EXECUTIVE SUMMARY ___

This pre-feasibility study has been conducted for the business analysis of setting up a dairy
farm under the name and style of PUREFECT – Dairy, where cows with proven pedigree and
high genetic worth are kept primarily for milk production. The animals are fed Total Mixed
Ration (TMR), which is a high energy and protein rich nutritionally balanced formulated feed.
The cows are bred by proven pedigreed genetics through the Artificial Insemination method to
attain maximum genetic potential (‘Net Merit’ in terms of profits).

A farm with 800 Animals for trading needs a total investment of approximately Rs. 574
million out of which, capital cost of the project is Rs. 174 million. The project is assumed to be
working on 70:30 debt and equity ratio. It is assumed that starting from 800 animals in year 1,
the herd of animals will increase to approximately 1,288 animals at the end of year 6.

Projected Revenues for the project for year 1, year 2, year 3, year 4, year 5 and year 6 are Rs.
300.6 million, 527.4 million, 609.1 million, 703.6 million, 812.6 million and 938.6 million
respectively. Whereas, Gross profit for year 1, year 2, year 3, year 4, year 5 and year 6 are Rs.
142.6 million, 291.8 million, 346.9 million, 410.22 million, 483 million and 567 million
respectively.

The farm will provide employment opportunity to 109 individuals initially. The legal status of
the project is proposed to be an Association of Partnership.

The project is proposed to be located in Gadap town, Karachi, which is major market of dairy.
Moreover, abundant water and availability of fodder make a better choice for farming;
provided access to dairy markets and veterinary services is ensured.

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Table of Contents
EXECUTIVE SUMMARY.................................................................................................. 1
1 PROJECT BRIEF........................................................................................................... 3
1.1 OPPORTUNITY RATIONALE........................................................................... 3
2 SWOT ANALYSIS........................................................................................................ 4
3 LIVESTOCK SECTOR OVERVIEW......................................................................... 5
3.1 THE PRODUCT: ………..................................................................................... 6
3.1.1 MARKET ANALYSIS - DEMAND & SUPPLY............................................................ 6
4 PROJECT COST......................................................................................................... 7
4.1 PROPOSED FINANCING MODEL.................................................................. 7
4.2 PROPOSED LOCATION................................................................................. 7
4.2.1 THE LAND............................................................................. 7
4.3 ANIMAL COST.................................................................................................. 8
4.4 HUMAN RESOURCE REQUIREMENTS............................................ 8
4.5 VEHICLE & TRANSPORTATION REQUIREMENTS ....................... 8
4.6 FURNITURE & EQUIPMENT COST................................................... 8
5 PROJECT DYNAMICS ............................................................................. 9
5.1 SELECTION OF HERD SIZE & COMPOSITION .............................. 9
5.2 FEED COST........................................................................................................ 9
5.3 VACCINATION AND ARTIFICIAL INSEMINATION COST.................. 9
5.4 TOTAL PRODUCTION UNITS……………………………………… 10
5.5 THE PRICE…………………………………………………………….. 10
ANNEXURE L – PROFIT & LOSS ACCOUNT……..................................................... 11
ANNEXURE M – BALANCE SHEET............................................................................. 12
ANNEXURE N – DEPRECIATION SCHEDULE……................................................... 13
6 RATIO ANALYSIS..................................................................................................... 14

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1. PROJECT BRIEF

The proposed pre-feasibility is for establishment of PUREFECT – Dairy with increase per
cow milk production through state of the art farm management facilities, efficient and
effective utilization of dairy production and deployment of technologically advance
infrastructure. The project requires a unique mix of technology and herd composition that
will make it possible to achieve economies of scales and attain high rate of return on
investment.

1.1 OPPORTUNITY RATIONALE

Milk is among the most important consumable and marketable commodities of the world with
enormous demand in domestic and international market. Buffalo is the main source of milk in
domestic dairy industry whereas cow is the main source of milk in international market.

Dairy sector possess potential of additional 3 billion liters of milk with a growth rate faster
than any other sector of economy. The scope for export of value added derivatives of milk is
also huge especially processed milk market share has increased considerably.
Technologically advanced production, processing and storage facilities have made it possible
to preserve Milk and its value added products for longer period of time but in Pakistan, only
around 3% of total milk production is processed and marketed through formal channels.

