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Business Plan of Heavy Mechanical Complex (Private) Limited

HEAVY MECHANICAL COMPLEX - 3: June xx, 2016 Draft Page |1
TABLE OF CONTENTS
Sec Particulars Page #
I Executive Summary 3-6
II Engagement Overview 7-8
III Company Overview 9-18
Legal Structure 10
Primary Products 11
Installed/Rated Capacities 14
SWOT Analysis 16
IV Restructuring Plan 19-26
Short Term Plan/Emergency Relief 20
Intermediate/Long Term Plan 22
V Sales and Marketing Plan 27-34
Market Segments 28
The Competitors 28
The Customers 29
Pricing 31
Promotion/Marketing 32
Distribution Channel 34
VI Production Plan 35-38
Historical Production 36
Short Term Plan 37
Balancing, Modernization, Replacement and Expansion 38

VII Human Resources Plan 39-43
Current Filled in Positions 40
Staffing Requirements 41
Recruitment 42
Compensation 42
Training and Development 42
VIII Financial Plan 44-53
Historical Analysis 45
Prospective Financial Plan 49
Net Present Value 52
IX Assumptions and Limiting Conditions 54-56

SECTION I
EXECUTIVE SUMMARY

I EXECUTIVE SUMMARY
Heavy Mechanical Complex Taxila, Established in 1971, is one of the largest industrial units of its
kind in Pakistan. The purpose of its establishment was to support the Pakistani industry with local
industrial products line. HMC introduced a very diverse product line and enjoys almost complete
market superiority in many if its products. This gives it an unprecedented advantage to compete
and lead the market. Unfortunately that is not the case and HMC has been lagging behind the
industry. The technology it uses is obsolete and business model has been unsuccessful. Its
competitors are far ahead in both technology and Business operations. Actual production capacity
of HMC is negligible as compare to its installed capacity. This report highlights major issues faced
by HMC that resulted in its downfall and proposes recommendations on how to deal with them.
Engagement Overview
HMC 3 has appointed BDO Ebrahim & Co Chartered Accountants for preparation of a comprehensive
business plan, the objective of which is to provide recommendations for enabling HMC to run as a
financially self-reliant organization. We have been asked to work on the following plans:
Restructuring Plan
Sales and marketing Plan
Production Plan
Human Resource Plan and
Financial Plan
We'll discuss the details of above in the following paragraphs.
Restructuring Plan
HMC has been in need of a major overhaul, both at the production and administration level for over
a decade but no measure had been taken to address this significant need. Currently HMC requires a
two-tiered plan to restart its operations and be productive again. In the short run the first priority
of HMC should be to obtain an emergency injection of funds from the government to be able to stay
afloat and cover its working capital needs. Secondly, HMC must pay the salaries to its employees,
which have not been paid for the past 7 months. HMC must also bring a board of qualified and
experienced personal to monitor and control its operations. On primary recommendation is Public
Private Partnership to enable HMC to compete with the private sector and achieve self-reliance. In
this regard, the Joint Venture proposal of SINOMAC for investing USD 1.5 billion over a period of 12
years may be considered. The second option is implementation of Balancing Modernization
Restructuring and Expansion (BMRE) program to overhaul and fill in the technology gap presently
existing in HMC. As a last resort if the recommended options are not achievable then, Strategic and
Planning Division (SPD) may take over HMC and bring it under its management.
Sales and Marketing Plan

HMC provides various services in industrial and manufacturing sector including major industries such
as Cement, Sugar and Chemicals among others. But the major sales and marketing strategies are
directed towards the sugar sector. Although HMC does have potential customers in other sectors

such as defense, power and refineries etc. But where HMC is lacking is its ability to employ market
research and cost competitions. Business intelligence Units and flexible pricing strategies have
become the need of the hour. HMC must carve out proper sales plan to increase their market share
and employ various distribution channels to help expand their market access. Further, HMC needs
to diversify its product range and look for alternatives instead of traditional product lines. With the
advent of restructuring plan export market horizon can also open up leading to increased revenues.
Production Plan
HMC is a commercial operation with revenues linked directly to production levels. Which means that
efficiency in this process is the key to making HMC profitable. In the past five years, productions
have been seriously low either due to reduced sales. With the adoption of Balancing, Modernization,
Restructuring and Expansion (BMRE) plan HMC would again be one of the modern industrial unit and
it is highly likely that production capacities would be largely utilized and new customers would be
attracted. The production capacity utilization has been as low as 15% in 2015 whereas in recent
years of 2011 and 2012 its capacity utilization was close to 50%. One of the main reason for such
capacity utilizations has been low sales volume and also outdated and depreciated machinery not
able to reach close to rated capacities. With BMRE the capacity utilization is expected to be
increased and additional revenue streams expected to be opened up.
Human Resources Plan

With the losses in commercial operations HMC was in severe shortage of liquid funds. Even the salary
to its employees had not been paid for the past 7 months. It would come as no surprise that HMC
was practically in a hiring Freeze. HMC requires a comprehensive Human resource plan with
complete autonomy to the HR department. The ageing of employees in HMC key position is high and
in the next 2 years 45 officers and superviors grade employees are expected to retire. A succession
planning is required for ensuring smooth operations at HMC in the event of employees separating
from HMC. Training and Development program need to be emphasized to ensure functional and
behavioral aspects are covered. Further, the training department should be under the ambit of HR
department which is currently under Quality Unit. Enterprise Resource Planning linking all the main
functions of HMC need to be evolved to ensure efficiency and effectiveness in operations. Further,
job analysis must be done for each position in which only the persons with requisite experience and
qualifications must be employed. A performance based incentive/bonus program should be installed
whereby high performers get more compensation as compared to flat bonus for all employees.
Financial Plan
The financial health of HMC has been deteriorating over a period of last many years. The major
blow had been in the last couple of years where the sales volume declined to a large extent. HMC
has not been able to pay-off its financial obligations due to this crunch. In fact re-scheduling of
overdue loans also could not give a boost to ailing financial health. To add to the woes of HMC,
certain rules of PPRA also restricted the sales volume by not being customer friendly. The financial
independence and reliance can be achieved with the Joint Venture option of SINOMACH proposing
to invest USD 1.5 billion. Their technological expertise and experience can a vital boost to the ailing
condition of HMC. The BMRE plan with the total investment of around PKR 26 Billion can be second
tier option provided the management equally contributes with its skill and leadership. The financial

projections under the BMRE option are given in the relevant section that exhibit a healthy Net
Present Value of PKR 9 Billion and Internal Rate of 18%.
Recommendations
Our Primary recommendation is public private partnership with one of the proposals offering USD
1.5 Billion investment over the period of 12 years. This proposal should be considered on priority
while at the same time finalize the modalities and terms and conditions of this transaction.
The second proposal of BMRE of HMC may be considered to upgrade and expand the existing
facilities. This plan should revive HMC operations, however, the management must be equal to task
to grasp the opportunity and make maximum out of it. This BMRE is expected to involve investment,
involving both Foreign and Local Currency element, to the tune of PKR 26 Billion. The financial
projections are also included in the business plan.
The Third proposal being the last resort involves our recommendation of takeover of HMC by
Strategic Planning Division (SPD) that will require injection of approximately PKR 1 billion for
working capital needs.
Disclaimer
Our valuation report is subject to assumption and limiting conditions with restricted usage and
distribution. It is based on historical and Prospective Financial Information shared by the Management.
No changes may be made in our report except with our prior approval and consent. Further, we assume
no responsibility on factual accuracy of historical or forecast information shared by Management, and
hence we do not express any assurance in this regard.

SECTION II
ENGAGEMENT OVERVIEW

II ENGAGEMENT OVERVIEW
Heavy Mechanical Complex Private Limited (HMC) was established in 1971 under 3rd Five Year Plan.
Its establishment was a vital and significant step in implementing Government’s Industrial Policy of
shifting the emphasis from consumer goods to capital and producer goods industry. In overall scheme
of establishing basic and key industries, HMC was the most important industries of 3rd Five Year
Plan. Later, in 1976 Heavy Foundry & Forge (HFF) was established, to produce intermediary goods,
in continuity of the scheme. Both the companies were merged together in 1990.
HMC has been sustaining sizable losses and its business continuity has been brought into question.
The below table depicts the audited financial performance.
Particulars (PKR) 2015 2014 2013 2012
Accumulated Losses (4 Billion) (3 Billion) (3 Billion) (3 Billion)
Profit/(Loss) for the (1 Billion) 7 Million (24 Million) 14 Million

year
In order to assess the possible synergies, optimization and to make it financially self-reliant, the
HMC-3 Management has requested BDO Ebrahim & Co. for a preparation of a comprehensive Business
Plan for HMC.

