BUSINESS PLAN - Final - Arecanut

Commercialization of Dried Arecanut Peeler
Name of the Innovation: Dried Arecanut Peeler

Team Name: Vikinger
Institute Name: Acharya Institute of Management and Sciences, Bangalore
Team Members:
Ms. Suneeta Bhat
Email id: drsuneetabhat@gmail.com
Ph No: 09844303266
Ms. Vidhya Damodharan

Email id: vidhya.aims@gmail.com
Ph No: 09844202978
Mr. Gautam K P
Email id: gautamkolar@gmail.com
Ph No: 09480106398
Mr. Pramod Kumar

Email id: pramod_piligunda@rediffmail.com
Ph No: 09901899118
Contact Address: Acharya Institute of Management & Sciences

1st Cross, 1st Stage, Peenya, Bangalore-58
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Executive Summary
‘Commercialization of Dried Arecanut Peeler’ will be the first effort to bring the
motorized equipment close to the farmer. The equipment peels the dried
arecanut which was otherwise done manually. The product is innovated by Mr.
Narasimha Bhandari, Chickmaglur, Karnataka and it has won National Award in
Agriculture Equipment Category. The patent for the equipment is filed in India.
Four young entrepreneurs are going to take up the commercialization process; all
of them are MBA students with different specialization and different educational
background. Two of the entrepreneurs belong to the same geographic region in
Karnataka where arecanut is largely grown.
Arecanut is largely grown in many parts of Karnataka and India accounts for 54
percent of total global arecanut production. It is also grown in Malaysia,
Singapore and Indonesia, China, Bangladesh and Myanmar. Peeling of arecanut
is a labor intensive activity. But there is a huge scarcity of skilled labors to peel
the arecanut. This gives an opportunity to commercialize dried arecanut peeler.
This business plan completely depicts the process of commercializing the dried
arecanut peeler and it would be revised semi-annually.
This motorized equipment running with the aid of electricity is capable of peeling
45 Kgs per hour and costs Rs. 50,000. A plant for assembling the components
will be located at Shimoga, Karnataka in the vicinity of arecanut growers. As the
equipment do not involve high precision, the components will be outsourced, only
assembly would take place in the plant.
The market research and the test marketing indicated that product is unique and
has a huge market potential. There are around 10 lakhs arecanut growers in
Karnataka alone. This target population would be reached through co-operatives,
panchayats, farmers associations, self help groups and sometimes reaching
individual farmers to convince them to attend demonstration and thereby
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motivate to purchase the equipment. We would have tie ups with co-operatives
for providing loans to customers.
We are projecting sales of 500 units in the first year. In the subsequent years
sales are expected to increase because of intense promotional activities like
demonstration. The revenue for the first would be Rs. 2,50,00,000. The sales
volume for second year is projected to be 600 units. The total capital required is
Rs. 18,35,000 (fixed and working capital). 57 percent of the total capital required
will be borrowed from Commercial banks. In the next year the loan amount will
be repaid back and the significant portion of the profit will be invested in research
and development and diversification process. With continuous innovation and
research we will keep upgrading the product and even think of diversifying at a
later stage with the back up of innovator (Mr. Narasimha Bhandari) who has
many such inventions to his credit.
The firm will be a responsible corporate social citizen by taking the rural
poor/farmers on the path of economical growth. This is essential if the country
has to truly achieve 'developed nation' status by 2020. This project is in line with
that goal.
Our Key to Success
1. Thorough local market knowledge
2. First mover advantage
3. Goal to reach every farmer
4. Strong networking with co-operatives
5. Continuous development and research
Limitations
1. Limited market survey because the sample size is 250 only
2. No entry barriers
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Table of Contents
Sl. No Contents Page No

I Executive Summary 2-3
II Table of Contents 4-5
1 Introduction to the Business 6-8
1.1 Working of the Equipment 6
1.2 Entrepreneur’s Background 8
2 Industry Analysis 8-11
2.1 The Need Being Served 9
2.2 Manual Vs Motorized Peeling; A Comparison 10
2.3 The Venture 11
2.3.1 • Vision 11
2.3.2 11
• Mission
2.3.3 11
• Objectives
3 Production Strategy 11-14

3.1 The Plant 12
3.2 Labor Requirements 12
3.3 Vendor Management Strategies 13
3.3.1 • Quality Control Process 14
3.4 Inventory Management 14
4 Market Condition and Marketing Strategy 15-19
4.1 Analysis of Information 15
4.2 Attractiveness of Target Segment 16
4.3 Identification of Market Demand 16
4.4 Pricing Strategy 18
4.5 Selling and Distribution Strategy 18
4.6 Promotion Strategy 19
5 Financial Plan 20-28
5.1 Initial Investment in Fixed Assets 20
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5.2 Estimate of Components 20

5.3 Estimated Labor Cost 21
5.4 Estimated Overhead 21
5.5 Estimated Cost of Sales 22
5.6 Estimated Working Capital 22
5.7 Projected Income Statement for Five Years 23
5.8 Breakeven Analysis 24
5.9 Sensitivity Analysis with respect to Demand 25
5.10 Sensitivity Analysis with respect to Price 25
5.11 Repayment of Loan 26
5.12 Return on Investment 26
5.13 Cash cycle 27
5.14 Financing Requirements and Deal Structure 27
5.15 Financial policies 28
6 Organization Structure 29-30
6.1 Legal Requirements 30
7 Competitive Business Strategy 30-32
7.1 Analysis of Industry Structure (Porter’s Five Forces) 30
7.2 SWOT Analysis 32
7.3 Risk as Perceived by Investor 32
8 The Way Ahead 32
III Annexure-I 35-36
IV Annexure-II 37-42
V Annexure-III 43-44
1. Introduction to the Business

