Pre-Feasibility Study

UPVC PIPES MANUFACTURING UNIT

Small and Medium Enterprises Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
6th Floor LDA Plaza Egerton Road, Lahore
Tel (042)111 111 456,
Fax: 36304926-7
helpdesk@smeda.org.pk

REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE

PUNJAB SINDH KHYBER PAKTUNKHWA BALOCHISTAN

8th Floor LDA Plaza, 5TH Floor, Bahria Complex II, Ground Floor Bungalow No. 15-A Chamn
Egerton Road, M.T. Khan Road, State Life Building The Mall, Housing Scheme Airport Road,
Lahore. Karachi. Peshawar. Quetta.
Tel: (042) 111 111 456, Tel: (021) 111-111-456 Tel: (091)111 111 456, 9213046-7 Tel: (081) 2831623, 2831702
Fax: (042) 36370474 Fax: (021) 5610572 Fax: (091) 286908 Fax: (081) 2831922
helpdesk.punjab@smeda.org.pk helpdesk.sindh@smeda.org.pk helpdesk.NWFP@smeda.org.pk helpdesk.balochistan@smeda.org.pk

June, 2010
Pre-Feasibility Study UPVC pipes manufacturing unit

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-113
Prepared by SMEDA-Punjab
Issue Date May, 2010
Issued by Library Officer

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Table of Contents

1 EXECUTIVE SUMMARY............................................................................................ 2
2 INTRODUCTION ......................................................................................................... 3
2.1 Project Brief ...........................................................................................................3
2.2 Opportunity Rationale............................................................................................3
2.3 Installed Capacity...................................................................................................3
2.4 Project Cost ............................................................................................................3
3 CRUCIAL FACTORS AND STEPS IN DECISION MAKING FOR INVESTMENT 4
3.1 Strengths.................................................................................................................4
3.2 Weaknesses ............................................................................................................4
3.3 Opportunities..........................................................................................................4
3.4 Threats....................................................................................................................5
3.5 Properties of UPVC Pipes......................................................................................5
3.6 Application of UPVC Pipes ...................................................................................5
4 INDUSTRY STRUCTURE ........................................................................................... 6
4.1 Pakistan UPVC Pipes Manufacturing Industry......................................................6
4.2 Pakistan UPVC Market Outlook............................................................................7
4.3 Market of Pipe Industry in Pakistan.......................................................................7
4.4 Products and Uses ..................................................................................................8
4.5 UPVC Growth potential in Pakistan ......................................................................9
5 GLOBAL MARKET OF UPVC.................................................................................... 9
5.1 UPVC pipes manufacturing Industry, Global scenario........................................10
6 MARKETING.............................................................................................................. 11
7 PRODUCTS OFFERED .............................................................................................. 11
7.1 Production Mix ....................................................................................................11
8 PROJECT INPUTS...................................................................................................... 12
8.1 Land & Building Requirement.............................................................................12
8.2 Recommended mode............................................................................................12
8.3 Machinery & Equipment......................................................................................12
8.4 Office Furniture & Fixture and Equipments ........................................................13
8.5 Office Vehicles.....................................................................................................14
8.6 Human Resource Requirement ............................................................................14
9 PROJECT ECONOMICS ............................................................................................ 16
10 FINANCIAL ANALYSIS ........................................................................................... 17
10.1 Projected Income Statement.................................................................................17
10.2 Projected Balance Sheet.......................................................................................18
10.3 Projected Cash Flow Statement ...........................................................................19
11 KEY ASSUMPTION ................................................................................................... 20
12 ANNEXTURE ............................................................................................................. 22
12.1 Machinery Supplier..............................................................................................22
12.2 Raw Material Supplier .........................................................................................22

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1 EXECUTIVE SUMMARY

The manufacturing of UPVC pipes through extrusion process is a viable business provided
that it is operated with a good business acumen that involves having a thorough knowledge
and experience of the product range, technical requirements, operational procedures and
also managing the jobs with the right type of technical manpower. When these factors
combine with good and effective business development skills, the business is expected to
give considerable profits which are expected to grow over the years.

Piping systems are the most indispensable elements to civilized living from individual life
to industry activities i.e., they are a basic infrastructure for urban environments. In
Pakistan per capita PVC consumption in Pakistan was only 0.28 Kg compared to 7.75 Kg
in USA and 5.11 Kg in Japan. This highlights the growth potential of the PVC Pipe
manufacturing sector in Pakistan. According to Industry sources the PVC pipe
manufacturing industry has presence in all major industrial cities of Pakistan (i.e. Karachi,
Multan, Burewala, Lahore, Sialkot, Narrowal, Faisalabad, Gujranwala, Gujrat, Jhelum,
Rawalpindi & Peshawar) which consists of around 400 manufacturing units and production
of 180,000 tons per annum.

A UPVC pipes manufacturing unit needs a capital investment estimated at Rs. 20.503
million for construction and purchasing machinery & equipment. In addition to this, a sum
of Rs. 4.208 million is required as working capital, which should be used for purchasing
raw material and other inputs. The total project cost is estimated at Rs. 24.712 million. The
project has an IRR, Payback and NPV of 46%, 3.78 years and Rs. 90.074 million.
In this pre-feasibility study, all the calculations have been based on a unit with 2 Extruder
Machines with a capacity of manufacturing 3,680 kgs per day.