SECTION III
COMPANY OVERVIEW

HEAVY MECHANICAL COMPLEX - 3: June xx, 2016 Draft P a g e | 10
III COMPANY OVERVIEW
Legal Structure
Heavy Mechanical Complex (Private) Limited (the Company) was incorporated in Pakistan under
the repealed Companies Act, 1913 (now Companies Ordinance, 1984) in July 1975. It was a wholly
owned subsidiary of State Engineering Corporation (Private) Limited (the Holding Company/SEC).
The Company was subsequently put under direct control of Ministry of Industries, Production and
Special Initiatives vide Administrative Order No. 6(12)PR-1/2007 dated July 3, 2008 with a new
Board of Directors. The principal place of business of the Company is situated at Hattar Road,
Taxila.

Primary Products
HMC specializes in Engineering, Designing, Manufacturing, Installation and Commissioning of plants

and machinery including:
Type of Plant Description Description

Cement Plant and Spares Spares 600-5000 TPD
Sugar Plant and Spares 500-12000 TCD
Process Plant Equipment Pressure Vessels, Columns, Heat Exchangers, Drums, Storage
Tanks and Kilns
Chemical & Petro- Sulphuric Acid Plant, Basic chromium Sulphate Plant, industrial
Chemical Plant Alcohol distiller, Gas, Dehydration, LPG/LNG. Gas Purification &
Sulphur Recovery Plants.
Industrial Boilers Fire tube Package units, water tube package units, heat recovery
boilers, begasse fire boilers (capacity upto 200 T/hr)
Thermal Power Plants Equipment for utility boilers, membrane all, turbine/generator
parts.
Hydel Power Plants Gates, penstocks, wicket gates, head covers, turbine/generator
parts
Cranes Electric overhead travelling crane, portal & mobile cranes.
Road Construction Static & vibratory road rollers, asphalt mixing plant.
Machinery
Steel Structures For thermal power plants, process plants etc.
Railways Equipment Railway axles, surface troverser, screw coupling & screw jack.
Castings Iron & steel castings as per specifications
Forgings Shafts, rings and others as per specifications
Automotive Forging For tractors and other automobiles



Installed/Rated Capacities
PRODUCTION CAPACITY ANALYSIS
TONNAGES
S.No Description INSTALLED
2015 2014 2013 2012 2011 2010
CAPACITY
1 MECHANICAL WORKS
CEMENT PLANT EQUIPMENT 2,924 35 6 121 19 248 41

SUGAR PLANT EQUIPMENT 1,930 964 3,186 3,836 4,617 2,425 1,571
BOILERS 960 408 3,127 2,530 2,727 2,797 1,385
CRANES (E.O.T) 800 67 195 186 148 140 68
RAILWAY AXLES 2,583 - - - - - -
ROAD ROLLERS 1,160 - 55 - - 20 470
CHEMICAL PLANTS - 125 180 159 17 54 558
POWER BOILERS/PLANTS - 28 69 57 291 482 501
GENERAL, COMMERCIAL 6,393 403 777 669 385 3,102 3,367
SUB TOTAL MECHANICAL WORKS 16,750 2,030 7,595 7,558 8,204 9,268 7,691
2 FOUNDRY & FORGE WORKS
P.H FORGINGS 4,600 691 1,164 1,645 2,012 1,800 1,149

GRINDING MEDIA 2,500
CAST IRON CASTINGS 5,000 1,448 2,595 2,629 3,435 3,502 4,069
N.F. CASTINGS 80 37 23 121 142 56 13
STEEL CASTINGS 6,500 462 1,295 1,024 1,593 1,483 733
OTHERS
SUB TOTAL FOUNDRY AND FORGE 18,680 2,638 5,077 5,419 7,182 6,841 5,964
WORKS
3 STEEL INGOT 38,000 1,590 1,986 3,341 4,406 2,949 1,785
TOTAL:
(FOUNDRY,FORGE, & STEEL INGOT) 56,680 4,228 7,063 8,760 11,588 9,790 7,749
RATED CAPACITY 56,680 56,680 56,680 56,680 56,680 56,680
GRAND TOTAL 73,430 6,258 14,658 16,318 19,792 19,058 15,710
73,430 73,430 73,430 73,430 73,430 73,430

100 9% 20% 22% 27% 26% 21%
EXCLUDING STEEL INGOT 33,000

RATED CAPACITY 40,430 40,430 40,430 40,430 40,430 40,430 40,430
CAPACITY UTILIZATION (% ) 100 15% 36% 40% 49% 47% 39%


SWOT Analysis
Strength Weaknesses
 Potentially Huge customer base for its  Inability to provide to give supplier’s
products both domestically and credit, soft loans and financing of power
internationally projects
 Ability to deliver high quality products  Longer delivery cycles when compared
at competitive prices with other international competitors
 Access to cheap domestic labor  The company lacks effective marketing
infrastructure
 A strong workforce of 1,100 employees
 Exposure to the risks associated with
 Opportunities for Strategic Joint
fluctuations in foreign exchange rates
Ventures with foreign interested parties
mainly because of import of
 Flexibility to produce products in divers components & raw materials and
product lines exports of equipment
 Very Few Domestic Competitors in  Limited presence in developing
limited market sections countries
 Ability to monopolize various industrial  Strong competition in foreign market
items means market share growth is limited
 Many potential projects with the  The distribution & after sales system
inauguration of CPEC lacks competitive skills
 Potential to sell Energy production  Government intervention causes
facilities due to rise in Demand operational issues and inefficiencies
 All technical facilities available under  Inconsistent revenue streams due to
one Roof. Cyclic nature of business in capital
goods.
 Complex processes like castings,  Permanent employment causing huge
forging, fabrication, machinery & fixed cost.
assembly to be performed easily with
 Inability to retain qualified and
the availably of required skills
experience staff due to inconsistent and
 International Standard products low paying schedule in comparison with
certified by competitors.
 ISO-9OOl :2000& ASME  Outmoded and Anachronistic machines
resulting in inefficiencies and low
 Comfortable level of Coordination with product yields.
international Organizations due to
standard engineering practices.  Immediate crisis due to rapidly ageing
and retiring staff.
 An exceptionally strong production base
for sugar plants deliverable on turn-key  Old machines with inflexible
basis manufacturing styles resulting in losing
energy market share.
 Capability to manufacture high value
addition process equipment for oil & gas  Shortage of qualified and capable
process industries, refineries. Hydro management staff greatly reducing
and thermal power plants. construction capabilities.

 Availability of Precious Land  Poor website and Marketing mechanism,

not bringing enough customers
 Untrained lower staff with no trainings
planned in near future
 PPRA rules bring in inefficiency
 No succession planning to replace
ageing retirement personal
 Best practices not adopted to stay in
competition
 Uniform bonus awarded to all
employees without any performance
appraisals
Opportunities Threats
 There is a huge demand of power plants  Increased competition both national

and is expected to grow further and international companies
 Ageing power plants need more service  Foreign competitors rapidly spending on
and spare parts market coverage tactics
 With implementation of BMRE, It has  Overflow of imported used equipment
the potential to be cost competitive and
 Chinese equipment makers are a major
gain export opportunities
threat
 Diversification in equipment sectors
 Sluggish growth of the domestic
 More tie-ups with international economy
companies can give it an opportunity to
 Government intervention can affect
expand globally
operational efficiency
 Encouraging government policies can
 Unfavorable government policies and
boost company performance
economic fluctuations can affect
 Diversification can lead to better performance
position for the company
 High and constant rise in raw material
 Opportunity to produce higher quality cost
state of the art products to bank on
 Small and un-organized industrial
higher prices for products compared to
manufacturers with low quality cheap
the current product quality
products
 Export opportunities for sugar and
 Domestic buyers preference for low
cement plants to developing countries
quality cheap products instead of high
around the world
quality expensive products
 To participate in new opportunities
 Energy and power sector preference for
arising due to Growing domestic market
imported products instead of same
in oil and gas explorations, processing
products domestically manufactured
and refining sector.
 Foreign suppliers not keen to associate
 Energy shortage in the country would
with local manufacturers, when they
bring major hydro & thermal power
plants production contracts

 Process efficiency Improvement, Bye- themselves can sell their plant and
products and high pressure boilers for equipment.
co-generation in sugar industry.
 Brain drain of qualified and experienced
 Ability to produce advanced Strategic staff to competitors and migration
defense products and nuclear power outside the country
plants.
 Duplication of facilities by Government.
 CPEC could bring major projects in strategic organizations.
infrastructure development and Energy
 Increasing fixed costs.
Generation projects.
 Rapidly Increasing liabilities are a major
threat.

