16,315,352 20,277,474 22,187,931 24,098,004 34,016,241 45,464,727 61,952,319 73,083,109 95,061,213

Fixed assets
Land 975,203 975,203 975,203 975,203 975,203 975,203 975,203 975,203 975,203 975,203 975,203
Building/Infrastructure 3,530,000 3,353,500 3,177,000 3,000,500 2,824,000 2,647,500 2,471,000 2,294,500 2,118,000 1,941,500 1,765,000
Machinery & equipment 23,653,188 21,287,869 18,922,550 16,557,232 14,191,913 11,826,594 9,461,275 7,095,956 4,730,638 2,365,319 -
Furniture & fixtures 155,640 140,076 124,512 108,948 93,384 77,820 62,256 46,692 31,128 15,564 -
Office vehicles - - - - - - - - - - -
Office equipment 101,500 91,350 81,200 71,050 60,900 50,750 40,600 30,450 20,300 10,150 -
Total Fixed Assets 28,415,531 25,847,998 23,280,465 20,712,932 18,145,400 15,577,867 13,010,334 10,442,801 7,875,268 5,307,736 2,740,203

Intangible assets
Pre-operation costs 556,481 445,185 333,888 222,592 111,296 - - - - - -
Legal, licensing, & training costs - - - - - - - - - - -
Total Intangible Assets 556,481 445,185 333,888 222,592 111,296 - - - - - -
TOTAL ASSETS 34,718,559 39,511,835 39,929,706 41,212,999 40,444,626 39,675,871 47,026,575 55,907,528 69,827,588 78,390,844 97,801,415

Liabilities & Shareholders' Equity

Current liabilities
Accounts payable - 5,023,296 5,524,289 5,960,174 6,428,484 6,931,680 7,456,342 7,873,174 8,311,966 8,777,325 8,118,974
Export re-finance facility - - - - - - - - - - -
Short term debt - - - - - - - - - - -
Other liabilities - - - - - - - - - - -
Total Current Liabilities - 5,023,296 5,524,289 5,960,174 6,428,484 6,931,680 7,456,342 7,873,174 8,311,966 8,777,325 8,118,974

Other liabilities
Lease payable - - - - - - - - - - -
Deferred tax - 617,094 2,009,083 4,139,308 4,139,308 4,139,308 3,311,446 2,483,585 1,655,723 827,862 -
Long term debt 17,359,279 15,366,134 13,171,477 10,754,926 8,094,039 5,164,100 2,705,005 - - - -
Total Long Term Liabilities 17,359,279 15,983,228 15,180,560 14,894,234 12,233,347 9,303,408 6,016,451 2,483,585 1,655,723 827,862 -

Shareholders' equity
Paid-up capital 17,359,279 17,359,279 17,359,279 17,359,279 17,359,279 17,359,279 17,359,279 17,359,279 17,359,279 17,359,279 17,359,279
Retained earnings - 1,146,031 1,865,577 2,999,311 4,423,516 6,081,504 8,062,073 28,527,393 42,893,919 59,633,518 71,632,314
Total Equity 17,359,279 18,505,311 19,224,857 20,358,591 21,782,795 23,440,783 25,421,353 45,886,673 60,253,199 76,992,798 88,991,593
TOTAL CAPITAL AND LIABILITIES 34,718,559 39,511,835 39,929,706 41,212,999 40,444,626 39,675,871 38,894,146 56,243,431 70,220,888 86,597,984 97,110,567