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2 INTRODUCTION
2.1 Project Brief
Un Plasticized Polyvinyl Chloride (abbreviated as UPVC) was first developed in the
1930's and came to be used in pressure pipelines from the 1950's, firstly in Europe,
followed by the United States and then Australia in the 1960's. The product has now
developed to a mature status with known and respected performance history in pipeline
applications.

UPVC is a low maintenance material. It is used in the agriculture, chemical and

construction industry. It is available in a variety of colors and finishes. The photo-effect
wood finish of unplasticised polyvinylchloride is also used in window frames and window
sills as a substitute for painted wood.

2.2 Opportunity Rationale

UPVC is a versatile material for piping and has replaced conventional pipes made from
conventional materials such as Galvanized Iron (GI), Cast Iron, Asbestos Cement and
Concrete Cement. Its compatibility with most fluids, lower cost of material handling and
installation, unique combination of properties and availability of highly reliable jointing
system makes it an excellent competitor in the piping world, resulting in a product that is a
viable competitor to pipes made from other materials in dimensions up to 20 inches.
The most common use of UPVC is to make pipes. The pipes are most commonly used for
the purposes of drainage and for protecting or containing the cables in the buildings.

2.3 Installed Capacity

This feasibility is based on a unit with 2 Twin Extruder Machines with a capacity of
approximately manufacturing 3,680 kgs/day.

2.4 Project Cost

A UPVC pipes manufacturing unit needs a capital investment estimated at Rs. 20.503
million for constructing factory and purchasing machinery & equipment. In addition to
this, a sum of Rs. 4.208 million is required as working capital, which will be used for
purchasing raw material and other inputs. The total project cost is estimated at Rs. 24.712
million.

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3 CRUCIAL FACTORS AND STEPS IN DECISION MAKING FOR

INVESTMENT
3.1 Strengths
• Presence of pipes manufacturing cluster in Pakistan.
• The raw material supplier (Engro Asahi) assists in different issues relating to pipe
production.
• The local machine manufacturers are present , and also assist the manufacturing units
in setting up new lines
• Cooperation exists between the local machinery suppliers and the small manufacturing
units
• Existence of basic knowledge and technology involved in manufacturing of UPVC
pipes.
• Availability of basic infrastructure/network
• Presence of few recognized brands from top-end manufacturers

3.2 Weaknesses
• Volatility of raw material prices
• Constants break down in local made machines or obsolete machines and irregular
supplies of electricity and water etc leading to high level of wastage
• Unchecked use of scrap material in pipes production which leads to inferior and
hazardous pipes
• Extreme price pressures and low margins at all levels of market leading to continuous
price wars among stakeholders to catch new customers.
• Lack of design guides and standards
• Products only manufactured by large and medium units are according to safety and
quality standards
• There is no pressure or demand from consumers to uplift and maintain quality of
products
• Unskilled labor and machine operators
• No technical expert in the field of PVC extrusion to help with machine fabrication
• No research and development in areas of development of competitive technologies.
Understanding of new technology is low.
• Supply of products is limited to small local market with limited purchasing power,
leading to manufacturing below full capacity

3.3 Opportunities
• Diversified product range
• Strong future domestic market demand for quality products
• Scope of increased penetration in other sectors as a result of awareness about its
advantages and different uses
• Possibility of market penetration (export) to neighboring countries
• Increasing interest of foreign and local investors
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• Benchmarking of market leaders for small units to up-grade their technology base
• Establishment of an information sharing/dissemination mechanism among UPVC
industry to keep them updated on international trends

3.4 Threats
• The market of UPVC remains under pressure from high energy and feed stock costs
• Irregular availability of high quality raw materials especially before a price hike
• Pakistan products do not have a good quality image
• Increasing availability of international brands in local market – aggressive competition
especially from China, Malaysia, Iran, Indonesia and India.
• Environmental legislation and other restrictions concerning the proper way to recycle
and dispose PVC products
• No training institutes at national level to guide the industry towards new technology
and product line

3.5 Properties of UPVC Pipes

• Chemical resistance
• Lightness
• Resistance to corrosion
• Moisture resistance
• Temperature resistance
• Non toxic
• Non flammable
• Easy to be bend

3.6 Application of UPVC Pipes

• Underground Water Supply
• Chemical Industries
• Ventilation
• Sewerage Systems
• Cable Conduits
• Agriculture