SECTION IV
RESTRUCTURING PLAN

IV RESTRUCTURING PLAN
Short Term Plan/Emergency Relief
In order to provide short term relief immediate steps needs to be taken to revive the operations
of HMC.
Payment of unpaid 7 months salaries
HMC in the current times has faced many downfalls and as a result the moral of its employees
is at its lowest. The is further exaggerated by the fact that the employees have not been paid
salary for the past 7 months. In order for the staff to be reinvigorated and motivated to remain
and work at HMC it is essential that they be paid their dues as soon as possible. This would
provide an incentive to experienced and qualified staff to stay. Furthermore it would also
reinforce their commitment to HMC.
Working Capital Injection by Government
HMC is facing a severe shortage of working capital which has brought its operations to virtually
a stand still. The losses suffered during the current year accompanied by a heavy burden of
potential loan repayments and current liabilities towards its employee have taken a toll on the
company’s liquidity and finances. There is an urgent need of funds to be injected. It is
recommended that immediate efforts should be made to convince the government to inject
working capital as required by HMC to restart its operations and become productive. The detail
of emergency relief fund is given below.
Negotiations with banks to issue bank guarantees for HMC
HMC has already taken a loan from National bank of Pakistan, State Engineering Corporation
and Government of Pakistan. Since HMC has defaulted on loan no bank is willing to take the

risk to give bank guarantee. The government should intervene and instruct the banks to issue
bank guarantees required for HMC operations.
Creation of Supervisory Board
Install a Supervisory board consisting of qualified and experienced personnel who have
preferably worked in similar industries and have bailed out companies out of similar situations.
Supervisory board should have complete independence and authority to perform its duties. The
composition of the Board maybe as follows;
1. Chairman Strategic Planning Division

2. Chairman Pakistan Atomic Energy Commission
3. Member Engineering Pakistan Atomic Energy Commission
4. Managing Director HMC
5. Managing Director HMC 3
6. Independent Sales and Marketing Specialists
7. Independent Finance Specialists (Preferably Chartered Accountants)
8. Independent Engineering Consultants
The Board should
 Immediately hire vacant critical positions with competent and qualified staff who
have a track record of delivering performance. In fact, the services of retired officers
who have performed better while they were in service or hiring staff from
competitors can also be considered.
 Should review the performance of the company initially on fortnightly basis,
however, after a passage of time when the performance has come in the intended
direction then the weekly performance review meeting maybe converted into
fortnightly or even monthly reviews.

Intermediate/Long Term Plan
HMC is a mega industrial project that are expensive and time consuming to build in the beginning
but provide a great return in the long run and serve as the backbone of an industrial economy of a
developing country. HMC has served Pakistan for the last 40+ years. It is to be noted that during
this time no major expansion or upgradation has been carried out at HMC. As a result it has lagged
behind its competitors in the production and efficiency. It no longer has the ability to complete its
orders on time or fulfill the increasingly diverse demands of its customers. As of now HMC is in an
Urgent need of balancing, organization, restructuring and expansion. Without the adoption of latest
technology and engineering methods HMC would not be able to withstand. Since it is not likely to
have reliable sources of new technology to be obtained from domestic sources. The best option is
to Import the new technology from foreign sources already using a reliable and efficient system .
In order to achieve our objective, following scenarios would serve as the best and most feasible
options to turnaround HMC in a reasonable budget and time period.
Scenario 1: Public Private Partnership
HMC currently has three major needs to be fulfilled in order for it to become productive and
productive and profitable again
 A major investment in its assets

 State of the art Technology and upgradation
 A diversified customer for its products
 Commercial base oriented management
SINOMACH has proposed to invest $ 1,543 Million. That would solve most of the liquidity and working
capital issues faced by HMC. SINOMACH was involved in the HMC setup and commissioning in the
1960s. SINOMACH has arrangements and also agreed to bring in new technology for the construction
of Shops for Power Plant Equipment Manufacturing Steel melting, forging, heat treatment,
Machine shop, assembly, fabrication, Power Plants, Exhibition Hall, Offices, R&D, Club among other
things. This would make HMC Viable for the Next 15- 20 Years. Since main focus of SINOMACH is on
the project for hydel & thermal power plants, oil & gas processing plants, railways requirements,
etc. in the country for future of Pakistan, a country with crippling energy shortages and in need of
major upgradations in many if its sectors including railways, would provide it with a sound customer
base for the foreseeable future. An additive feature of the involvement of SINOMACH would be
their technical expertise and managerial experience commercial operations which would be
extremely beneficial in guiding HMC out of its current state of affairs.

Scenario 2: Balancing, Modernization, Restructuring and Expansion (BMRE) Package
If private sector interest in HMC is unable to practically materialize then HMC would need another
strategy to survive. HMC is a large industrial unit and in the long term all industrial Units need to
capture the market to survive. For this purpose there is a need to install new production units to
produce state of the art goods and diversify product line. In this regard there is an approved PC-1
for BMRE. Which in our opinion should be broken down into phases as exhibited below
Phase 1 in this phase it is recommended that the focus should be on the installation of
machine shop, Fabrication shop, Power generation and Quality assurance. As per our
information it takes 2 years to complete this project. This would not only go well with the
recommendations of the short term recovery plan but also would be a huge step in making
the HMC self-reliant and self-sufficient in less than 3 years. The summary of Phase-1 project
cost which involves both local and foreign currency component is detailed below.

Cost
Machine Foreign Exchange Local Total
US $ Eq. Pk. Rs. Pk. Rs. Pk. Rs.
Machine shop 37.55 3,905.20 - 3,905.20
Fabrication shop 9.05 941.20 168.00 1,109.20
Power generation & oxygen plants 3.86 401.18 433.79 834.97
Quality Assurance Equipment 2.12 220.48 220.48
EOT Cranes,Materials handling equipment & transport 1.90 197.60 184.48 382.08
Sub-Total (Machinery & Equipment): 54.48 5,665.66 786.27 6,451.93
Buildings civil work - - 1,364.54 1,364.54
Sub-Total (Buildings): - - 1,364.54 1,364.54
2.00 208.00 - 208.00

Plant design services fees @3%
3.33 346.32 - 346.32
Technical know-how & drawings fees@5%
Duties, taxes, freight, port clearance etc. @ 25% - - 1,416.42 1,416.42
Installation, errection, commissioning etc. @ 5% 1.44 150.18 150.18 300.36
Contigencies @ 3% 1.84 190.90 100.77 291.67
Sub-Total (9 ~ 11): 8.61 895.40 1,667.37 2,562.77
Manpower cost during costruction period 68.82 68.82
Working capital 500.00 500.00
GRAND TOTAL: 63.09 6,561.06 4,387.00 10,948.06
Phase 2 In this phase it is recommended that Foundry and Forge be taken up and BMRE done.
This will also involve heavy CAPEX. The phase wise detail of which are given below.

Cost
Machine Foreign Exchange Local Total
US $ Eq. Pk. Rs. Pk. Rs. Pk. Rs.
Foundry & Forge Shop 72.48 7,537.92 471.60 8,009.52
EOT Cranes,Materials handling equipment & transport 8.15 847.60 181.50 1,029.10
Sub-Total (Machinery & Equipment): 80.63 8,385.52 653.10 9,038.62
Buildings civil work - - 1,852.00 1,852.00
Sub-Total (Buildings): - - 1,852.00 1,852.00
2.82 293.28 - 293.28

Plant design services fees @3%
4.70 488.80 - 488.80
Technical know-how & drawings fees@5%
Duties, taxes, freight, port clearance etc. @ 25% - - 2,096.38 2,096.38
Installation, errection, commissioning etc. @ 5% 1.91 198.22 198.22 396.45
Contigencies @ 3% 2.70 280.80 140.25 421.05
Sub-Total (9 ~ 11): 12.13 1,261.10 2,434.85 3,695.96
Manpower cost during costruction period 68.82 68.82
Working capital 500.00 500.00
GRAND TOTAL: 92.76 9,646.62 5,508.77 15,155.40
The completion of above phases will enable HMC to produce new product lines with one of
the major lines of power generation.
Scenario 3: HMC Takeover by Strategic Planning Division
It is important to note that this is a scenario to be adopted if all other options fail to deliver. SPD
is an entity with various sub entities under its wings, it has the necessary expertise, both
managerial and Technical to run an operation like HMC. But it is to be noted that HMC has three
major needs and a takeover by SPD of HMC would have the following most likely outcomes
 Need for capital: HMC requires at least PKR 1,000 million just to recover from its
losses and continue its operation which shall be arranged by SPD.
 Need for new Technology HMC is in urgent need of Upgradation and the best
solution has been proposed in the form of a PC-1 for BMRE. This would need a further
PKR 21 billion to be able to upgrade and also close to 3 years to actually be able to
produce and utilize its new capacity.
 Need for a sound Commercial Operation SPD is a strategic defense agency, even
though it has all the technical experience and personal but to run a commercial
operation would be highly challenging and would at best be experimental. It would
need the services of private sector experts of relevant fields to commercially run
the organization.