This business plan “Commercialization of Dried Arecanut Peeler” is developed to
serve as a blue print and provide a road map to the entrepreneur. The product of
commercialization here is “Dried Arecanut Peeler” which was invented by
Mr.Narasihma Bhandari from Koppa, Chikmaglur district, Karnataka. In 2001 the
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invention was awarded “National award” (First prize in agriculture equipment

category) by the National Innovation Foundation, Ahmedabad.
Arecanut is one of the important commercial crops of India. According to the

available statistics India is the largest arecanut producing country in the world
and Karnataka is the major producing state in India. Today, timely non-availability
of skilled labour is the major inconvenience for the producer. There was no
proper effort from formal Research and Development institutes and industry to
develop machines for
Fig 1: Peeling Arecanut Manually

arecanut peeling (See Fig 1). This motivated the inventor to work on a motorized
dried arecanut peeler.
1.1 Working of The Equipment

The dried arecanut peeler (See Fig 2) consists of a feed hopper with a screw
conveyor coupled through rubber layered MS flange disc covered with suitable
MS sheet work. The flange is connected with a 2 hp (3 phase) electrical motor
through a shaft to rotate at a high speed. A single hp motor is connected with
blower at the bottom to separate the husk after getting peeled. A suitable
framework with MS pipe sections supported the whole set up. It consists of feed
hopper, two stainless steel discs rotating opposite to each other and a blower at
the bottom. The peeler is powered by a 2 hp electric motor, the areca nut get
husked in between the high speed rotating disc. The husks will be thrown out
through a blower in the exhaust and the nuts will be collected at the bottom. The
husking efficiency is about 92 percent with less than 2 percent breaking validated
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by Central Plantation Crops Research Institute (CPCRI) Regional Station, Vitla

located near Mangalore, Karnataka. The capacity of the machine is 45 kg/h and
the cost of the machine is Rs.50,000/-only. The maintenance charges will be Rs.
300 per year.
The inventor has already given the equipment to two farmers (Mr.Venkatesh
Ranade, Chikamaglur and Mr. Rajashekar Hebbar, Beltaangadi, South Canara).
The feedback received from them about the product was excellent.
Fig 2: Dried Arecanut Peeling Machine
1.2 Entrepreneur’s Background

The entrepreneurs belong to different educational background (see Appendix III)
and two of the entrepreneurs belong to the family which grows arecanut and
clearly understand the market condition. This will be one of the key factors for
success of the business.
2. Industry analysis
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The world production of arecanut sums up to around 6,40,000 tonnes per annum
and is dominated by Asian countries. India dominates the world production of
arecanut, with 54 percent of the total world production. And 28 percent is from
China. The share from neighboring countries; Bangladesh and Myanmar together
comes to 10 percent. Production in Malaysia, Indonesia, and Singapore forms 8
percent of the world production.
The production of arecanut in India is estimated to be around 3,50,000 tonnes

per annum. Main arecanut growing states are Karnataka, Kerala, and Assam
together accounting for 90 percent of production in the country. Karnataka is the
largest arecanut producing state in India accounting for 40 percent. Maharastra,
Tamil Nadu, Tripura, West Bengal and Goa are other major arecanut producing
states in India.
Within Karnataka in India, South Canara, Shimoga, and North Canara are the
major arecanut producing districts. South Canara with 39 percent of production
stands first in the state followed by Shimoga 26 percent and North Canara 12
percent. Other districts producing arecanut in Karnataka are Chickmaglur,
Kodagu, Tumkur, and Chitradurga (See Fig 3).
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North Canara
Shimoga
South Canara
Chickmaglur
Tumkur
Kodagu
Chitradurga
Plant Location
Fig 3: Map Showing Arecanut Producing Districts in Karnataka and Plant Location
2.1 The Need Being Served
The traditional arecanut peeling is purely labor intensive activity. Because of

higher requirement and acute shortage of labors, the cost of production is
increasing continuously. Arecanut peeling requires largest cost compared to
other activities. Hence there is a need for mechanization in arecanut processing
especially for peeling.
Following are the benefits of mechanization of arecanut peeling

1. Timeliness of operations
2. Precision in operation
3. Reduction of drudgery of labour
4. Increased economic return to farmers
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2.2 Manual Vs. Motorized Peeling; A Comparison
Sl. No. Particulars Manual Peeling Using Dried

Areca nut Peeler
1 Quantity Peeled 45 kgs 45 kgs
2 Time taken 16 hours One Hour
3 Labor Charges Rs. 200 Rs. 10
4 Power Consumption Nil Rs. 3 per hour
5 Initial fixed investment Nil Rs. 50,000
6 Maintenance Nil Rs. 300 per year
Table i: Cost Benefit Analysis for the Customer
As per tabular information (See Table i), the following inference can be made:
On an average if a farmer grows 1000 Kgs of arecanut per year,
i. For peeling manually, it takes Rs.4.50 per Kg. To peel 1000 Kgs it takes
Rs. 4,500
ii. If dried arecanut peeler is used for peeling,
♦ Labor Charge is 0.25 per Kg, for 1000 Kgs it is Rs. 250
♦ Power consumption is Rs 67 for 1000 Kgs
♦ Maintenance Rs 300 per year
Total expenditure for 1000 Kgs would be Rs 617 (250+67+300)
Assuming that the machine has a life time of 10 years ( with timely servicing), if
the investment made on the equipment is spread over the life time, the cost
comes to Rs 5 per Kg ( 50000/10000; 10000 is average production of arecanut in
10 years). The market study indicated that getting skilled labors for peeling
arecanut was very difficult. This being the situation, farmers would definitely not
feel it a burden to invest Rs. 5 per kg and avail the benefit of considerable lower
charges of Rs 617 per 1000 Kg for machine peeling as against Rs 4,500 for
manual peeling. The average price received by the growers in the first five
months would not exceed Rs. 32 per kg, down by about Rs. 10, they got last year
(The Economics Times, 15 Jan, 2008), in such circumstances using this
equipment would be really profitable to the farmer.
2.3 The Venture
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The venture consists of production and marketing of dried arecanut peeler.