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4 INDUSTRY STRUCTURE
4.1 Pakistan UPVC Pipes Manufacturing Industry
The UPVC pipes manufacturing industry has presence in all major industrial cities of
Pakistan (i.e. Karachi, Multan, Burewala, Lahore, Sialkot, Narrowal, Faisalabad,
Gujranwala, Gujrat, Jhelum, Rawalpindi & Peshawar) which consists of around 400
manufacturing units manufacturing 45,000 metric tones annually.
Major characteristics of this industry are:
• There are in around 350-400 units in Pakistan scattered all over the country.
• Major cluster of PVC Pipes manufacturing industry is in Lahore (250 units).
• Second largest cluster is in Gujrat (around 25 units).
• UPVC pipes industry has an obsolete technology base having 75% units quipped
with local single screw-extrusion machines. Rest 25% units are sing twin-screw
type refurbished old machinery of 80’s imported Western Europe.
• Few top line units are also using modern machines imported from China, Korea
and Germany.
• Total number of people directly employed in this sector is 5,000. Most of these
individuals are uneducated and acquire hands on training in the factory.
o Large Units: 25+ people
o Medium Units: 10-15 people
o Small Units: 5-7 people
• The educational level of most of the workers is under matriculation.
• Plastic pipes are the main products produced by this industry used for Water
supply, drainage, conduits and ventilation.
• The installed capacity of these units is 75,000 metric tons per year.
• Estimated production of these units is 45,000 metric tons per year.
• Total production capacity of this industry is 89.11 million kilo grams per year.
• The capacity being utilized by this industry is only 68%.
• There still exists a huge potential of more than 41,000 Metric tons usage of UPVC
pipes to serve as replacement of other products over the next five years.
• These top level manufacturers account for only 25% of the industry capacity.
• Machinery used by these processors is mainly of European origin (Refurbished).
• Unorganized sector accounts for the rest of industry capacity which are
manufacturing pipe from recycled UPVC and those who are even making pipe
from virgin UPVC resin are using exorbitant amount of filler (Calcium Carbonate)
which makes a very low quality pipe. The pipes produced by this unorganized
sector adhere to no specific standards and compete on price, sacrificing heavily on
quality.
• Industry is playing an important role in the construction, agriculture sector and
especially for transport of portable drinking water. By a large the industry is
catering to the upcoming needs of agricultural sector for irrigation.
• It has 95% penetration in the conduit sector, 65% in tube well sector and 15% and
20% in drainage and water supply sector.
• Current per capita UPVC consumption in Pakistan is only 0.28 Kg.
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• The consumption-production gap is currently around 50% of the current rate of

production. The potential major players in the public sector are the Public Health
Engineering Departments (PHED), WASA, Military Engineering Supplies and
various Housing Societies. The estimated total incremented potential for the next
five years in these sectors is approximately 12,000 metric tons (statistics 2000).
• The major reasons for the slow growth of the UPVC industry are the unawareness
of consumer about quality consciousness, and not being able to introduce
innovation in their production lines. Due to the lack of quality awareness on part of
consumer, cottage sector has really flourished in last decade or so.
• Lack of awareness of modern technology among the industry stakeholders.
• There are low levels of operational and managerial skills within the industry.
• Some manufacturers are also using international standards like ASTM, DIN & ISO
certification. There is a need to introduce ISO 9000 in the industry.
• Manufacturers supplying to the Public Sector are required to get them-selves
approved and registered with respective departments. Compared to 7.75 Kg in USA
and 5.11 Kg in Japan, current per capita UPVC consumption in Pakistan was only
0.28 Kg. This highlights the growth potential of the UPVC Pipe manufacturing
sector in Pakistan. However due to unawareness in Pakistan the use of UPVC pipes
is limited to the water supply, drainage, conduits, and tube wells. The current rate
of utilization of these pipes in Pakistan is quiet low.

Table 4-1: Per Capita Consumption of UPVC pipes (Kgs)1

USA 7.75
China 0.66
Japan 5.11
India 0.42
Pakistan 0.28

4.2 Pakistan UPVC Market Outlook

The UPVC pipes manufacturing industry has presence in all major industrial cities of
Pakistan (i.e. Karachi, Multan, Burewala, Lahore, Sialkot, Narrowal, Faisalabad,
Gujranwala, Gujrat, Jehlum, Rawalpindi & Peshawar) which consists of around 400
manufacturing units and manufactures 45,000 metric tones annually.

4.3 Market of Pipe Industry in Pakistan

There are different types of materials used for piping in Pakistan such as Asbestos Cement
(AC), Mild Steel (MS), Galvanized Iron (GI), Poly Vinyl Chloride (PVC), Cast Iron (CI),

1
EAPCL (Engro Asahi Polymer and Chemical Ltd)
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Reinforced Concrete Cement (RCC) and Ductile Iron (DI). Majority of piping applications
used in Pakistan range from 0.5" to 60" dia sizes.

Table 4-2: Usage of Pipes in different Services

Water
Sewer
Conduit & Ducting
Drain Waste and Vent (DVM)
Agriculture & Drainage
ABS – Acrylonitrile butadiene styrene
HDPE – High Density Polyethylene
HDPE, Concrete, Copper, PEX
Concrete, HDPE
HDPE, Steel, Aluminum
Cast Iron, Copper, ABS, PEX
HDPE, Concrete

4.4 Products and Uses2

In Pakistan, the UPVC Pipes are being used in four major areas: Water supply, drainage,
conduits and tube wells. The main products produced in Pakistan constitute of Polyvinyl
Chloride and UPVC Un-plasticized Polyvinyl Chloride. UPVC is used in the drinking
water supply system. PVC is used in agriculture, drainage and sanitation. These pipes
usually fall in four categories as per their composition are:
• Scrap based
• Resin based
• Scrap resin mix
• Compact type

Their sizes vary from range ½ to 16 inch diameter and PS. 3051 Standard. However, pipes
can also be divided in two categories as following:
a) Pressure pipes (Used for Water Distribution & in Tube wells)
b) Non Pressure pipes (Used for drainage/sewerage and as Conduits)

Water Distribution
Water supply can be for the purpose of household or for municipal sector. Water supply
segment can be divided into internal and external applications. The size of pipes used for
water distribution range from 0.5" to more than 60". These pipelines are commonly
known as External Water Supply lines, and are usually of AC (60%), PVC (20%), and MS
(20%). PVC has a lot of growth potential in this segment as AC pipes are now becoming
extinct in international arena and MS pipes are much expensive than PVC pipes. Usually
inside the house GI pipe are used and these lines are called Internal Water Supply lines.