PREF-10/May, 2005/Rev1 13
Pre-Feasibility Study Woven Polypropylene Sacks

11.3 Projected Cash Flow Statement

Statement Summaries SMEDA

Cash Flow Statement
Rs. in actuals
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Operating activities
Net profit - 1,146,031 2,585,123 4,133,045 5,847,720 7,739,492 10,042,642 12,332,891 14,702,429 17,132,899 20,205,936
Add: depreciation expense - 2,567,533 2,567,533 2,567,533 2,567,533 2,567,533 2,567,533 2,567,533 2,567,533 2,567,533 2,567,533
amortization expense - 111,296 111,296 111,296 111,296 111,296 - - - - -
Deferred income tax - 617,094 1,391,989 2,130,225 - - (827,862) (827,862) (827,862) (827,862) (827,862)
Accounts receivable - (5,900,150) (347,939) (659,962) (651,570) (708,940) (771,150) (734,424) (686,406) (732,238) (783,494)
Finished good inventory - (1,330,424) (102,465) (109,639) (117,297) (125,472) (134,197) (103,224) (109,022) (115,167) (121,681)
Equipment inventory (20,507) (3,115) (3,020) (3,391) (3,806) (4,271) (3,925) (4,309) (4,750) (5,237) 56,331
Raw material inventory (4,607,775) (699,915) (678,625) (761,979) (855,291) (959,727) (881,882) (968,132) (1,067,366) (1,176,771) 12,657,463
Pre-paid building rent - - - - - - - - - - -
Pre-paid lease interest - - - - - - - - - - -
Advance insurance premium (118,266) 11,827 11,827 11,827 11,827 11,827 11,827 11,827 11,827 11,827 11,827
Accounts payable - 5,023,296 500,993 435,885 468,311 503,195 524,663 416,831 438,793 465,359 (658,352)
Other liabilities - - - - - - - - - - -
Cash provided by operations (4,746,547) 1,543,474 6,036,713 7,854,838 7,378,722 9,134,932 10,527,649 12,691,131 15,025,176 17,320,343 33,107,701

Financing activities
Change in long term debt 17,359,279 (1,993,145) (2,194,657) (2,416,551) (2,660,887) (2,929,939) (2,459,095) (2,705,005) - - -
Change in short term debt - - - - - - - - - - -
Change in export re-finance facility - - - - - - - - - - -
Add: land lease expense - - - - - - - - - - -
Land lease payment - - - - - - - - - - -
Change in lease financing - - - - - - - - - - -
Issuance of shares 17,359,279 - - - - - - - - - -
Purchase of (treasury) shares - - - - - - - - - - -
Cash provided by / (used for) financing activities
34,718,559 (1,993,145) (2,194,657) (2,416,551) (2,660,887) (2,929,939) (2,459,095) (2,705,005) - - -

Investing activities
Capital expenditure (28,972,012) - - - - - - - - - -
Acquisitions - - - - - - - - - - -
Cash (used for) / provided by investing activities
(28,972,012) - - - - - - - - - -

NET CASH 1,000,000 (449,672) 3,842,055 5,438,288 4,717,834 6,204,994 8,068,554 9,986,126 15,025,176 17,320,343 33,107,701

Cash balance brought forward 1,000,000 550,328 2,526,806 4,965,782 5,260,101 5,383,591 13,522,501 23,172,724 37,804,599 46,917,803
Cash available for appropriation 1,000,000 550,328 4,392,383 7,965,094 9,683,617 11,465,094 13,452,145 23,508,627 38,197,900 55,124,943 80,025,504
Dividend - - 1,865,577 2,999,311 4,423,516 6,081,504 8,062,073 - - - -
Cash carried forward 1,000,000 550,328 2,526,806 4,965,782 5,260,101 5,383,591 5,390,072 23,508,627 38,197,900 55,124,943 80,025,504

PREF-10/May, 2005/Rev1 14
Pre-Feasibility Study Woven Polypropylene Sacks

11.4 Ratio Analysis

Calculations SMEDA
Ratio Analysis

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Profitability ratios
Profit margin on sales 2% 3% 5% 6% 7% 9% 10% 11% 12% 13%
ROI (same as ROA) 3% 6% 10% 14% 20% 21% 22% 21% 22% 21%
ROE 6% 13% 20% 27% 33% 40% 27% 24% 22% 23%

Liquidity ratios
Current ratio 3 3 3 3 3 5 6 7 8 12
Quick ratio 2 2 2 2 2 3 4 6 7 12

Asset management ratios

Inventory turnover ratio 13 13 13 13 12 12 12 11 11
Days sales outstanding 30 28 28 28 28 28 29 29 29 29
Fixed assets turnover ratio 3 3 4 5 7 9 12 17 27 55
Total assets turnover ratio 2 2 2 2 3 2 2 2 2 2

Debt management ratios

Debt ratio 50% 39% 33% 26% 20% 13% 6% 0% 0% 0% 0%

PREF-10/May, 2005/Rev1 15