Initially the equipment will be carried in mobile vans and peeling activity would be
taken up at different farms at reasonable price on hourly basis, which will as well
act as a promotional strategy. The servicing and replacement of spare parts will
also be carried out by the firm.
2.3.1 Vision
“To be the most respected and best service providing company among the
farmer community”
2.3.2 Mission
To provide mechanized products at low cost with improved quality which is
reliable, compatible and easily available. Further to emphasize on the technology
advancement with research, innovation and customization in such a way that the
productivity and social well-being of the farmer is enhanced.
2.3.3 Objectives
♦ To build trust and position a strong brand image by the end of first year
♦ To educate farmers about new technology and mechanized products and
build a close affinity with co-operative and agricultural societies
♦ To achieve sales of 500 units by the end of first year
♦ To be profitable by the end of first year
♦ To diversify into different agricultural equipment category by the end of
second year
3. Production Strategy
The production plant will be located in Shimoga, reason being lower cost of
production and closer vicinity to the farmers and suppliers of components. As per
the experts’ opinion in the field, this is the best place for the plant location. The
components of equipment do not involve any high technology and high precision
(For Components required, refer Table 5.2. Estimate of Components) and hence
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they are outsourced from the local contractors and the final assembly is carried
out in the plant.
3.1 The Plant

Total space required for the plant is approximately 5000 Sq ft and that would
involve the following sections
1. Warehouse
2. Tools Room
3. Work Shop
4. Front Office
Warehouse is used to store the finished assembled equipments and is also used
to finish packing. Workshop is the place of assembly and testing the equipment.
Front office is the receiving centre for customers and delivery office for finished
assembled equipment. The plant layout must involve electricity supply and power
points at appropriate places.
3.2 Labor Requirements

Two skilled labors having the knowledge of grinding and assembly with preferred
qualification of ITI Fitter or Assembly is required along with three unskilled/semi-
skilled labors to assist. The labors will be trained to assemble the components.
3.3 Vendor Management Strategies

♦ The suppliers will be selected on the basis of geographic vicinity. If the
products of local suppliers do not fulfill the quality requirements then other
suppliers from different region will be considered
♦ The suppliers will be given proper training to produce the standardized
components
♦ Contract will be given initially on the basis of the demand to the product,
as and when the order is received the supplier is intimated to supply the
required components and later on monthly basis the components will be
ordered
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Stages in Vendor Management are as follows;

1. Vendor Creation: Trial components from different vendors will be
evaluated and based on their ability to meet the specification, short term
contract will be established.
2. Vendor Maintenance: Quality is assured and good relationship is
maintained.
3. Continuous evaluation: Based on the performance, vendor will be given a
long term contract and continuous monitoring is carried out.
3.3.1 Quality Control Process
Component Supplier
Selection Based on Quality,
Rejected
Components
Quality Assurance by Skilled

Employees
Components of Desired Quality
Assembly
Rejected
Products
Quality Check of Finished

Goods
Product of Desired Quality
Selling and Distribution
After Sale Service
3.4 Inventory Management
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Initially inventory required for two equipments will be store in warehouse, as and
when the new orders arrive the suppliers are intimated to supply the
components, but three equipments are kept ready to deliver any time. In the later
days the number of finished goods to be kept in warehouse will be decided on
the basis of market demand and trend. The co operative society which will have
the servicing facility for the equipment will be provided with two to three pairs of
components which are most likely to breakdown.
4. Market Condition and Marketing Strategy
A market survey was carried out in Shimoga, South Canara and North Canara
which accounts for 80 percent of Karnataka’s total dried arecanut production with
arecanut growing farmers accounting to about 50 percent of total target
population.
Enumerators collected data by administering questionnaire (Refer Annexure I)

which involved open and close ended questions. Sample size was 250 and was
chosen by the method of convenience sampling.
4.1 Analysis of Information

SPSS package was used in analyzing the data collected.
1. All the respondents employed labour for farm activities and peeling of
arecanut (Annexure II, Table 1). The labor availability is difficult to very
difficult (Annexure II, Table 2) and average labour cost is Rs. 75 to 100
per day (Annexure II, Table 3).
2. Rate of peeling in majority of the cases was more than 15 Kgs (Annexure
II, Table 4).
3. The availability of electricity is good in majority of the places and average
in some places (Annexure II, Table 5).
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4. The data reveals that none of the farmers are aware of any mechanized
equipment to peel dried areca nut (Annexure II, Table 6).
5. Majority of the farmers preferred to own equipment on their own and few
preferred cooperative societies and farmers associations (Annexure II,
Table 7).
6. All the farmers expected demonstration of equipment before purchasing
(Annexure II, Table 8) and the purchasing will be either by self finance or
by bank loan (Annexure II, Table 9).
4.2 Attractiveness of Target Market

1. The responses elicited from farmers reveal that no farmer is aware of any
motorized equipment for peeling arecanut which is an opportunity when
proper awareness and education of advantages of motorized equipment
over traditional method is provided.
2. The number of farmers is large in Karnataka alone.
3. More than 90 percent of the farmers preferred personal purchase of
equipment.
4. As per the experts opinion when the peeling equipment is available for
dried areca nut then there are chances that the farmers will stop
producing red type and switch to dried areca nut production that
increases the demand further.
4.3 Identification of Market Demand