2
APPMA (All Pakistan PVC Pipes Manufacturers Association)
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Tube Well
Pakistan being an agricultural country needs the use of PVC Pipes in large quantities for
the irrigation purposes, due to their inherent characteristics. Tube wells are used for water
supply or to drop the sub soil water level. Material used for this application is PVC and
MS ranging from 4" to 12" dia. PVC enjoying 65% market share due to its longer life
span in sub soil conditions dominates this segment. MS has 25% market share followed
by Fiberglas with 10% share.

4.5 UPVC Growth potential in Pakistan

ƒ At present only the most basic UPVC applications are being made in Pakistan and
that also of low quality. Reasons being:
- Lack of exposure in international markets
- Lack of information about UPVC processing and its versatility

ƒ If Pakistan’s per capita consumption (presently around 0.5 kg/person) becomes at

par with world average UPVC per capital consumption of around 4.5 kg/person,
then Pakistan would need 585,000 tons of UPVC per annum at present population
level.

ƒ Promoting UPVC in agriculture sector would help:

- In utilizing far flung areas for cultivation through drip irrigation In salinity
control and land reclamation

5 GLOBAL MARKET OF UPVC

Vinyl’s low cost, versatility, unique set of properties and performance makes it the
material of choice for dozens of industries such as health care, communications, aerospace,
automotive, retailing, textiles and construction. In the product form it can be as rigid as a
pipe or as pliable as a plastic wrap. Over the past few years the market for UPVC is on a
steady rise. The major driver for the growth is the increased penetration of UPVC in
insulation cables and pipes. However, the building and construction industries are the basic
marketplaces for pipes and the pipes industry usually finds itself firmly ensconced among
those boom and bust industries which ride the coattails of our nation's economic fortunes.
Another factor of growth in UPVC pipes is innovations in pipe resins, pipe structures and
pipe processing technology.

In the global market UPVC pipes and fittings constitute the largest volume application at
36% of the marketplace. Worldwide demand for these pipes is forecasted to increase more
than four percent per year through 2007. In the European pipe market, plastic pipes rank
first among other materials and globally plastic pipes are used at about 54% of the total
pipes used. Polyvinyl chloride (PVC) takes the lion's share at around 62% of the global
market. Polyethylene (PE) has 33.5%, while polypropylene (PP) takes about 4.5%. In
Europe, 1.5 million tons of UPVC was used in 2002 to make pipes. Similarly in case of
USA pipe demand is projected to grow 2.5% annually to 15.5 billion feet in 2007.

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5.1 UPVC pipes manufacturing Industry, Global scenario

Table 5-1: Major Importing Countries of UPVC Pipe3

Value in US $ "000"
Top Importers 2004 2005
France 120,662 120,663
USA 83,360 92,950
Mexico 76,411 82,760
Ireland 44,415 49,911
Canada 38,370 41,831
UK 38,043 37,533
Belgium 37,127 33,181
Spain 34,699 38,432
Germany 24,991 20,395
Austria 22,296 19,261

France, USA and Mexico have been the top importers of UPVC pipes over the past few
years, contributing to approximately 35% of world imports.

Table 5-2: Major Exporting Countries of UPVC Pipe4

Value in US $ "000"
Top Exporters 2004 2005
USA 136,505 139,214
Germany 88,082 85,168
Canada 72,313 79,031
UK 76,687 76,446
Italy 79,173 72,891
Netherlands 31,505 70,086
Spain 53,684 51,461
China 25,992 50,720
Ireland 25,782 29,277
Denmark 23,744 26,195

USA, Germany and Canada are the top three exporters of UPVC pipes, contributing to
32% of world exports.

3
Source PCTAS, HS Code 391723
4
Source PCTAS, HS Code 391723
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6 MARKETING
Almost 40-50% of the total industry production was purchased by institutional buyers
including government departments and remaining 50-55% was sold through conventional
market channels. Manufacturers generally distribute pipes using a network of wholesalers
who then sell to retailers and large customers. The higher quality manufacturers usually
appoint two or three well-reputed entities with past experience and sound financial position
as their wholesalers in larger cities, who also serve adjacent rural areas. However, these top
tier manufacturers service large volume orders from the public sector directly. The
unorganized sector manufacturers on the other hand appoint a host of relatively small
dealers. Wholesalers generally operate on a manufacturer margin calculated as a
percentage of gross prices. Margins are pegged to the off take volumes and larger orders
attract higher margins.

Most of the small units tend to be established close to the market to reduce freight costs. In
an endeavor to boost sales in a non-differentiation market, manufacturers generally resort
to credit sale. This phenomenon is especially very common in the unorganized sector. The
organized sector manufacturers are more selective while forwarding credit and limit this
facility for larger orders and selective customers. Due to restricted quality product being
available in the market, higher quality producers can place their pipes without offering
significant credit terms and cash on delivery basis. 40% of all sales are on payment on
delivery basis while 60% on some form of credit basis ranging from 7 – 30 days. Some
producers may also move product on order basis, where product is pre sold at the time of
being manufactured, but these types of sales exists in high turnover periods only.