Although per animal milk yield in lower than other countries, Pakistan is the 3rd largest milk
producing country in the world. Increase in milk production is due to increase in quantity of
livestock population in Pakistan from 186.2 million to 191.3 million in 20171. It is also
required to introduce improved technological methods in dairy farming industry to increase
per animal milk production and attain economies of scales.

This provides huge opportunity with minimal competition for farmers to invest in dairy
farming and milk processing sectors of the economy.

1 Economic Survey of Pakistan 2016 - 2017

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2. SWOT ANALYSIS
A SWOT analyses for establishing a dairy farm is given below.

Strengths

 Dairy products i.e. Milk & Meat are major source of food.
 Dairy sector is having enormous potential for sizeable earnings
 Pakistan is having wide scope of Milk Production, ranking 3rd in the world
 Dairy sector in Sindh is having low cost of production compare to competitive milk
 producing countries
 Ample human resource and manpower availability in dairy farming
 Sindhi culture is having long tradition of cattle and livestock rearing
 Large base of cattle for milk production

Weaknesses

 Unorganized sector, unaware of basic farm management practices including record

 keeping, farm/ market infrastructures & marketing information
 Poorly developed cold chain with inadequate number of milk chilling and processing
centers
 Lack of education, technical skills, initiative and experience in modern dairy farming
 Adoption of traditional approach
 Post harvest milk losses are very high estimated at 40 kg per capita per year
 Obsolete equipment and technologies

Opportunities

 Increasing demand of value added dairy products

 Local and global dairy products needs are much higher than supply
 Govt. of Sindh & State Bank of Pakistan priority sector
 Commercially viable sector with great credit potential and absorption capacity
 Cooperatives can play a big role for development of dairy sector in Sindh, like Amul
 Dairies, India
 Dairy sector provides raw material for food & leather industry

Threats

 Implementation of WTO will result in open & competitive commodity pricing

 Rising trend of cost of production as compared to profit ratio
 Lack of media projection, non-recognition of problems and monopoly of multinationals
 Lack
 of community organizations and out dated farm practices
 Lack of coordination towards common causes & goals
 Lack of awareness about economics, demand & supply in market
 Low saving, low holding capacity

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3. Livestock Sector Overview

Livestock products constitute huge revenue potential. Livestock sector produces the following
products:

 Milk  Hair
 Beef  Bones
 Mutton  Fat
 Poultry Meat  Eggs
 Wool  Skins
This sector has shown steady progress in last few years. Detailed livestock growth percentage
is shown in table below: Growth Percentage

LIVESTOCK GROWTH PERCENTAGE

Year Livestock
2012-13 3.45%
2013-14 2.48%
2014-15 3.99%
2015-16 3.36%
2016-17 3.43%

Source: Federal Bureau of Statistics

Livestock population in Pakistan is mainly comprised of Cow, Buffalo, Sheep, Goat, Camel and
Poultry. Around 8 million families in Pakistan are involved in livestock and 35% of their
income comes from livestock. According to Livestock Census 2006, 52% of total cattle
population of Pakistan resides in Punjab, 19.7% in Sindh, 20% in NWFP and 8% in
Baluchistan. Detailed comparison of increase in Livestock population in Pakistan is given in
graph below:
Livestock Population in Pakistan
(In millions)

Source: Ministry of Livestock and Dairy Development

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In 2016-2017, Livestock sector produces 56,080,000 tonnes of milk, making Pakistan 3rd
largest milk producing country in the world. It also produces 2,085,000 tonnes of Beef,
701,000 tonnes of Mutton, 1,276,000 tonnes of Poultry Meat, 457,000 tonnes of Wool,
27,200 tonnes of Hair, 878,200 tonnes of Bones, 279,000 tonnes of Fat, 67,800 tonnes of
Blood, 17,083,000,000 tonnes of Eggs and 55,526,000 tonnes of Skins in 2016-2017.3

Livestock accounted for 58.3% of agriculture value added and 11.4% of national GDP
during 2016 17.5 It also comprised of 8.5% of total national export.6 Gross value addition of
livestock at current factor cost has also increased from Rs. 1,288 billion (2015 16) to Rs.
1,333 billion (2016 17) showing lift of 3.4% as compared to previous year.”7