There are approximately 10 lakhs of farmers producing dried areca nut which is
the total potential market spread across Karnataka. The target segment study
revealed that they want to own the equipment and only few preferred Co
operative societies. So the entire population is a target market.
The estimation of Demand is carried out in two methods.
1. Demand estimate by using total arecanut production in Karnataka
♦ The total arecanut production in India is 3,50,000 tonnes/annum with
Karnataka state being the largest producer which accounts to 40%
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( Source : Campco, Mangalore, Karnataka)

♦ Therefore the production of arecanut in Karnataka is 40 % of
3,50,000 =1,40,000 tonnes/annum
♦ For further calculations only 50 % of 1,40,000 tonnes is considered which
is 70,000 tonnes/annum (assuming only 50% will be peeled by motorized
equipment)
♦ Assuming the Motorized dried arecanut peeler works on an average 6
hours/day , then the total dried arecanut peeled/day is
(45 kg/hour) ( 6 hours/day ) = 270 kg/day
For further calculations 250 kg/day is considered.
♦ With a peeling rate of 250 kg/day and with quantity considered being
70,000 tonnes per annum the number of motorized equipments required
is 7,00,00,000 kg/annum / 250 kg/day = 2,80,000 equipments/annum
♦ For further calculations only 10% of above value is considered which is
10% of 2,80,000 = 28,000 equipments.(Assuming fluctuation in Production
and other risk factors)
♦ Assuming only 10% of 28,000 to be penetrated, the Target market is 2800
motorized dried arecanut peelers per annum which is the penetrable
demand.
♦ Assuming in the first year of launch 20% sales, therefore for the first year
the demand is 20% of 2800 = 560 units per year.
2. Demand estimate by using the total number of arecanut producing farmers in

Karnataka
♦ The total number of arecanut growers in Karnataka is more than 10 lakh
farmers. (Source: Campco, Mangalore, Karnataka)
♦ By the Theory of Adoption Process for a new product we have Early
adopters of 2.5%
2.5 % of 10,00,000 farmers gives 2,50,000 equipments
♦ Assuming that 10% of Early Adopters purchase the product within 1 year
of launch then
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10% of 2,50,000 equipments = 25,000 equipments/year

♦ Assuming only 10% penetration , 10% of 25,000 = 2500 equipments/year
♦ Therefore the Target market is 2500 motorized dried arecanut peelers
which is the penetrable demand.
♦ Assuming 20 % sales in the first year of launch, the demand in first year is
20% of 2500 = 500 units/year
In both methods employed for demand estimate the Demand per year is
approximately the same. For financial calculations demand is considered as 500
equipments per year.
4.4 Pricing Strategy

The price of the equipment is Rs.50,000 which is decided based on our market
survey that indicated the farmers were ready to accept this price. The basis for
pricing was cost plus mark up. The organization will have tie ups with the
cooperative banks for the customers who wish to buy on the basis of installment.
The organization will also have collaboration with the Department of Agriculture
Products, Government of India which provides Rs.10,000 to 15,000 subsidy for
each farmer for buying dried arecanut peeler.
4.5 Selling and Distribution Strategy

♦ Direct Selling: Employing Marketing executives, who have the knowledge
of local market will reach individual farmers and convince them about the
product and motivate them to come for demonstration and buy the
products.
♦ Selling through co-operative societies, Panchayats, Farmers Association
like NABARD association, and Self Help Groups where requisition can be
placed for the products. The marketing executives of the organization will
be in continuous touch with these groups to get the order.
♦ Selling through sandy and village fairs because of a greater chance of the
equipment being noticed by other farmers too.
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♦ The receipt of the price of equipment will be at the time of the delivery to
the farmer. The product will be delivered to the farmer’s door step. But
before placing the order the farmer should give assurance about the mode
of payment and the payment date, time and other details.
♦ The product will also be available in retail outlets in the centre city or the
city market where the farmers can directly buy the product and pay the
cash. The delivery and other terms will be left to the retailer.
♦ The equipment can also be purchased from the plant directly and product
will be delivered to the farmer to their door step.
4.6 Promotion Strategy

As majority of the farmers preferred demonstration in different villages as the
best promotional strategy during market research.
♦ Demonstration at the plant to the farmers who visit the plant
♦ Demonstration at co-operative societies, panchayats and farmers
association at regular intervals and special demonstrations on other days
on their request
♦ Demonstration at village sandy
♦ Initially the company will carry the equipment in a van, peel the arecanut
and charge on hourly basis (approx. Rs. 100 per hour). This will act as a
promotional strategy as well give additional revenue
♦ Advertisements in all the local news papers and agriculture related
magazines
♦ Sponsoring some education programs related to farmers
♦ Advertisements in local radio channels
♦ Farmers who are using the equipment are made to interact with the other
farmers
♦ Distributing the pamphlets to the farmers.
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Guarantee of one year with two year service and minor replacement of parts will
be provided, but after guarantee period the service will be viewed as revenue
source.
5. Financial Plan
5.1 Initial Investment in Fixed Assets
Particulars Amount(in Rs. Per year)
Furniture and fixture 25,000
Vehicle for Demonstration 75,000
Delivering Vehicles (two) 1,50,000
Tool Kit (five) 1,00,000
Total 3,50,000
(Depreciation is charged on straight line method expected life 4 Years)
5.2 Estimate of Components

Particulars Cost ( in Rs)
2 hp motor 6800
½ hp motor 2400
Fan Assembly 2500
Motor Couple 500
Three Barings 800
Rotatory Shaft 1000
Chassis 1500
Movable Wheel 700
Nuts and Bolts 350
Drum 6500
Feeder Assembly 800
Exit Way to Husk 1000
Hooper 475
Rubber Paddy 600
Welding, Threading and Painting 5900
Total 31,875
Estimate of the components is as per the guidance of the inventor. The cost of
the components is based on current price in and around the plant location.
5.3 Estimated Labor Cost