Pricing of UPVC pipes is on the basis of resin content and a distinct pattern emerges when
higher quality product prices are studied closely - across all dia ranges, the price per
kilogram will remain constant for any one producer. As the cost of resin increases or
decreases, the price per kilogram of pipe also moves accordingly, showing that
manufacturers are content with such pricing basis and are not sensitive to actual production
processes.

7 PRODUCTS OFFERED
The proposed project will be capable of making UPVC pipes of different sizes. Commonly
manufactured sizes shall be 3", 4"and 6".

7.1 Production Mix

Keeping in view the demand of the product mix the production is divided into the below
proportion.

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Table 7-1: Product Mix

Description No. of Pipes Production Ratio
Manufactured Annually
Production Line 1
3" pipe 164,904 100%
Production Line 2
4" pipe 89,407 70%
6" pipe 16,602 30%
Total Production (Nos.) 270,913

8 PROJECT INPUTS
Following inputs are required:

8.1 Land & Building Requirement

The land requirement is around 8,200 Sq. feet in any area where all utilities and facilities
are properly available. The plot will easily allow the accommodation of the recommended
machines and also allow space for material and finished goods storage. The detailed
allocation of space and approximate construction cost estimations have been provided in
the following table:

Table 8-1: Detail of Civil Works

Size (Cost in Rs/square Total construction
Details
(Sq. feet) feet) cost (Rs)
Production Hall 3,700 800 2,960,000
Management Building 1,000 1,100 1,100,000
Warehouse 2,000 800 1,600,000
Loading/Unloading Area 500 400 200,000
Total 7,200 5,860,000

8.2 Recommended mode

Land for the proposed production facility will be purchased as relocation of installed
machinery will be difficult in case of rental premises.

8.3 Machinery & Equipment

Based on the number and type of UPVC pipes to be produced by the proposed setup, the
following machinery will be required:

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Table 8-2: Detail of Machinery

Items Number Rate (Rs) Estimated Cost
Per Unit (Rs)
UPVC Pipe Production Line: 2 2,600,000 5,200,000
1) Powder auto-loader
2) Twin screw extruder
3) Mould
4) Calibration tank
5) Haul-Off machine
6) Automatic cutting machine
7) Stacker
Oil- Ink Printer 1 45,000 45,000

Compressor 2 40,000 80,000

Chiller unit 1 90,000 90,000
Generator (300 KVA) 1 3,500,000 3,500,000
Total Machinery & Equipments 8,915,000
Contingencies @ 5% of Total 445,750
Machinery & Equipments
Total Cost of Machinery 9,360,750

The above table gives the details of the machinery required along with their cost for each
commodity to be produced. For machinery purchase, following supplier can be contacted.

8.4 Office Furniture & Fixture and Equipments

A total of Rs. 381,500 is estimated for purchase of office furniture and related equipments.
The following tables give the assumed breakup:

Table 8-3: Furniture & Fixture

Items Number Estimated Cost (Rs)
Furniture Set 1 100,000
Curtains Set 1 20,000
Air Conditioner (1.5 ton split) 2 70,000
Total 190,000

Table 8-4: Office Equipment

Items Qty Cost Total Cost (Rs.)
Computers + UPS 5 32,500 162,500
Computer Printer 1 15,000 15,000
Telephone set 2 1,000 2,000
Fax Machine 1 12,000 12,000
Total 191,500
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8.5 Office Vehicles

One small (second hand) trucks acting as light carrier vehicle would also be needed for
transporting raw materials and finished goods. For this purpose Rs. 400,000/- has been
assumed. The vehicle will depreciate at a rate of 20% annually.

8.6 Human Resource Requirement

The human resource requirement for the general and management staff would be as
follows:

Table 8-5: Human Resource Requirement

Designation/Type Number Monthly Total Annual
Salary (Rs) Salary (Rs)
CEO 1 50,000 600,000
Accountant 1 12,000 144,000
Purchaser 1 12,000 144,000
Office Assistant 1 10,000 120,000
Store/ Warehouse keeper 1 10,000 120,000
Driver 1 8,500 102,000
Guard (24 Hour) 2 8,000 192,000
Total 8 118,500 1,422,000

Considering the size of the proposed establishment it is assumed that the owner would be
managing the overall affairs of the pipes manufacturing setup. An accountant is required to
process and check bills, invoices, receivables management, maintain accounts, etc. for
external and internal reporting. The accountant is required to update records and ensure
safe custody of store keys.

The purchaser would be primarily responsible for making daily purchases; raw material
purchases and other purchases as and when required. The purchaser would also assist the
accountant in the safe custody of all inventories in the storeroom. The office assistant
would be responsible for handling customers & complaints, follow-up on bills and
managing all day to day activities. Two round the clock security guards would be required
for ensuring security for the overall premises.