Government Policy Relief
The management of HMC should make all possible efforts to engage the government and bring their
attention to the importance of this institution and the need to save it from shutting down. In this
regard following bargains should be negotiated;
 HMC is in severe depression and in order to recover from it HMC should not be
treated as any regular industrial entity rather it should obtain as many exemptions
from the government. For this purpose Obtain Complete Income Tax holiday
(Advance Tax, Normal Tax including minimum tax) from Federal Board of Revenue
for a period of at least 5 years
 The greatest burden on HMC is its inability to pay off its loan along with interest.
Since most of its loan is from National Bank of Pakistan (A Government Entity) HMC
is in a position to obtain approval for Loan write off from Government of Pakistan.
 All government contracts and tenders involving usage of Products similar to what
HMC produces, should be first made available to HMC for its assessment as regards
its pricing and ability to manufacture.
 Impress upon Federal Board of Revenue to further insert import barriers (tariff and
non-tariff) to facilitate local industry and also HMC. This would not only reduce Trade
Deficit but also improve the Competitiveness of HMC in the private market.
Miscellaneous Recommendations
No recovery project would be complete without any plan to obtain a steady source of income. For
this purpose following recommendations should be adopted
 In the short term the product line of HMC cannot be dramatically diversified. But at
the same time there are many products which HMC might be easily able to manage
and is not listed in the company’s list of items available for sale. For this purpose an
industrial consultant should be hired with the knowledge and ability to recommend
new products to be made at HMC with existing facilities
 A complete installation and purchase plan for all the industries and products
produced by HMC should be displayed at the company Website along with Price Tags
and periods of completion. This is to be done in order to attract new customers both
big and small who might not be well informed about the HMC production. The process
of sales should be made as easy and comfortable to the buyer as possible. It would
help not only with the growth but also improve the image of HMC as customer
friendly Company which would be beneficial in attracting new clients
 Specialized Project Managers should be hired to oversee individual or small projects
from start to finish and remain in direct communication with the customer for any
customized changes. This would not only allow the projects to be built in agreement
with customer specification but would also provide company with a person who
would take complete responsibility of the matters.

SECTION V
SALES AND MARKETING PLAN

V SALES AND MARKETING PLAN
5.1 Market Segment
HMC specializes in Engineering, Designing, Manufacturing, Installation and Commissioning of plants

and machinery including:
Type of Plant Description Description

Cement Plant and Spares Spares 600-5000 TPD
Sugar Plant and Spares 500-12000 TCD
Process Plant Equipment Pressure Vessels, Columns, Heat Exchangers, Drums, Storage
Tanks and Kilns
Chemical & Petro- Sulphuric Acid Plant, Basic chromium Sulphate Plant, industrial
Chemical Plant Alcohol distiller, Gas, Dehydration, LPG/LNG. Gas Purification &
Sulphur Recovery Plants.
Industrial Boilers Fire tube Package units, water tube package units, heat recovery
boilers, begasse fire boilers (capacity upto 200 T/hr)
Thermal Power Plants Equipment for utility boilers, membrane all, turbine/generator
parts.
Hydel Power Plants Gates, penstocks, wicket gates, head covers, turbine/generator
parts
Cranes Electric overhead travelling crane, portal & mobile cranes.
Road Construction Static & vibratory road rollers, asphalt mixing plant.
Machinery
Steel Structures For thermal power plants, process plants etc.
Railways Equipment Railway axles, surface troverser, screw coupling & screw jack.
Castings Iron & steel castings as per specifications
Forgings Shafts, rings and others as per specifications
Automotive Forging For tractors and other automobiles
5.2 The Competitors
HMC when it was initially installed had very few competitors which gave it almost complete monopoly
over the market. With the passage of time, private as well as foreign investors came into the competition
which made it difficult for HMC to maintain its superior market share. HMCs market share was most
affected in the sugar sector which was also one of its major revenue streams. Following are the
Competitors of Sugar Mills machinery & Equipment:
Mills, Gearings, Shells, Shafts, Pinions & Process House Equipment

1. Karachi Shipyard & Engineering. Works
2. Qad Bros
3. Hudebbiya Engineering.

4. Brother Engineering.
FEE, Process House Equipment, Vessels & Steel Structure

5. Star Mughal Engineering.
6. Mughal Ittehad Engineering.
7. Faizan Engineering.
8. Sajjid Brothers Engineering.
9. Fabcon Engineering.
10. Spray Engineering.
11. Indian & Chinese Companies
Sugar Mills Boilers:

12. Descon
13. Fabcon
14. Graisham
15. Haseeb Waqas
16. Huddebiya
17. KSEW
18. Chinese - DongFong & others
19. Indians
20. Used / Refurbished imported boilers suppliers.
5.3 The Customer
HMC even though has a very wide range of products that can be offered to different but the core
focus of HMC is on attracting client from Sugar Mills.
Sugar Mills Customers
A few of the customers of HMCs Sugar Mills are listed here
 Sheikhoo Sugar Mills

 Shahmurad Sugar Mills
 Al-Noor Sugar Mills
 Al-Abbas Sugar Mills
 Safina Sugar Mills
 Haq Bahoo Sugar Mills
 Indus Sugar Mills
 Hussein Sugar Mills
 Noon Sugar Mills
 JDW Group

 Tandlianwala group
 Ramzan Sugar Mills
 Fatima Sugar Mills
Potential clients
HMC is also looking at some potential clients which may prove out to be major customers
in the near future such as
 Sindabadgar Sugar Mills

 Mirpurkhas Sugar Mills
 tihad Sugar Mills
 Mehran Sugar Mills
 Faran Sugar Mills
 Chashma Sugar Mills
Some of the major clients in different sectors are also listed below
Cement Sector
 Qalandari Cement Plant

 Bestway Cement LTD
 Askari Cement LTD
 Power Cement LTD
 Dandoth Cement LTD
Hydel Power
 Koot Addu Power Plant

 WAPDA Warsak North
 WAPDA Ghazi Brotha
 WAPDA Tarbela Dam
 WAPDA Chashma
Refinery Sector
 GASGO ENGG
 PAK ARAB Refinery
 NATIONAL refinery Karachi
 EAS Industries
 OGDCL
Cranes
 HMC
 PMO Rawalpindi
 National Development Complex
 Garrison ENGG Bahawalpur
 PAK Railway Lahore

GENERAL COMMERCIAL ORDERS
 HMC STOCK
 FECTO BOARDS
 SECURITY PAPERS
 AKHTAR SAID ENGINEERING
 NUST
DEFENCE
 NESOM Islamabad
 NDC Islamabad
 SPD Islamabad
 HIT Taxila
 HMC-3 Taxila
5.4 Pricing
HMC along with many of its technological upgrades must also modernize its sales and marketing
strategies in order to capture the market and become profitable again. Historically HMC has been
adopting system of pricing which has caused more harm than good. Many a times Cost of sales has
exceeded far more than the actual sales value resulting in losses. It is recommended that following
steps should be taken in this direction
Business Intelligence Unit
This is the first step which HMC must take to adopt the modern methodologies of pricing.
Business intelligence is a set of methodologies, processes, architectures, and technologies
that transform raw data into meaningful and useful information used to enable more
effective strategic, tactical, and operational insights and decision-making, HMC requires a
dedicated unit for this purpose consisting of skilled personal that would propose
recommendations on day to day basis fitting HMCs product and production lines. It would
also be used to support a wide range of business decisions ranging from operational to
strategic. But the core focus of this unit would be on product pricing. Strategic business
decisions include priorities, goals and directions at the broadest level and this has been
lacking at HMC. In all cases Business Intelligence Unit would be able to combine data derived
from the market with data from company sources such as financial and operations data.
When combined, external and internal data can provide a more complete picture which, in
effect will create an "intelligence" that cannot be derived by any singular source. Business
Intelligence Unit can empower HMC to gain insight into new markets, assess demands and
suitability of products and services for different market segments and gauge the impact of
marketing efforts.
Pricing Strategy
After Business Intelligence Unit has been developed it would be essential to adopt a pricing
strategy that would enable HMC to estimate cost and profits. A good pricing strategy would
help HMC to maximize profitability for each unit sold or from the market overall. It can also
be used to defend HMCs existing market share from competitors, to increase market share
or to enter a new market There are many pricing strategies but we recommended the
following to be adopted due to their simplicity of application and customization