Particulars Total Per Unit
( in Rs. Per (in Rs. )
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year)
Remuneration to skilled labors (2 x Rs 10,000/- pm ) 240,000 1200
Remuneration to unskilled labors (3 x Rs 5,000/- 1,80,000 900
pm)
Total 4,20,000 2100
5.4 Estimated Overheads

Sl. Particulars Amount(in Rs.
No. Per year)
Works overhead
1 Electricity 5,000
2 Depreciation 75,000
3 Lease rent of the building 3,00,000
Administrative overhead
1 Telephone expenses 15,000
2 Research and development activities 50,000
3 Training expenses 25,000
4 Contingencies 10,000
5 Salaries (Administrative staff 1 x Rs 5000/- pm.) 60,000
Selling and Distribution

Demonstration expenses 30,000
2 Advertisement expenses 20,000
3 Delivery Vehicles running and maintenance (for 3 1,50,000
vehicles)
4 Remuneration to Marketing executives (fixed and 5,40,000
variable) (3 x Rs15,000/- pm)
Total 12,80,000
5.5 Estimated Cost of Sales

Amount (in Rs.) Per unit
Particulars
(for 500 units) (rounded off)
Materials (given in 5.2) 1,59,37,500 31,875
Direct Labor (given in 5.3) 10,50,000 2100
Fixed Cost (given in 5.1) 3,50,000 700
Royalty (Rs. 2000 per unit) 10,00,000 2000
Prime Cost 1,83,37,500 36,675
Works Overhead 3,80,000 760
Works Cost 1,87,17,500 37,435
Administrative overhead 2,20,000 440
Cost of Production 1,89,37,500 37,875
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Selling & Distribution overhead 12,80,000 2560

Cost of Sales 2,02,17,500 40,435
5.6 Estimated Working Capital

Particulars Amount
(in Rs. Per month)
Finished Goods Inventory (for 3 machines) 1,12,305
Raw Material Inventory (for 2 machines) 63,750
Work in process (for 2 machines per day for
11,17,950
15 days i.e., Rs 74,530/- x 15 )
Payment of Salaries 80,000
Payment Telephone and Electricity bill 1667
Cash 25,000
Total 14,00,672
Note: For Work in process the capital required is for 15 days because when once the sales is
initiated the remaining working capital is rotated by the revenue generated from sales.
(Values are considered at cost of production, for W.I.P at 100 % material cost is considered and
other cost at 50 percent)
5.7 Projected Income Statement for five years

Particulars Year I Year II Year III Year IV
600 720 800
Sales ( in units ) 500 ( 40% penetration of ( 20% penetration of ( new penetration of
remaining Market ) remaining Market ) Market )
2,50,00,00
Revenue (A) 3,00,00,000 3,60,00,000 4,00,00,000
0
Less:
Cost(including 2,02,17,50
2,42,61,000 2,91,13,200 3,23,48,000
sales and 0
distribution)
Profit before
47,82,500 57,39,000 68,86,800 76,52,000
interest and taxes
Less: 1,47,000 1,47,000 Nil Nil
Interest at 14%
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Profit before tax

46,35,500 55,92,000 68,86,800 76,52,000
(A-B)
Less :
15,76,070 19,01,280 23,41,512 26,01,680
Tax at 34%
Profit after tax 30,59,430 36,90,720 45,45,288 50,50,320
Note: Selling price for the product is Rs. 50,000 including the delivery charges.
5.8 Breakeven analysis

Fixed Cost per annum Rs Variable Cost per unit Rs
Building lease 3,00,000 Material 31,875
Salaries (except marketing 4,80,000 Works OH 760
executives)
Initial investment (depreciation) 75,000 Administration OH 440
Sales and distribution 2,560
OH
Total 8,55,000 Total 35,635
At BEP,
TR = TC
TR = TFC + TVC
(SP / unit) Q = TFC + (VC /unit) Q
Where Q is no of units sold at BEP
Q = TFC / (SP per unit – VC per unit)

Q = 8,55,000 / ( 50000 – 35,635 )
Q = 59.45 = 60 units approx
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TR TC
TR/ TC
BEP
VC
FC
8,55,000
60 UNITS
Fig: Break Even Point
5.9 Sensitivity Analysis With Respect to Demand

Demand Demand Demand
Particulars decreases by decreases by decreases by
10% 10% 20%
8,55,000 8,55,000 8,55,000

Total Fixed Cost
Selling Price per unit 50000 50000 50000
Variable price per
unit
Material 31,875 31,875 31,875
Works OH 800 844.4 950
Administration OH 463.16 488.8 550
Sales and
2694.74 2,844.4 3,200
Distribution OH
Total 35,832.9 36,052.6 36,575
BEP (units) 60 62 64
5.10 Sensitivity Analysis With Respect to Price

Particulars Price decreases Price decreases Price decreases
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by 5% by 10% by 20%
8,55,000 8,55,000 8,55,000

Total Fixed Cost
Selling Price per 47,500 45,000 40,000
unit
Variable price per
unit
Material 31,875 31,875 31,875
Works OH 760 760 760
Administration OH 440 440 440
Sales and 2,560 2,560 2,560
Distribution OH
Total 35,635 35,635 35,635
BEP (units) 72 91 196
5.11 Return on investment

= (Total revenue-Cost of Borrowing)/ Cost of Borrowing
= (2,50,00,000-1,47,000)/1,47,000
=169%
5.12 Cash Cycle
Purchase of 2 Days
Components
Rs 31875
Overhea Overhea
d d
Rs. 2000 Rs. 13
24
Collect Cash
from Customer Cash
Rs. 50,000
Assembly
Overhea Overhea
d d
Rs. 19 Rs. 10
Sales and
Shipping
1 Day Rs. 1500 1 Day
Fig 5: Cash Cycle
5.13 Financing Requirements and Deal Structure