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The following table gives the details for the proposed technical labor that forms the
integral part of the total employee payroll:

Table 8-6: Technical Manpower Requirement

Designation/Type Number Monthly Total Annual
Salary (Rs) Salary (Rs)
Production Manager 1 30,000 360,000
Shift supervisor 1 15,000 180,000
Color Operator 1 8,000 96,000
Electrician 1 8,000 96,000
Hydraulic Technician 1 10,000 120,000
Machine Operators 6 8,000 576,000
Helpers 10 7,500 900,000
Total 21 194,000 2,328,000

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9 PROJECT ECONOMICS

Capital Investment Rs. in actuals

Land 3,280,000
Building/Infrastructure 5,860,000
Machinery & equipment 9,360,750
Furniture & fixtures 190,000
Office vehicles 400,000
Office equipment 191,500
Pre-operating costs 1,221,286
Total Capital Costs 20,503,536

Working Capital Rs. in actuals

Equipment spare part inventory 19,502
Raw material inventory 3,200,493
Upfront insurance payment 488,038
Cash 500,000
Total Working Capital 4,208,032

Total Investment 24,711,568

Initial Financing Rs. in actuals

Debt 50% 12,355,784
Equity 50% 12,355,784

Equity Project
Internal Rate of Return (IRR) 59% 46%
Payback Period (yrs) 3.40 3.78
Net Present Value (NPV) 52,979,229 90,074,431

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10 FINANCIAL ANALYSIS
10.1 Projected Income Statement

Calculations 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 99,632,403 125,320,235 150,431,933 179,312,767 212,465,449 250,455,540 293,918,995 343,570,584 400,213,302 464,748,858

Cost of sales
Cost of goods sold 1 76,811,822 94,420,098 110,764,109 129,028,609 149,409,735 172,122,245 197,401,201 225,503,814 256,711,436 291,331,743
Operation costs 1 (direct labor) 2,328,000 2,554,657 2,803,382 3,076,324 3,375,839 3,704,515 4,065,192 4,460,985 4,895,313 5,371,927
Operating costs 2 (machinery maintenance) 468,038 959,477 1,475,488 2,017,300 2,586,203 3,183,550 3,810,765 4,469,341 5,160,846 5,886,925
Operating costs 3 (direct electricity Generator & Indutrial) 5,067,821 6,132,063 7,358,476 8,768,850 10,387,715 12,242,664 14,364,726 16,788,773 19,553,983 22,704,347
Total cost of sales 84,675,681 104,066,295 122,401,455 142,891,083 165,759,492 191,252,975 219,641,885 251,222,913 286,321,578 325,294,943
Gross Profit 14,956,722 21,253,940 28,030,478 36,421,685 46,705,957 59,202,565 74,277,110 92,347,671 113,891,725 139,453,915

General administration & selling expenses

Administration expense 1,422,000 1,560,448 1,712,375 1,879,095 2,062,046 2,262,810 2,483,120 2,724,880 2,990,178 3,281,306
Administration benefits expense 71,100 78,022 85,619 93,955 103,102 113,140 124,156 136,244 149,509 164,065
Electricity expense 356,419 431,267 517,521 616,712 730,567 861,025 1,010,269 1,180,752 1,375,229 1,596,794
Travelling expense 71,100 78,022 85,619 93,955 103,102 113,140 124,156 136,244 149,509 164,065
Communications expense (phone, fax, mail, internet, etc.) 71,100 78,022 85,619 93,955 103,102 113,140 124,156 136,244 149,509 164,065
Office vehicles running expense 80,000 88,000 96,800 106,480 117,128 128,841 141,725 155,897 171,487 188,636
Office expenses (stationary, entertainment, janitorial services, etc.) 71,100 78,022 85,619 93,955 103,102 113,140 124,156 136,244 149,509 164,065
Promotional expense 996,324 1,253,202 1,504,319 1,793,128 2,124,654 2,504,555 2,939,190 3,435,706 4,002,133 4,647,489
Insurance expense 488,038 437,234 386,430 335,626 284,823 266,229 212,983 159,737 106,492 53,246
Professional fees (legal, audit, consultants, etc.) 498,162 626,601 752,160 896,564 1,062,327 1,252,278 1,469,595 1,717,853 2,001,067 2,323,744
Depreciation expense 1,347,225 1,347,225 1,347,225 1,347,225 1,347,225 1,396,066 1,396,066 1,396,066 1,396,066 1,396,066
Amortization of pre-operating costs 244,257 244,257 244,257 244,257 244,257 - - - - -
Bad debt expense 2,988,972 3,759,607 4,512,958 5,379,383 6,373,963 7,513,666 8,817,570 10,307,118 12,006,399 13,942,466
Subtotal 8,705,797 10,059,931 11,416,520 12,974,289 14,759,400 16,638,031 18,967,142 21,622,985 24,647,086 28,086,007
Operating Income 6,250,925 11,194,009 16,613,957 23,447,396 31,946,558 42,564,534 55,309,968 70,724,686 89,244,639 111,367,908
Other income (interest on cash) 25,000 70,463 470,989 1,338,436 2,640,949 4,661,160 7,602,127 11,507,051 16,599,385 24,222,474
Gain / (loss) on sale of office vehicles - - - - 160,000 - - - -
Earnings Before Interest & Taxes 6,275,925 11,264,472 17,084,946 24,785,831 34,747,507 47,225,694 62,912,095 82,231,737 105,844,023 135,590,382
Interest on short term debt 282,088 282,088 - - - - - - - -
Interest expense on long term debt (Project Loan) 1,536,644 1,285,991 992,158 647,707 243,916 - - - - -
Interest expense on long term debt (Working Capital Loan) 186,774 - - - - - - - - -
Subtotal 2,005,506 1,568,079 992,158 647,707 243,916 - - - - -
Earnings Before Tax 4,270,419 9,696,393 16,092,787 24,138,125 34,503,591 47,225,694 62,912,095 82,231,737 105,844,023 135,590,382
Tax 1,067,605 2,424,098 4,023,197 6,034,531 8,625,898 11,806,423 15,728,024 20,557,934 26,461,006 33,897,596
NET PROFIT/(LOSS) AFTER TAX 3,202,814 7,272,295 12,069,591 18,103,593 25,877,693 35,419,270 47,184,071 61,673,803 79,383,018 101,692,787