Cost Plus Margin It is a pricing method in which a company first determines its
break-even price for the product. This is done by calculating all the costs involved
in the production such as raw materials used in it transportation etc., marketing
and distribution of the product. Then a markup is set for each unit, based on the
profit the company needs to make, its sales objectives and the price it believes
customers will pay. This is one of the most widely adopted pricing strategy in the
industrial corporations due to its ease of use and low risk of losses.
Target Pricing It is a Pricing method whereby the selling price of a product is

calculated to produce a particular rate of return on investment for a specific volume
of production.
Target pricing is not useful for scenarios in which stock is not expected to be entirely
consumed because, if the entire volume is not sold, a company might sustain an
overall loss on the product.
5.5 Promotion/Marketing
Although HMC has a fully functional sales and Marketing department but recently its efforts haven’t
been as fruitful. It has been lacking where it comes to results. During the Year 2014-2015 it was
unable to bring major customers which caused a severe slump contributing to an already failing
industrial unit, there are several strategies to enhance the sales some of them are described below
Create a sales plan this is the most important step. Having a document that outlines your sales
goals and strategies will help you to stay on track and assess your progress. As you begin to define
your sales plan, keep these things in mind:
 Sales goals: These goals should be specific and measurable. Base them on the nature of HMC
products and try to break them down into manageable parts. For example, sell 50 units to
end-users in 30 days and sell 100 units to local independent retailers in six months.
 Sales activities: These are the tactics as to how to plan to make the sale. A product may
sold direct-to-consumer or through other channels.
 Target accounts: The sales plan should also include the accounts you want to sell to. If it's
end-users, for example, plan how you're going to reach them through different channels
persona or through HMC website.
 Timelines: Put dates to all of the above elements so steps can be defined within a realistic
timeline. The timelines should be fluid-if lagging behind, sales plan can help figure out why
and define the corrective steps which needs to taken.
Commission based sales this is another strategy to be employed. The remuneration should directly
be linked to the amount of sales. If a generous commission is announced it is highly likely that new
orders would be very easy to obtain. For this purpose a few recommendations are also stated
 Allow your employees to also serve as sales agents, since employees are the best
ambassadors of the organization it would be highly like that a force of 1100 workers would
serve as independent wage free marketing personal
 Commission should only be paid after payments have been received from the customers.
This is done in order to ensure that no bogus orders are received and the customers keep

their payments on time.

 There should be a policy of HMC to deliberately motivate customers and Employees among
others to participate in this scheme to make it as successful as possible.
Other Methods HMC has been employing these methods for a long time but they haven’t been as
fruitful as they need to be. Sales force should be provided training and encouragement to use all
these as best as they could.
 Lobbying
 Relationship developed with client
 Effective marketing research & product identification in private and government sectors
 Participation in public tenders issued by government and private sector
 Participation in mega projects under Joint Venture or as Sub-contractors with qualified
international design and engineering firms viz-a-viz local partner

5.6 Distribution Channel
A distribution channel is a useful tool for management. It is crucial to creating an effective and
well-planned marketing strategy. It is a set of practices or activities necessary to transfer the
ownership of goods from the point of production to the point of consumption. It is the way products
and services get to the end-user, the consumer. HMC at the current moment needs a proper channel
to transfer its goods from Factory to end User. Two of the most important Distibution channels are
Direct Sale to Customers It is one of the most easiest and reliable channel for goods
distribution without any involvement of the third part. This will allow HMC cost saving and
risk reduction opportunities. This would also provide an ease in case of a Domestic buyer
since it would create a direct relationship between the company and its buyer.
Sale through International Agents in the current market conditions HMC must not only
target local buyer but also aim to export to foreign companies. For that purpose an
International agency with a vast experiencing in transferring goods oversees would be very
useful. It would not only increase the customer base but would also allow HMC to increase
exports with ease and reliability.
Other Recommendations
Currently HMC is largely dependent on the sugar sector for most of its sales. Resultantly, any impact
on the sugar sector effects HMC. It is suggested that the product line be diversified so that alternate
channels are available to generate revenue for HMC. Further, with the implementation of
restructuring plan the export market segment can also open up giving rise to the revenue inflows.

SECTION VI
PRODUCTION PLAN

Historical Production
HMC had enormous production capabilities but even at its peak HMC has never been able to utilize
its full production capacities and during the last 5 years it has fallen to an all-time low.
PRODUCTION CAPACITY ANALYSIS
TONNAGES
S.No Description INSTALLED
2015 2014 2013 2012 2011 2010
CAPACITY
1 MECHANICAL WORKS
CEMENT PLANT EQUIPMENT 2,924 35 6 121 19 248 41

SUGAR PLANT EQUIPMENT 1,930 964 3,186 3,836 4,617 2,425 1,571
BOILERS 960 408 3,127 2,530 2,727 2,797 1,385
CRANES (E.O.T) 800 67 195 186 148 140 68
RAILWAY AXLES 2,583 - - - - - -
ROAD ROLLERS 1,160 - 55 - - 20 470
CHEMICAL PLANTS - 125 180 159 17 54 558
POWER BOILERS/PLANTS - 28 69 57 291 482 501
GENERAL, COMMERCIAL 6,393 403 777 669 385 3,102 3,367
SUB TOTAL MECHANICAL WORKS 16,750 2,030 7,595 7,558 8,204 9,268 7,691
2 FOUNDRY & FORGE WORKS
P.H FORGINGS 4,600 691 1,164 1,645 2,012 1,800 1,149

GRINDING MEDIA 2,500
CAST IRON CASTINGS 5,000 1,448 2,595 2,629 3,435 3,502 4,069
N.F. CASTINGS 80 37 23 121 142 56 13
STEEL CASTINGS 6,500 462 1,295 1,024 1,593 1,483 733
OTHERS
SUB TOTAL FOUNDRY AND FORGE 18,680 2,638 5,077 5,419 7,182 6,841 5,964
WORKS
3 STEEL INGOT 38,000 1,590 1,986 3,341 4,406 2,949 1,785
TOTAL:
(FOUNDRY,FORGE, & STEEL INGOT) 56,680 4,228 7,063 8,760 11,588 9,790 7,749
RATED CAPACITY 56,680 56,680 56,680 56,680 56,680 56,680
GRAND TOTAL 73,430 6,258 14,658 16,318 19,792 19,058 15,710
73,430 73,430 73,430 73,430 73,430 73,430

100 9% 20% 22% 27% 26% 21%
EXCLUDING STEEL INGOT 33,000

RATED CAPACITY 40,430 40,430 40,430 40,430 40,430 40,430 40,430
CAPACITY UTILIZATION (% ) 100 15% 36% 40% 49% 47% 39%

The production plan including the BMRE component is detailed below. The production is linked
with sales. With this plan it would be able to obtain new production orders and increase and
fully avail its production capacities as projected below.
PRODUCTION PROJECTION
FOR THE YEARS 2017 TO 2021
Production Level in tons

2017 2018 2019 2020 2021
Mechanical Works
Sugar Industry 2,962 3,258 3,584 3,942 4,336
Cement Industry 93 102 113 124 136
Boilers/Co Generation 2,500 2,750 3,025 3,328 3,660
Oil & Gas/Refineries 305 336 369 406 447
Fertilizer and Chemical 88 96 106 116 128
Power Plants (Nukar-3 & Jagran-II) 1,400 1,540 1,694 1,863 2,050
Cranes and Road Rollers 145 159 175 192 212
BMRE Component Sales in MW - - 50 100 250
General Commercial/Defence 952 971 990 1,010 1,030
Total Mechanical Works 8,444 9,212 10,055 10,982 11,999
Foundry and Forge Works 2,448 2,473 2,497 2,522 2,548
Total Sales 10,892 11,684 12,553 13,504 14,547

PRODUCTION PROJECTION BMRE COMPONENT

Production Level in Mega Watts

2019 2020 2021 2022 2023
BMRE Production
Maximum Capacity per Unit MW 300 300 300 300 300
Annual Production in MW 50 100 250 500 1,000
The HMC management should consider doing Energy Audit to analyze and take remedial
measures to increase efficiency. Currently, due to obsolete plant and machinery huge energy
losses and inefficiencies are taking place.
The BMRE or Public Private Partnership must be done to revive the technical operations of HMC.
The segment reporting reveals that Foundry is consuming revenue generated from Machining
and Fabrication shop. This is primarily due to the fact that huge power and energy is used up
in the inefficient operations of Heavy Foundry and Forging. It is recommended that this foundry
should be upgraded in the proposed BMRE plan.

SECTION VII
HUMAN RESOURCES PLAN

VII HUMAN RESOURCES PLAN
Current Filled in Positions
The current filled in positions of HMC is given below;
HEADCOUNT
AS AT 1 JUNE 2016
Category Regular Contract Total
Mechanical Works
Officers 130 27 157
Supervisors 27 9 36
Workers 193 888 1,081
350 924 1,274
Foundary Works
Officers 53 9 62
Supervisors 6 6 12
Workers 135 295 430
194 310 504
Total
Officers 183 36 219
Supervisors 33 15 48
Workers 328 1,183 1,511
544 1,234 1,778

Staffing Requirements for BMRE
The staffing requirements under the BMRE project are listed below;
Cost/month Total Cost

S.No. Designation Qualifications
(Rs.)
Nos. Cost (Rs.)
1 General Manager B.E, 20 yrs.experience 125,000.00 1 4,500,000.00
2 Dy. General Manager B.E, 15 yrs.experience 80,000.00 2 2,880,000.00
3 Manager B.E, 10 yrs.experience 60,000.00 4 4,320,000.00
4 Dy.Manager B.E, 5 yrs.experience 40,000.00 8 4,800,000.00
5 Asstt. Manager B.E, 1 yr.experience 25,000.00 12 7,200,000.00
6 Foreman Diploma, 10 ~ 15 yrs.experience 30,000.00 12 5,040,000.00
7 Supervisors 3 yrs. Diploma 20,000.00 20 7,680,000.00
8 Skilled workers 2 yrs.Certificate 15,000.00 140 32,400,000.00
Total: 199 68,820,000.00