The total capital required is Rs. 18,35,000. The total fixed capital required is
Rs.3,50,000 and working capital is Rs.14,00,000 and Rs. 85,000 which is the
investment in R&D and training. Each managing partner will contribute Rs. 2
lakhs which will account for Rs. 8 lakhs. The total capital required from the
external source is Rs.10,50,000 (57.2% of the total capital required) This amount
will be borrowed from Commercial banks. In the next year the loan amount will
be repaid back and the significant portion of the profit will be invested in research
and development and diversification process. Continuous effort will be made to
establish contact with the agricultural development departments of the
government to get the possible benefits and to build in the trust of the farmers.
The preliminary expenses incurred for establishment and registration will be
borne by the entrepreneurs. Research and development activities will be carried
out by having MoU with the inventor.
5.14 Repayment of Loan
Year EAT EAT after Loan Remarks

retaining 5 Repaymen
units t
25
revenue
Year I 30,59,430 Major earnings is
retained as in the
second year the demand
estimate is higher and
the plant capacity to be
increased
Year II 9,00,000 8,70,000 8,50,000 The Revenue of 10 units
Quarter I approx by From last sale is retained which
sale of 150 year amounts to Rs 4,50,00
units earnings
II 9,00,000 8,70,000 4,50,000 The revenue of 10 units

Quarter II approx by From last earnings is retained
sale of 150 quarter which amounts to Rs
units earnings 4,50,000
II 9,00,000 4,50,000 Full loan repayment with
Quarter III From last Payback period of 1.6
quarter years
earnings
5.15 Financial Policies

♦ No credit will be expected from the suppliers, the payment will be made as
and when the components are delivered to the plant.
♦ No credit will be given to the farmers; the equipment will be delivered only
after receiving the payment.
♦ In case of purchase through bank loan, the banks will be asked to pay the
amount as and when the product is delivered to the customer.
♦ The royalty to be paid to the inventor is deposited in the account of the
inventor on every 20th day.
♦ Cash balance of minimum one lakh is maintained at every point of time.
6. Organization Structure
The activities of the organization will be shared by the partners each
handling one department (See Fig 6).
Managing Partners
26
Marketing Administration Production Finance
Sales and Record Vendor Working Capital

Distribution maintenance Management Management
Remuneration Inventory
Promotion Management Fund Flow
Collaboration with
R&D Co-operatives and Assembly
(Outsourced) Govt. Agencies
Fig 6: Organization Structure

Servicing
6.1 Legal Requirements

The following legal requirements are to be fulfilled before starting this business.
♦ Licensing from Karnataka Industrial Areas Development Board
♦ Department of factories and Boilers
♦ License from Karnataka State Pollution Control Board
♦ Environment clearance from MOEF/GOI,SECC
♦ License from Town Pachayat, Simogga
♦ Permission from Karnataka Power Transmission Corporation Limited and
Electrical Inspectorate
♦ Registration for commercial tax
♦ Department of Labour welfare, Karnataka
♦ Registration of company and the Partnership
7. Competitive Business Strategy
27
7.1 Analysis of Industry Structure (Porter's Five Forces)

♦ Threat of New Entrants:
i. There are no entry barriers as the business does not require large
investment.
ii. Due to the need for Mechanization of peeling process of dried
Arecanut, several grass root farmers are being motivated and several
inventions (See Table ii) have occurred and many are being patentized but
none of them are commercialized.
The following table depicts the major inventions.
Name of the Inventor Place Remarks
♦ Cost Rs 50,000,
♦ Maintenance cost
1. MR. Vishvanath Shimoga Rs.300/annum
Capacity of 45 Kg/ hour
Not yet commercialized
♦ Handed over to Malnad
Arecanut Marketing Society,
2. MR. Ramamurthy Shimoga
Shimoga.
Still prototype testing
3. MR. Narasimha Bhatt South Canara Still prototype testing
4. MR. Govinda Prasad Vittal Still prototype testing
5. MR. Mahabaleshwara Cost Rs.65,000 Seeking
Sirsi
Acharya Commercialization
(Table ii: Major Inventions of Motorized Equipments)
♦ Threat of Substitute Products: This equipment is only motorized and

hence modern hi-tech equipments may replace this product. There is also
chance of entry of new product of similar technology with lower price.
♦ Power of Buyers: The buyers have higher bargaining power both in terms
of product (preference to use one equipment for a group of farmers,
bringing down the demand) and price.
28
♦ Power of suppliers: As all the components are outsourced, the suppliers

have bargaining power in terms of price and specifications related to
delivery of components.
♦ Rivalry amongst Existing Players: As of now there are no competitors in
the industry, but in future there may be new players leading to price wars
and competition in gaining market share.
7.2 SWOT Analysis
STRENGTHS OPPORTUNITIES
• Professional Management • Large untapped market
• Continuous Innovation • No existence of competitor
• Strong Collaboration with • Existence of global market
Vendors • Scope to diversify into other
• Low Production Lead times agricultural equipment
• Low Capital Consumption • Government policies in favor of
• Support from Government and farmers like provision of
Co-operatives subsidies and so on
• Knowledge of local market
WEAKNESSES THREATS
• Low resources • Threat of new entrants
• Lack of market experience • Government regulations
• Dependence on contractors regarding the consumption of
arecanut in the form of Gutka,
Supari and so on
• Obsolescence of technology
• Contract producer could change

terms
7.3 Risk As Perceived by Investor
29
♦ This equipment is devoid of latest technology and works on obsolete

mechanical components, so an innovation with superior technology can be
a risk
♦ Competitors with reduced price and better features
♦ Product acceptance by the farmers as this is completely a new concept
♦ Unanticipated and untimely breakdown of equipment
♦ The future of arecanut itself is a question mark because of growing health
consciousness and government regulations
Strategies to be adopted to counter if the perceived risks become a reality:
♦ An R&D department to be established and the inventor to be incharge

of carrying out trials and testing new technology, upgradation of the
existing equipment and there by continuously striving for capacity
improvement and cost reduction
♦ Interaction with farmers and demonstration
♦ Appointing a Service engineer who periodically monitors the
performance of the equipment after sales.
♦ Diversify into other agricultural equipments
8. The Way Ahead…