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10.2 Projected Balance Sheet

Calculations 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 500,000 - 1,409,265 8,010,507 18,758,203 34,060,785 59,162,409 92,880,131 137,260,889 194,726,808 289,722,676
Accounts receivable 8,188,965 9,244,629 11,332,281 13,551,152 16,100,475 19,024,150 22,371,556 26,198,202 30,566,461 35,546,390
Finished goods inventory 3,681,551 4,352,583 5,117,831 5,972,939 6,927,262 7,991,071 9,175,640 10,493,340 11,957,746 13,583,745
Equipment spare part inventory 19,502 41,977 67,780 97,303 130,981 169,296 212,783 262,034 317,705 380,523 -
Raw material inventory 3,200,493 4,130,879 5,088,226 6,223,614 7,567,019 9,153,185 11,022,354 13,221,105 15,803,321 18,831,298 -
Pre-paid insurance 488,038 437,234 386,430 335,626 284,823 266,229 212,983 159,737 106,492 53,246 -
Total Current Assets 4,208,032 16,480,606 20,548,913 31,117,163 46,265,118 66,677,233 97,625,750 138,070,203 190,179,949 256,516,082 338,852,811
Fixed assets
Land 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000 3,280,000
Building/Infrastructure 5,860,000 5,567,000 5,274,000 4,981,000 4,688,000 4,395,000 4,102,000 3,809,000 3,516,000 3,223,000 2,930,000
Machinery & equipment 9,360,750 8,424,675 7,488,600 6,552,525 5,616,450 4,680,375 3,744,300 2,808,225 1,872,150 936,075 -
Furniture & fixtures 190,000 171,000 152,000 133,000 114,000 95,000 76,000 57,000 38,000 19,000 -
Office vehicles 400,000 320,000 240,000 160,000 80,000 644,204 515,363 386,522 257,682 128,841 -
Office equipment 191,500 172,350 153,200 134,050 114,900 95,750 76,600 57,450 38,300 19,150 -
Total Fixed Assets 19,282,250 17,935,025 16,587,800 15,240,575 13,893,350 13,190,329 11,794,263 10,398,197 9,002,131 7,606,065 6,210,000
Intangible assets
Pre-operation costs 1,221,286 977,029 732,772 488,514 244,257 - - - - - -
Total Intangible Assets 1,221,286 977,029 732,772 488,514 244,257 - - - - - -
TOTAL ASSETS 24,711,568 35,392,660 37,869,484 46,846,252 60,402,724 79,867,561 109,420,013 148,468,400 199,182,080 264,122,147 345,062,810
Liabilities & Shareholders' Equity
Current liabilities
Accounts payable 6,694,744 8,263,198 9,744,700 11,403,609 13,259,048 15,332,131 17,646,173 20,226,919 23,102,803 24,428,932
Short term debt - 3,274,938 - - - - - - - - -
Total Current Liabilities - 9,969,682 8,263,198 9,744,700 11,403,609 13,259,048 15,332,131 17,646,173 20,226,919 23,102,803 24,428,932
Other liabilities
Deferred tax 1,067,605 (315,736) (2,890,582) (6,752,682) (12,273,257) (20,213,158) (30,662,884) (44,203,753) (61,522,587) (83,600,839)
Long term debt (Project Loan) 10,251,768 8,796,775 7,091,130 5,091,651 2,747,721 - - - - - -
Long term debt (Working Capital Loan) 2,104,016 - - - - - - - - - -
Total Long Term Liabilities 12,355,784 9,864,380 6,775,393 2,201,069 (4,004,961) (12,273,257) (20,213,158) (30,662,884) (44,203,753) (61,522,587) (83,600,839)
Shareholders' equity
Paid-up capital 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784 12,355,784
Retained earnings 3,202,814 10,475,109 22,544,699 40,648,293 66,525,986 101,945,256 149,129,327 210,803,130 290,186,148 391,878,934
Total Equity 12,355,784 15,558,598 22,830,893 34,900,483 53,004,077 78,881,770 114,301,040 161,485,111 223,158,914 302,541,931 404,234,718
TOTAL CAPITAL AND LIABILITIES 24,711,568 35,392,660 37,869,484 46,846,252 60,402,724 79,867,561 109,420,013 148,468,400 199,182,080 264,122,147 345,062,810

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10.3 Projected Cash Flow Statement