Recruitment
A comprehensive plan and budget for head count required under different cadres need to be
evolved. Currently, 1,778 employees are enrolled on HMC payroll that also includes a considerable
number of key and experienced personnel that will be retiring in the next few year. It is expected
that 45 Officers and Supervisors with regular status will be retiring in the next 2 years. This will
require significant planning and efforts to cater for this situation.
Succession planning is also one of the key issues that need to be addressed. A comprehensive and
formal procedure need to be laid down to ensure that there is a smooth transition of outgoing
employees with no effect on the routine operations.
It was observed that currently all the contractual staff hired by the relevant department without
involving HR in assessment and selection phase. It is recommended that all the recruitment whether
for regular or contractual staff must be routed through or involve the HR. This step will ensure
transparency and more independence with unbiased approach in the recruitment process.
Compensation
The unpaid salaries for 7 months must be arranged at the earliest so as to enable the work force
and employees to focus on the tasks and work. This will also serve as a morale booster for the
employees.
It was observed that in case of bonus HMC adopts a uniform bonus disbursement rate for its
employees and workers. This bonus is given without considering the level of performance given by
individual persons. It is suggested that performance incentive program should be evolved where by
the bonus is linked with the contributions given by the respective employees.
Training and Development
The training and Development regime needs to be evolved that specifically focuses on the current
and new employees. As mentioned above there is a significant retirement expected, therefore it
becomes important that the training program is developed for the fresh recruitment. Further, there
is a considerable number of employees who are in old age bracket. Specific tailor made training
programs need to be considered for them as well especially for new technologies.
The training program can be broadly categorized into two spheres namely;
1. Technical training including functional aspect like machine operation or know how of new
technology
2. Behavioural aspect that focuses on soft skills including leadership and general behaviors
Also it was observed that the training function is by and large with the Quality Assurance
department. Whereas, it is generally considered that the Training Unit and its function lies with
HR department. It is suggested all the training program and its administration should lie with the
HR function.
A comprehensive Human Resource Management System needs to be installed for efficient and
effective operations. In this regard, an ERP solution should be considered that automates the entire

HR function and helps in achieving the desired results.
It must be ensured that a comprehensive job analysis is done for every position that should
enable the management of HMC to know the exact requirement of qualification and experience
for any position. Further, it must be ensured that on the basis of job analysis only personnel
with requisite experience and qualification are hired.

SECTION VIII
FINANCIAL PLAN

VIII FINANCIAL PLAN
Historical Financial Statement Analysis
SUMMARY FINANCIAL STATEMENTS
SIX YEARS AT GLANCE

Rs. in Millions
2015 2014 2013 2012 2011 2010
BALANCE SHEET
Capital and Reserves

Paid up capital 1,077 1,077 1,077 1,077 1,077 1,077
Reserves 1,310 1,310 1,310 1,310 1,310 1,310
Accumulated Losses (3,912) (2,800) (2,828) (2,813) (2,836) (2,856)
Total Equity (1,525) (413) (441) (426) (449) (469)
Deposits for issue of share capital 85 85 85 85 85 85

PSDP Investment for Design Institute 339 250 110 50 5 -
Surplus on revaluation of fixed assets 2,694 1,454 1,464 989 585 600
Non-Current Liabilities
Long term Loans 48 64 80 113 147 179
Long term and Defferd Liabiities 888 359 368 356 260 229
936 423 448 469 407 408
Current Liabilities
Current Obigations of long-term obligations 381 365 349 316 282 250
Bank Borrowings-Secured 150 150 150 150 150 150
Trade and other payables 2,157 1,934 1,951 1,999 1,798 1,493
Provision for taxation - - - - 3 5
2,688 2,449 2,450 2,465 2,233 1,898
5,217 4,248 4,116 3,632 2,866 2,522
Non-Current Assets
Property Plant and Equipments 3,348 1,630 1,651 1,197 763 769
Capital work in progress 334 214 105 24 1 -
Defered Tax Assets - 17 17 34 - -
Current Assets
Inventories 646 716 804 1,139 1,034 831
Trade Debts-Unsecured 360 868 791 401 472 487
Advances,Deposits and Prepayments and other receivables 501 565 585 641 436 298
Short term investments - - 70 60 50 44
Cash and Bank Balances 28 238 93 136 110 93
1,535 2,387 2,343 2,377 2,102 1,753
5,217 4,248 4,116 3,632 2,866 2,522
PROFIT AND LOSS ACCOUNT

Sales 1,017 2,984 2,634 2,629 2,251 1,983
Cost of Sales 1,840 2,674 2,395 2,361 2,012 1,781
Gross(Loss)/Profit (823) 310 239 268 239 202
General and Administration Expenses 218 211 195 210 168 159
Selling and Distribution Expenses 34 35 31 41 36 24
252 246 226 251 204 183
Operating (Loss)/ Profit (1,075) 64 13 17 35 19
Other Expenses - 8 - - - -
Financial Charges 87 93 84 85 82 78
Other Income 65 70 73 70 50 60
(Loss)/Profit before taxation (1,097) 33 2 2 3 1
Prior Period Adjustments - - - - 24 12
Taxation 4 (26) (25) 12 22 10
Net(Loss)/ Profit after Taxation (1,099) 7 23 14 5 3

HORIZONTAL ANALYSIS
Rs. in Millions
2015 2014 2013 2012 2011 2010
BALANCE SHEET

Paid up capital 0% 0% 0% 0% 0% 100
Reserves 0% 0% 0% 0% 0% 100
Accumulated Losses 40% -1% 1% -1% -1% 100
Total Equity 269% -6% 4% -5% -4% 100
Deposits for issue of share capital 0% 0% 0% 0% 0% 100

PSDP Investment for Design Institute 36% 127% 120% 900% 400% 100
Surplus on revaluation of fixed assets 85% -1% 48% 69% -3% 100
Long term Loans -25% -20% -29% -23% -18% 100
Long term and Defferd Liabiities 147% -2% 3% 37% 14% 100
121% -6% -4% 15% 0% 100
Current Liabilities
Current Obigations of long-term obligations 4% 5% 10% 12% 13% 100
Bank Borrowings-Secured 0% 0% 0% 0% 0% 100
Trade and other payables 12% -1% -2% 11% 20% 100
Provision for taxation 0% 0% 0% -100% -40% 100
10% 0% -1% 10% 18% 100
23% 3% 13% 27% 14% 100
Non-Current Assets
Property Plant and Equipments 105% -1% 38% 57% -1% 100
Capital work in progress 56% 104% 338% 2300% 0% 100
Defered Tax Assets -100% 0% -50% 3300% 0% 100
Current Assets
Inventories -10% -11% -29% 10% 24% 100
Trade Debts-Unsecured -59% 10% 97% -15% -3% 100
Advances,Deposits and Prepayments and other receivables -11% -3% -9% 47% 46% 100
Short term investments 0% -100% 17% 20% 14% 100
Cash and Bank Balances -88% 156% -32% 24% 18% 100
-36% 2% -1% 13% 20% 100
23% 3% 13% 27% 14% 100

Sales -66% 13% 0% 17% 14% 100
Cost of Sales -31% 12% 1% 17% 13% 100
Gross(Loss)/Profit -365% 30% -11% 12% 18% 100
General and Administration Expenses 3% 8% -7% 25% 6% 100

Selling and Distribution Expenses -3% 13% -24% 14% 50% 100
2% 9% -10% 23% 11% 100
Operating (Loss)/ Profit -1780% 392% -24% -51% 84%
Other Expenses 0% 0% 0% 0% 0% 100

Financial Charges -6% 11% -1% 4% 5% 100
Other Income -7% -4% 4% 40% -17% 100
(Loss)/Profit before taxation -3424% 1550% 0% -33% 200% 100
Prior Period Adjustments 0% 0% 0% -100% 100% 100
Taxation -115% 4% -308% -45% 120% 100
Net(Loss)/ Profit after Taxation -15714% -130% -264% 180% 67% 100

VERTICAL ANALYSIS
Rs. in Millions
2015 2014 2013 2012 2011 2010
BALANCE SHEET

Paid up capital 21% 25% 26% 30% 38% 43%
Reserves 25% 31% 32% 36% 46% 52%
Accumulated Losses -75% -66% -69% -77% -99% -113%
Total Equity -29% -10% -11% -12% -16% -19%
Deposits for issue of share capital 2% 2% 2% 2% 3% 3%