Research and development centre will be established near the plant and
customization and commercialization of other products which are innovated by
grass root innovators will be done from the second year. The same innovator has
innovated many other types of equipment needed for different farming activities
and that gives a back support to the R&D of the organization. In the coming
years ahead there is a scope to diversify into different agriculture equipment
category.
9. Conclusion
30
The ‘Commercialization of Dried Arecanut Peeler’ is in line with the development

of the nation as it helps the farmers. This will be an effort to bring farmers close
to technology, but it is only beginning. This project does not displace labors as
there is high scarcity of labors in peeling arecanut. The same labors can perform
other farming activities. Hence this project is an absolute benefit to the farmer
and to the country.
We. The team Vikinger would like to thank, IIM-Indore and NIF for giving such a
wonderful opportunity. We are grateful to Mr. Narasimha Bandari for all his
guidance and support. We also thank CAMPCO, Mangalore and TSS, Sirsi,
GKVK Agriculture University, Bangalore, all our mentors and parents for their
support and all the farmers who participated in market research and gave
valuable feed back.
Annexure I
Dear Sir,
We are students of Acharya Institute of Management and Sciences,
Bangalore , pursing MBA in Marketing and presently carrying out a
Survey on Arecanut Business and we would be privileged your
presence in our survey by filling up the following questionnaire.
31
1. Name (Optional):……………………………………………………
2. District:……………………………………………………………..
3. Land owned for arecanut

a. Less than 1 acre [ ] b. 1 – 5 acre s[ ]
c. 5 – 10 acre [ ] d. More than 10 acre [ ]
4. How long are you in arecanut business?

a. One generation [ ] b. Two
generation [ ]
c. Three and more generations [ ]
5. What is the annual yield?

a. Less than 1 quintal [ ] b. 1 – 10 quintal [ ]
c. 10 – 25 quintal [ ] d. 25 – 50 quintal[ ]
e. More than 50 quintal [ ]
6. What is yield in terms of dried arecanut?

a. Less than 1 quintal [ ] b. 1 – 10 quintal [ ]
c. 10 – 25 quintal [ ] d. 25 – 50 quintal[ ]
e. More than 50 quintal[ ]
7. Which is the season for peeling dried arecanut?

a. January to March [ ] b. March to June
[ ]
c. June to September [ ] d. September to
December [ ]
8. I carry out arecanut business by

a. Owning the farm [ ] b. Contracting the yield [ ]
9. Do you employ labour,

a. YES [ ] b. NO [ ]
If YES, Please tick relevantly for the activities where you

employ labours
i. Household work [ ]
32
ii. Farm activities ( Tilling, cultivation, maintenance of crops,

etc., ) [ ]
iii. Peeling of arecanut [ ]
iv. Please specify if others
………………………………………………
10. The availability of labour for peeling the dried arecanut is ,

a. Very easy [ ] b. Easy [ ]
c. Difficult [ ] d. Very difficult [ ]
11. What is the average labour cost?

a. Per labour per day
………………………………………………
b. Per labour ( in terms of any other units used Please specify and
Quote )
……………………………………………..
12. What is the rate of peeling of a labour per day ?
a. 1 – 5 kg [ ] b. 5 – 10 kg [ ]
c. 10 – 15 kg [ ] d. more than 15 kg [ ]
13. The Availability of electricity for using any motorised

equipment is
a. Good [ ] b. Average [ ] c. Bad [ ]
14. Are you aware of any motorised equipments available for

peeling the dried arecanut?
a. YES [ ] b. NO [ ]
If YES, please mention relevantly

i. Name of the
equipment/equipments……………………………..
ii. Cost of the
equipment/equipments……………………………….
iii. Rate of peeling per hour
………………………………………….
15. Have used any of the motorised equipments for peeling dried
arecanut?
33
a. YES [ ] b. NO [ ]
If YES, Please mention relevantly

i. Cost incurred for peeling per
hour…………………………………
ii. Cost incurred for peeling per Kg
…………………………………..
iii. Advantages
………………………………………………………...
iv. Disadvantages……………………………………………………
16. If you prefer to use motorised equipment for peeling dried

arecanut where do you prefer it, please tick relevantly
a. Own / personal [ ] b. Retail outlets [ ]
c. Farmer’s Associations [ ] d. Co-operative society
[ ]
e. Market [ ]
f. If others, Please specify………………………………
17. Which method do you feel is more effective in creating

awareness for using motorised equipment for peeling dried
arecanut?
a. Demonstration [ ] b. Sandy [ ]
c. Newspaper [ ] d. Radio / TV [ ]
e. If others, Please specify………………………………
18. If the motorised equipment costs approximately Rs.