Calculations 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 3,202,814 7,272,295 12,069,591 18,103,593 25,877,693 35,419,270 47,184,071 61,673,803 79,383,018 101,692,787
Add: depreciation expense 1,347,225 1,347,225 1,347,225 1,347,225 1,347,225 1,396,066 1,396,066 1,396,066 1,396,066 1,396,066
amortization of pre-operating costs 244,257 244,257 244,257 244,257 244,257 - - - - -
amortization of training costs - - - - - - - - - -
Deferred income tax 1,067,605 (1,383,341) (2,574,846) (3,862,100) (5,520,575) (7,939,902) (10,449,726) (13,540,869) (17,318,834) (22,078,252)
Accounts receivable (8,188,965) (1,055,664) (2,087,652) (2,218,871) (2,549,323) (2,923,676) (3,347,406) (3,826,646) (4,368,259) (4,979,929)
Finished goods inventory (3,681,551) (671,031) (765,248) (855,108) (954,323) (1,063,809) (1,184,569) (1,317,700) (1,464,405) (1,625,999)
Equipment inventory (19,502) (22,476) (25,803) (29,523) (33,678) (38,315) (43,487) (49,251) (55,671) (62,818) 380,523
Raw material inventory (3,200,493) (930,387) (957,347) (1,135,388) (1,343,405) (1,586,166) (1,869,168) (2,198,751) (2,582,217) (3,027,977) 18,831,298
Advance insurance premium (488,038) 50,804 50,804 50,804 50,804 18,594 53,246 53,246 53,246 53,246 53,246
Accounts payable 6,694,744 1,568,455 1,481,501 1,658,909 1,855,439 2,073,083 2,314,042 2,580,746 2,875,884 1,326,129
Cash provided by operations (3,708,032) (215,930) 6,389,849 8,600,721 13,091,626 18,694,507 25,101,623 33,717,722 44,380,758 57,465,919 94,995,868
Financing activities
Project Loan - principal repayment (1,454,993) (1,705,646) (1,999,478) (2,343,930) (2,747,721) - - - - -
Working Capital Loan - principal repayment (2,104,016) - - - - - - - - -
Short term debt principal repayment - (3,274,938) - - - - - - - -
Additions to Project Loan 10,251,768 - - - - - - - - - -
Additions to Working Capital Loan 2,104,016 - - - - - - - - - -
Issuance of shares 12,355,784 - - - - - - - - - -
Cash provided by / (used for) financing activities 24,711,568 (3,559,009) (4,980,584) (1,999,478) (2,343,930) (2,747,721) - - - - -
Investing activities
Capital expenditure (20,503,536) - - - - (644,204) - - - - -
Cash (used for) / provided by investing activities (20,503,536) - - - - (644,204) - - - - -

NET CASH 500,000 (3,774,938) 1,409,265 6,601,242 10,747,696 15,302,582 25,101,623 33,717,722 44,380,758 57,465,919 94,995,868

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11 KEY ASSUMPTION
Table 11-1: Operating Assumptions
Hours operational per day 8
Days operational per month 25
Days operational per year 300

Table 11-2: Production Assumptions

Production Line 1 3" pipe
Production Line 2 4" & 6" pipe
Maximum Capacity of Machine 230 Kg / Hour
Annual Production Capacity (Kgs) 1,104,000
Capacity Utilization (1st Year) 50%
Capacity Growth Rate (Yearly) 10%
Maximum Capacity Utilization 95%
Production Wastage 5%

Table 11-3: Economy-Related Assumptions

Electricity & Diesel Price growth rate 10%
Wages growth rate 10%
Machine Maintenance Growth Rate 5%

Table 11-4: Cash Flow Assumptions

Accounts Receivable cycle (in days) 30
Accounts payable cycle (in days) 30
Finished Goods Inventory (in days) 15
Raw Material Inventory (in days) 15

Table 11-5: Expense Assumptions

Traveling, Administration & Office Expense 5%
(%age of Administration expense)
Professional Fee (%age of revenue) 0.5%

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Table 11-6: Depreciation Assumptions

Depreciation Method Straight Line
Building & Infrastructure 5%
Machinery & Equipment 10%
Furniture & Fixture 10%
Vehicle 20%

Table 11-7: Revenue Assumptions

Production capacity of the unit (Nos.) 270,913
Weighted Avg. Sale price per unit in year 1 (in 768
Rs.)
Sale price growth rate 10%

Avg. Sale Price (in Rs.)

3" Pipe 636
4" Pipe 810
6" Pipe 1,847
Weighted Avg. Price 768

Table 11-8: Financial Assumptions

Debt : Equity 50 : 50
Interest rate on long & Short term debt 16%
Debt tenure 5
Debt payments per year 12
Cash in Hand Rs. 500,000

Table 11-9: Raw Material Consumption per Pipe

Size (4 Meter Pipe) Weight (Kg) Rate Total Cost
(Rs.)
3" Pipe 3.35 145 486
4" Pipe 4.32 145 628
6" Pipe 9.98 145 1,448
Weighted Avg. Cost 592

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PREF-113/June, 2010
Pre-Feasibility Study
12 ANNEXTURE
12.1 Machinery Supplier
Company Name
Speedup Engineering
Blowmatic corporation
Azfar & Company
12.2 Raw Material Supplier
Company Name
Engro Asahi Polymer & Chemical Ltd
PREF-113/June, 2010
UPVC pipes manufacturing unit
Address/contact Details
Shahdra Lahore
Tel: 042-7940812, 041-7933110
Mobile: 0321-4439282, 0321-4455668 (Hafiz
Nadeem)
Email: speedup313@gmail.com
10 / 3 Modern H S Shahed E Millat Road,
Karachi
Tel: 021-4548132, 5416167
Fax: 021-4557925
Mobile: 0300 2014380
6-Rana Chambers, Lake Road, Lahore
Tel: 042-37323798
Fax: 042-37235352
Address/contact Details
RB-1, Ground Floor,
Awami Complex, Usman Block,
New Garden Town
Lahore
Tel: (+92-42) - 5834722, 5834733, 5840736,
5840727
Fax: 0092-42-5883111
22