PSDP Investment for Design Institute 6% 6% 3% 1% 0% 0%
Surplus on revaluation of fixed assets 52% 34% 36% 27% 20% 24%
Long term Loans 1% 2% 2% 3% 5% 7%
Long term and Defferd Liabiities 17% 8% 9% 10% 9% 9%
18% 10% 11% 13% 14% 16%
Current Liabilities
Current Obigations of long-term obligations 7% 9% 8% 9% 10% 10%
Bank Borrowings-Secured 3% 4% 4% 4% 5% 6%
Trade and other payables 41% 46% 47% 55% 63% 59%
Provision for taxation 0% 0% 0% 0% 0% 0%
52% 58% 60% 68% 78% 75%
100% 100% 100% 100% 100% 100%
Non-Current Assets
Property Plant and Equipments 64% 38% 40% 33% 27% 30%
Capital work in progress 6% 5% 3% 1% 0% 0%
Defered Tax Assets 0% 0% 0% 1% 0% 0%
Current Assets
Inventories 12% 17% 20% 31% 36% 33%
Trade Debts-Unsecured 7% 20% 19% 11% 16% 19%
Advances,Deposits and Prepayments and other receivables 10% 13% 14% 18% 15% 12%
Short term investments 0% 0% 2% 2% 2% 2%
Cash and Bank Balances 1% 6% 2% 4% 4% 4%
29% 56% 57% 65% 73% 70%
100% 100% 100% 100% 100% 100%

Sales 100 100 100 100 100 100
Cost of Sales 171% 284% 222% 219% 187% 165%
Gross(Loss)/Profit -76% 29% 22% 25% 22% 19%
General and Administration Expenses 20% 20% 18% 19% 16% 15%
Selling and Distribution Expenses 3% 3% 3% 4% 3% 2%
23% 23% 21% 23% 19% 17%
Operating (Loss)/ Profit -100% 6% 1% 2% 3% 2%
Other Expenses 0% 1% 0% 0% 0% 0%
Financial Charges 8% 9% 8% 8% 8% 7%
Other Income 6% 6% 7% 6% 5% 6%
(Loss)/Profit before taxation -102% 3% 0% 0% 0% 0%
Prior Period Adjustments 0% 0% 0% 0% 2% 1%
Taxation 0% -2% -2% 1% 2% 1%
Net(Loss)/ Profit after Taxation -101% 1% -2% 1% 0% 0%


Prospective Financial Information

PKR in Millions
2017 2018 2019 2020 2021
Sales 2,503 2,823 4,075 5,382 8,215
Cost of Sales
Materials (1,229) (1,396) (1,897) (2,428) (3,447)
Conversion Cost (1,155) (1,213) (1,313) (1,387) (1,531)
(2,384) (2,609) (3,210) (3,815) (4,978)
Gross Profit/(Loss) 119 214 865 1,567 3,237
Operating Expenses
General and Admin (213) (224) (235) (247) (259)
Depreciation (47) (42) (6) (92) (113)
Selling and Distribution (34) (36) (37) (39) (41)
(294) (301) (278) (378) (413)
Operating Profit/(Loss) (175) (87) 586 1,189 2,824
Financial Expenses (87) (87) (87) (87) (87)

Other Income 65 65 65 65 65
Profit/(Loss) before tax (197) (109) 564 1,167 2,802

Workers Profit Partcipation - - 28 58 140
Income Tax (25) (28) (41) (54) (82)
Profit/(Loss) after tax (222) (137) 552 1,171 2,859

SALES PROJECTION
PKR in Millions
2017 2018 2019 2020 2021

Mechanical Works Ton Rate PKR Ton Rate PKR Ton Rate PKR Ton Rate PKR Ton Rate PKR
Sugar Industry 2,962 185,698 550 3,258 196,840 641 3,584 208,650 748 3,942 221,169 872 4,336 234,439 915
Cement Industry 93 161,290 15 102 170,968 17 113 181,226 20 124 192,099 24 136 203,625 25
Boilers/Co Generation 2,500 189,200 473 2,750 200,552 552 3,025 212,585 643 3,328 225,340 750 3,660 238,861 787
Oil & Gas/Refineries 305 400,000 122 336 424,000 142 369 449,440 166 406 476,406 193 447 504,991 203
Fertilizer and Chemical 88 400,000 35 96 424,000 41 106 449,440 48 116 476,406 55 128 504,991 58
Power Plants (Nukar-3 & Jagran-II) 1,400 250,000 350 1,540 265,000 408 1,694 280,900 476 1,863 297,754 555 2,050 315,619 583
Cranes and Road Rollers 145 401,107 58 159 425,173 68 175 450,683 79 192 477,724 92 212 506,388 97
BMRE Component Sales in MW - - - - - - 50 18 884 100 18 1,768 250 18 4,420
General Commercial/Defence 952 546,448 520 971 579,235 562 990 613,989 608 1,010 650,828 657 1,030 689,878 690
Total Mechanical Works 8,444 251,436 2,123 9,212 263,938 2,431 10,055 365,107 3,671 10,982 452,247 4,966 11,999 648,249 7,778
Foundry and Forge Works 2,448 155,216 380 2,473 158,320 391 2,497 161,487 403 2,522 164,717 415 2,548 168,011 436
Total Sales 10,892 229,808 2,503 11,684 241,587 2,823 12,553 324,596 4,075 13,504 398,540 5,382 14,547 564,708 8,215
MATERIAL CONSUMPTION PROJECTION

PKR in Millions
2017 2018 2019 2020 2021

Mechanical Works Ton % of Sale PKR Ton Rate PKR Ton Rate PKR Ton Rate PKR Ton Rate PKR
Sugar Industry 3,291 50% 275 3,258 50% 321 3,584 50% 374 3,942 50% 436 4,336 50% 458
Cement Industry 103 55% 8 102 55% 10 113 55% 11 124 55% 13 136 55% 14
Boilers/Co Generation 2,778 60% 284 2,750 60% 331 3,025 60% 386 3,328 60% 450 3,660 60% 472
Oil & Gas/Refineries 339 50% 61 336 50% 71 369 50% 83 406 50% 97 447 50% 102
Fertilizer and Chemical 97 50% 18 96 50% 20 106 50% 24 116 50% 28 128 50% 29
Power Plants (Nukar-3 & Jagran-II) 1,556 50% 175 1,540 50% 204 1,694 50% 238 1,863 50% 277 2,050 50% 291
Cranes and Road Rollers 161 60% 35 159 60% 41 175 60% 47 192 60% 55 212 60% 58
BMRE Component - 35% - 35% 50 35% 309 100 35% 619 250 35% 1,547
General Commercial/Defence 1,057 50% 260 971 50% 281 990 50% 304 1,010 50% 329 1,030 50% 345
Total Mechanical Works 9,382 53% 1,115 9,212 53% 1,278 10,105 48% 1,776 11,082 46% 2,303 12,249 43% 3,316
Foundry and Forge Works 2,720 30% 114 2,473 30% 117 2,497 30% 121 2,522 30% 125 2,548 30% 131
Total Materials Consumption 12,102 49% 1,229 11,684 49% 1,396 12,603 47% 1,897 13,604 45% 2,428 14,797 42% 3,447

CONVERSION COST PROJECTION

PKR in Millions
2017 2018 2019 2020 2021

Ton Rate PKR Ton Rate PKR Ton Rate PKR Ton Rate PKR Ton Rate PKR
Salaries and Wages - Fixed 10,892 40,306 439 11,684 39,450 461 12,553 38,557 484 13,504 37,633 508 14,547 36,683 534
Salaries and Wages - Variable 10,892 11,385 124 11,684 11,143 130 12,553 10,891 137 13,504 10,630 144 14,547 10,361 151
Electricity - Fixed 10,892 1,928 21 11,684 1,887 22 12,553 1,844 23 13,504 1,800 24 14,547 1,755 26
Electricity - Variable 10,892 15,241 166 11,684 14,917 174 12,553 14,580 183 13,504 14,230 192 14,547 13,871 202
Gas 10,892 24,698 269 11,684 24,173 282 12,553 23,626 297 13,504 23,060 311 14,547 22,478 327
Depreciation 10,892 3,489 38 11,684 3,415 40 12,553 4,768 60 13,504 4,654 63 14,547 6,480 94
Repair and Maintenance - Fixed 10,892 1,285 14 11,684 1,258 15 12,553 1,230 15 13,504 1,200 16 14,547 1,170 17
Repair and Maintenance - Variable 10,892 5,417 59 11,684 5,302 62 12,553 5,182 65 13,504 5,058 68 14,547 4,930 72
BMRE Component (% of Sales Value) - 19% - - 0 - 50 0 10 100 0 19 250 19% 48
Other Overhead 10,892 2,295 25 11,684 2,247 26 12,553 3,137 39 13,504 3,062 41 14,547 4,263 62
Total Materials Consumption 10,892 106,044 1,155 11,684 103,792 1,213 12,553 104,572 1,313 13,504 102,734 1,387 14,547 105,256 1,531
GENERAL AND ADMIN EXPENSES