50,000/- , How would you prefer to buy?
a. Self financed [ ] b. Through bank loan [ ]
c. Instalment [ ] d. Rental [ ]
d. If others, Please specify………………………………
Annexure II
Table 1: Activities for which labors employed
34
Activities for which labors employed
Cumulative
Percent Valid Percent Percent
Valid Farm activities
100.0 100.0 100.0
and peeling
Bar Chart representing the above data

120
100
80
60
40
20
Percent
0
Frm act,areca peel
Table 2: Availability of Labor
Availability of labour
Cumulative
Valid Difficult 36.7 36.7 36.7
Very Difficult 63.3 63.3 100.0
Total 100.0 100.0
35
70
60
50
40
30
20
Percent
10
0
Difficult Very Difficult
Table 3: Average Labour Cost/Day
Avg labor cost/day/labor
Cumulative
Valid 75 28.0 28.0 28.0
80 12.0 12.0 40.0
85 8.0 8.0 48.0
90 8.0 8.0 56.0
95 2.0 2.0 58.0
100 42.0 42.0 100.0
Total 100.0 100.0

50
40
30
20
Percent
10
0
75 80 85 90 95 100
36
Table 4: Rate of Peeling/Labor/Day

Rate of peeling/labor/day
Cumulative
Valid 1-5 Kgs .7 .7 .7
5-10 Kgs .7 .7 1.3
More than 15 Kgs 98.7 98.7 100.0
Total 100.0 100.0
120
100
80
60
40
Percent
20
0
1-5 Kgs 5-10 Kgs More than 15 Kgs
Table 5: Availability of Electricity
Availability of electricity
Cumulative
Valid Good 55.3 55.3 55.3
Average 44.0 44.0 99.3
Bad .7 .7 100.0
Total 100.0 100.0
37
60
50
40
30
20
10
Percent
0
Good Average Bad
Table 6: Awareness about Motorized Equipment for Peeling
Awareness about motorized equipment
Cumulative
Valid No 100.0 100.0 100.0

Awareness about motorized equip
120
100
80
60
40
Percent
20
0
No
Awareness about motorized equip
38
Table 7: Preference of Place for Using Motorized Equipment
Place for machine if used
Cumulative
Valid Own/personal 79.3 79.3 79.3
Farmer associations 9.3 9.3 88.7
Co-operative societies 11.3 11.3 100.0
Total 100.0 100.0

100
80
60
40
20
Percent
0
Ow n/personal Co-operative societi
Farmer associations

Table 8: Method of Creating Awareness about the Equipment
Method for creating awareness
Cumulative
Valid Demonstration 100.0 100.0 100.0
39

120
100
80
60
40
Percent
20
0
Demonstration

Table 9: Purchasing mode of equipment
Finance to buy
Cumulative
Valid Self financed 77.3 77.3 77.3
Through bank loan 22.7 22.7 100.0
Total 100.0 100.0
Finance to buy
100
80
60
40
20
Percent
0
Self financed Through bank loan
Finance to buy
Annexure-III
40
Entrepreneur’s Background
1. Name Suneeta Bhat
Educational BDS, MBA(HR & Marketing), Diploma in Business
Qualification Entrepreneurship
Family Father is having areca nut farms and involved in areca nut
Background farming from three generations and is a social entrepreneur,
mother is a house wife
Income and work
experience Nil
2. Name Vidhya Damodharan

Educational BCA, MBA(HR & Marketing), Diploma in Business
Qualification Entrepreneurship
Family Father is a government employee, mother is a house wife
Background
Income and work
experience Nil
3. Name Gautam K P
Educational
Qualification BE(Mechanical), MBA(Marketing and Finance)
Family Father is a government employee and mother is a house
Background wife
Income and work
experience Three years of work experience as a mechanical engineer
4. Name Pramod Kumar

Educational
Qualification BBM, MBA(Finance & Marketing)
Family Father is an areca nut farmer and involved in areca nut
Background production from two generations, mother is a house wife
Income and work
experience Nil
41

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Commercialization of Dried Arecanut Peeler

Name of the Innovation: Dried Arecanut Peeler

Ms. Vidhya Damodharan

Mr. Pramod Kumar

Contact Address: Acharya Institute of Management & Sciences

2. First mover advantage

3. Goal to reach every farmer

4. Strong networking with co-operatives

5. Continuous development and research

Sl. No Contents Page No

3 Production Strategy 11-14

5.2 Estimate of Components 20

1. Introduction to the Business

invention was awarded “National award” (First prize in agriculture equipment

Arecanut is one of the important commercial crops of India. According to the

Fig 1: Peeling Arecanut Manually

1.1 Working of The Equipment

by Central Plantation Crops Research Institute (CPCRI) Regional Station, Vitla

Fig 2: Dried Arecanut Peeling Machine

1.2 Entrepreneur’s Background

The production of arecanut in India is estimated to be around 3,50,000 tonnes

2.1 The Need Being Served

The traditional arecanut peeling is purely labor intensive activity. Because of

Following are the benefits of mechanization of arecanut peeling

2.2 Manual Vs. Motorized Peeling; A Comparison

Sl. No. Particulars Manual Peeling Using Dried

2.3 The Venture

The venture consists of production and marketing of dried arecanut peeler.

3.1 The Plant

3.2 Labor Requirements

3.3 Vendor Management Strategies

Stages in Vendor Management are as follows;

3.3.1 Quality Control Process

Quality Assurance by Skilled

Components of Desired Quality

Quality Check of Finished

Product of Desired Quality

Selling and Distribution

After Sale Service

3.4 Inventory Management

4. Market Condition and Marketing Strategy

Enumerators collected data by administering questionnaire (Refer Annexure I)

4.1 Analysis of Information

4.2 Attractiveness of Target Market

4.3 Identification of Market Demand

( Source : Campco, Mangalore, Karnataka)

2. Demand estimate by using the total number of arecanut producing farmers in

10% of 2,50,000 equipments = 25,000 equipments/year

4.4 Pricing Strategy

4.5 Selling and Distribution Strategy

4.6 Promotion Strategy

5.2 Estimate of Components

5.3 Estimated Labor Cost

5.4 Estimated Overheads

Selling and Distribution

5.5 Estimated Cost of Sales

Selling & Distribution overhead 12,80,000 2560

5.6 Estimated Working Capital

5.7 Projected Income Statement for five years

Profit before tax

5.8 Breakeven analysis

Total 8,55,000 Total 35,635