PKR in Millions
2017 2018 2019 2020 2021

Ton Rate PKR Ton Rate PKR Ton Rate PKR Ton Rate PKR Ton Rate PKR
Salaries and Wages 10,892 7,804 85 11,684 7,638 89 12,553 7,466 94 13,504 7,287 98 14,547 7,103 103.32
Energy 10,892 6,427 70 11,684 6,290 74 12,553 6,148 77 13,504 6,001 81 14,547 5,849 85
Depreciation 10,892 459 5 11,684 449 5 12,553 439 6 13,504 429 6 14,547 418 6
Others 10,892 4,866 53 11,684 4,763 56 12,553 4,655 58 13,504 4,543 61 14,547 4,429 64
Total Materials Consumption 10,892 19,556 213 11,684 19,141 224 12,553 18,708 235 13,504 18,259 247 14,547 17,798 259

NET PRESENT VALUE AND INTERNAL RATE OF RETURN
PKR in Millions
2017 2018 2019 2020 2021
Cash Profit/(Loss) (175) (95) 558 1,263 2,972

Captial Expenditure (8,211) (2,737) - (10,609) (4,547)
Free Cash Flow (8,386) (2,832) 558 (9,346) (1,574)
Terminal Value @ 5% 44,587
Discount Factor @ 12% 0.89 0.80 0.71 0.64 0.57
Present Value (7,488) (2,258) 397 (5,939) 24,407
Net Present Value 9,119

Internal Rate of Return 18%
Other Recommendations:
In Finance section it is recommended that analysis should be done to calculate the yields and efficiency should be calculated and
analyzed for management’s consideration.
The Internal Audit function needs to be developed to ensure the independent body to oversee the functions.
The budgeting and planning system needs to be refined to prepare monthly rolling forecast and analysis to update management and
aiding them in decision making.
Certain clauses of PPRA rules hamper the efficient conduct of procurement of HMC. The government should be approached for
reducing the timelines for inviting the bids for both local and especially imports. The timelines maybe halved to enable HMC to
compete with private players.

Private Sector companies offer sale of goods and service on credit which is attractive for a potential customer. HMC after catering
for the current financial issues may also consider this model in which credit sales may be given at a higher sales price.

SECTION IX
ASSUMPTIONS AND LIMITING CONDITIONS

IX ASSUMPTIONS AND LIMITING CONDITIONS
The general assumptions and limiting conditions pertaining to the value conclusions stated in this
document are summarized below.
1. To the best of our knowledge and belief, the statements of facts contained in this document,
upon which the analysis and conclusions expressed are based, are true and correct.
Information, estimates and opinions furnished to us and contained in this document or
utilized in the formation of the value conclusions were obtained from sources considered
reliable and believed to be true and correct. However, no representation, liability or
warranty for the accuracy of such items is assumed by or imposed on us, and is subject to
corrections, errors, omissions and withdrawal without notice.
2. The business plan may not be used in conjunction with any other appraisal or study. The
value conclusions stated in this document are based on the program of utilization described
in this document, and may not be separated into parts. The valuation was prepared solely
for the purpose, function and party identified in this report. This report may not be
reproduced, in whole or in part, and the findings of this document may not be utilized by
any third party for any purpose, without the express written consent of BDO Ebrahim & Co
Chartered Accountants.
3. No change of any item in any of this document shall be made by anyone other than BDO
Ebrahim & Co, and we shall have no responsibility for any such unauthorized change.
4. Neither all nor any part of the contents of this document shall be disseminated or referred
to the public through advertising, public relations, news or sales media, or any other public
means of communication or referenced in any publication, including any private or public
offerings without the prior written consent and approval of and review by BDO Ebrahim &
Co.
5. Good and marketable title to the business interests and assets being appraised is assumed.
We are not qualified to render an “opinion of title,” and no responsibility is assumed or
accepted for matters of a legal nature affecting the business being appraised. No formal
investigation of legal title to or liabilities against the business valued was made, and we
render no opinion as to ownership of the business or condition of its title.
6. We take no responsibility for any events, conditions or circumstances affecting our opinion
of value that take place subsequent to the business plan date.
7. This valuation is based on historical and prospective financial statements. Some assumptions
or projections inevitably will not materialize and unanticipated events and circumstances
may occur during the forecast period. These could include major changes in the economic
conditions; significant increases or decreases in current interest rates and/or terms or
availability of financing altogether; property assessment; and/or major revisions in current
regulatory/tax laws. Therefore, the actual results achieved during the projected period and
investor requirements relative to anticipated annual returns and overall yields could vary

from the projection. Thus, variations could be material and have an impact on the value
conclusions stated herein.
8. Budgets/projections/forecasts relate to future events and are based on assumptions that

may not remain valid for the whole of the relevant period. We express no opinion as to how
closely the actual results will correspond to those projected/forecast by management.
9. We assume no responsibility and make no representations with respect to the accuracy or

completeness of any information provided by and on behalf of management.
10. Our work with respect to prospective financial information did not constitute an
examination, compilation, or agreed upon procedures engagement of a financial forecast,
and we do not express assurance of any kind on it.
11. We are not required to give testimony or be in attendance at any court or administrative
proceeding with reference to the business appraised unless additional compensation is
agreed to and prior arrangements have been made and agreed.
This report cannot be used or relied upon for any other purpose or by any party except the Client.
Accordingly, any party other than the Client should not use or place reliance on our report nor they
can claim that they have done so. We assume no responsibility whatsoever or be held liable for
losses third parties may incur in respect of or arising out of or in connection with the use or reliance
by third parties on the contents of this report. If third parties choose to use or rely in any way on
the contents of this report, they do so entirely at their own risk. Further, access to our report is
limited to those parties to whom we have specifically provided our consent and any party who has
not been provided with such consent should not have access to our report and must not read any
further.

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Business Plan of Heavy Mechanical Complex (Private) Limited

Sec Particulars Page #

I Executive Summary 3-6

II Engagement Overview 7-8

III Company Overview 9-18

IV Restructuring Plan 19-26

Short Term Plan/Emergency Relief 20

Intermediate/Long Term Plan 22

V Sales and Marketing Plan 27-34

VI Production Plan 35-38

Short Term Plan 37

Balancing, Modernization, Replacement and Expansion 38

Business Plan of Heavy Mechanical Complex (Private) Limited

VII Human Resources Plan 39-43

Current Filled in Positions 40

Training and Development 42

VIII Financial Plan 44-53

Prospective Financial Plan 49

Net Present Value 52

IX Assumptions and Limiting Conditions 54-56

Business Plan of Heavy Mechanical Complex (Private) Limited

Business Plan of Heavy Mechanical Complex (Private) Limited

We'll discuss the details of above in the following paragraphs.

Sales and Marketing Plan

Business Plan of Heavy Mechanical Complex (Private) Limited

Human Resources Plan

Business Plan of Heavy Mechanical Complex (Private) Limited

Business Plan of Heavy Mechanical Complex (Private) Limited

Business Plan of Heavy Mechanical Complex (Private) Limited

Particulars (PKR) 2015 2014 2013 2012

Accumulated Losses (4 Billion) (3 Billion) (3 Billion) (3 Billion)

Profit/(Loss) for the (1 Billion) 7 Million (24 Million) 14 Million

Business Plan of Heavy Mechanical Complex (Private) Limited

Business Plan of Heavy Mechanical Complex (Private) Limited

III COMPANY OVERVIEW

Business Plan of Heavy Mechanical Complex (Private) Limited

HMC specializes in Engineering, Designing, Manufacturing, Installation and Commissioning of plants

Type of Plant Description Description

Castings Iron & steel castings as per specifications

Forgings Shafts, rings and others as per specifications

Automotive Forging For tractors and other automobiles

Business Plan of Heavy Mechanical Complex (Private) Limited

Business Plan of Heavy Mechanical Complex (Private) Limited

Business Plan of Heavy Mechanical Complex (Private) Limited

PRODUCTION CAPACITY ANALYSIS

CEMENT PLANT EQUIPMENT 2,924 35 6 121 19 248 41

2 FOUNDRY & FORGE WORKS

P.H FORGINGS 4,600 691 1,164 1,645 2,012 1,800 1,149

3 STEEL INGOT 38,000 1,590 1,986 3,341 4,406 2,949 1,785

GRAND TOTAL 73,430 6,258 14,658 16,318 19,792 19,058 15,710

73,430 73,430 73,430 73,430 73,430 73,430

EXCLUDING STEEL INGOT 33,000

Business Plan of Heavy Mechanical Complex (Private) Limited

Business Plan of Heavy Mechanical Complex (Private) Limited

Business Plan of Heavy Mechanical Complex (Private) Limited

 Availability of Precious Land  Poor website and Marketing mechanism,

 There is a huge demand of power plants  Increased competition both national

Business Plan of Heavy Mechanical Complex (Private) Limited

Business Plan of Heavy Mechanical Complex (Private) Limited

Business Plan of Heavy Mechanical Complex (Private) Limited

Short Term Plan/Emergency Relief

Payment of unpaid 7 months salaries

Working Capital Injection by Government