3.1 THE PRODUCT: MILK & LIVESTOCK

Raw milk is used to prepare processed milk and various value added products. Some of them
are as follows:
 Pasteurized Milk  Liquid butter
 UHT Treated Milk  Yogurt
 Condensed Milk  Ice Cream
 Skim Milk  Butter
 Milk Powder  Cheese
 Ghee

3.1.1 Market Analysis - Demand & Supply for Milk

In Pakistan, daily human milk consumption in 2016-2017 was 45.22 million tones:

Human Milk Consumption

(000) Tones
Items 2014-15 2015-16 2016-17
Cow 14,965 15,529 16,115
Buffalo 25,744 26,510 27,298
Sheep 38 39 39
Goat 845 867 891
Total 42,454 43,818 45,227

3Ministry of livestock & Dairy Development: Figures are based on Inter census growth rate of Livestock census 1996 & 2006
5 Economic Advisor’s Wing 2017
6
Pak. J. Agri. Sci., Vol. 45(2),2016
7 Economic Survey of Pakistan 2016-2017

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4 PROJECT COST
Initial cost of the project has been estimated as follows.

PROJECT COST
Description Total Cost
Initial Capital Cost
Land 130,000,000
Building/Infrastructure 35,000,000
Furniture 3,500,000
Vehicles 9,000,000
Animals 280,000,000
Plant & machinery 58,500,000
Office equipment 1,500,000

Total Capital Costs 517,500,000

Initial Working Capital
Total Working Capital
56,500,000
(Food and others)
Total Project Cost 574,000,000

4.1 PROPOSED FINANCING MODEL

The proposed pre-feasibility is based on the assumption of 48:52 debt equity ratio.

Project Financing Model (Debt to Equity Ratio)

Equity 30% 174,000,00
Debt 70% 400,000,000
Total 100% 574,000,000

4.2 PROPOSED LOCATION

The business is established in commercial dairy farms on 30 acres of land. The location of the
business is in Gadap Town, Karachi in Sindh.

4.2.1 THE LAND

The owner(s) is using his own property of 30 acres of Land costing Rs. 130,000,000 near Gadap
Town.

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4.3 ANIMAL COST

Initial animal cot is given in table below:

ANIMAL COST
Type Quantity Per Unit Cost Total Cost

Cows 800 350,000 280,000,000

Total 800 280,000,000

4.4 HUMAN RESOURCE REQUIREMENTS

Human Resource required for the project is as follows.
Human Resource Requirements
Human Resource Requirements

Description Qty Salary/Month/Person Annual Salary (Rs)

Supervisor 4 45,000 2,160,000
Security Guard 12 18,000 2,592,000
Farm Manager 2 100,000 2,400,000
Attendants 75 20,000 1,500,000
Runner 2 18,000 432,000
Office Staff 12 40,000 5,760,000
Doctor 2 50,000 1,200,000
Total 32,544,000

4.5 PLANT & MACHINERY COST

Machinery & equipment required for the project is given in tables below.
Furniture Cost
Item Quantity Rate Total Cost
Milking Units & Chillers 58,500,000
Total 58,500,000

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5. Project Dynamics
5.1 SELECTION OF HERD SIZE & COMPOSITION

 Initial herd size is 800 Animals, which is economical to justify the overhead cost.

 The farm size will increase to about 1,288 Cattle within 6 years.

 Herds mix of 8% calves, 34% heifer and 58% cows are recommended to get maximum
production life and milk production round the year. Combination of herd is selected because
mature cows produce about 25% more milk than 2-year-old heifers.

5.2 VACCINATION AND ARTIFICIAL INSEMINATION COST
Detailed table for vaccination and artificial insemination is given below:
Vaccination and Artificial Insemination Cost
Year Medication (Livestock) Total Cost
Year 1 2,400,000 2,400,000
Year 2 3,500,000 3,500,000
Year 3 3,675,000 3,675,000
Year 4 3,858,750 3,858,750
Year 5 4,051,688 4,051,688
Year 6 4,254,272 4,254,272

5.3 FEED COST

Dairy cattle will feed on protein sources (concentrate) along with plenty of green fodder.
Feed cost for proposed project is given below:

ANIMAL FOOD (DAIRY) 2019 2020 2021 2022 2023 2024

GROWTH RATE 0 5% 5% 5% 5% 5%
TOTAL NO. OF LIVE STOCK
AVAILABLE FOR SALE PER 800 880 968 1065 1171 1288
YEAR
FOOD PRICE 500 525 551 579 608 638
NO. OF PROD. DAY 270 365 365 365 365 365
TOTAL FOOD EXPENSE 108,000,000 168,630,000 194,767,650 224,956,636 259,824,914 300,097,776

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5.4 TOTAL PRODUCTION (UNITS)

DAIRY 2019 2020 2021 2022 2023 2024

GROWTH RATE 0 10% 10% 10% 10% 10%
NO. OF MILKING ANIMALS 800 880 968 1,065 1,171 1,288
PRODUCTION PER DAY EACH 26 26 26 26 26 26
TOTAL PRODUCTION DAYS 180 305 305 305 305 305
TOTAL NO. OF UNITS (LITER P.A) 3,744,000 6,978,400 7,676,240 8,443,864 9,288,250 10,217,075

5.5 THE PRICE


Dairy is sold at the price of 60 rupee per liter. Detailed proposed pricing for this project is
depicted in Table below:

SELLING PRICE 2019 2020 2021 2022 2023 2024

GROWTH RATE 0 5% 5% 5% 5% 5%
SELLING PRICE 60 63 66 69 73 77

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Annexure L – Projected Profit & Loss Account

WORKING
HEAD OF REVENUES PARTICULARS 2019 2020 2021 2022 2023 2024
REF.

BUSINESS REVENUE
1 UNITS W1 3,744,000 6,978,400 7,676,240 8,443,864 9,288,250 10,217,075
REVENUE (DAIRY) 2 SELLING PRICE W2 60 63 66 69 73 77
3 TOTAL SALES W1*W2 224,640,000 439,639,200 507,783,276 586,489,684 677,395,585 782,391,900
4 UNITS W3 760 836 920 1,012 1,113 1,224
REVENUE (SALE OF CALVES) 5 SELLING PRICE W3 100,000 105,000 110,250 115,763 121,551 127,628
6 TOTAL SALES W3 76,000,000 87,780,000 101,385,900 117,100,715 135,251,325 156,215,281

TOTAL OF BUSINESS REVENUE 7 300,640,000 527,419,200 609,169,176 703,590,398 812,646,910 938,607,181

WORKING
HEAD OF EXPENSES PARTICULARS 2019 2020 2021 2022 2023 2024
REF.
SALARIES AND ALLOWANCE DAIRY 8 W4 24,408,000 34,171,200 35,879,760 37,673,748 39,557,435 41,535,307
FOOD COST (DAIRY) 9 W5 108,000,000 168,630,000 194,767,650 224,956,636 259,824,914 300,097,776
MEDICINE (DAIRY) 10 2,400,000 3,500,000 3,675,000 3,858,750 4,051,688 4,254,272
INSURANCE COVERAGE @2% 11 4,200,000 5,880,000 6,174,000 6,482,700 6,806,835 7,147,177
UTITLIES 12 3,500,000 4,500,000 4,725,000 4,961,250 5,209,313 5,469,778
TRANSPORTATION EXPENSES 13 927,123 1,260,000 1,323,000 1,389,150 1,458,608 1,531,538
COMMUNICATION 14 927,123 1,260,000 1,323,000 1,389,150 1,458,608 1,531,538
DEPRICIATION 15 W-6 12,056,250 14,316,563 12,169,078 10,343,716 8,792,159 7,473,335
MISCELLENUES 16 1,545,205 2,100,000 2,205,000 2,315,250 2,431,013 2,552,563
PROFIT BEFORE INTEREST & TAX 17 142,676,298 291,801,438 346,927,688 410,220,048 483,056,339 567,013,897
FINANCE CHARGES 18 W-7 39,900,000 43,400,000 32,200,000 21,000,000 12,600,000 2,100,000
PROFIT BEFORE TAX 19 102,776,298 248,401,438 314,727,688 389,220,048 470,456,339 564,913,897
TAXATION 20 W-8 35,191,204 86,160,003 109,374,191 135,446,517 163,879,219 196,939,364
PROFIT AFTER TAX 21 67,585,094 162,241,434 205,353,497 253,773,531 306,577,120 367,974,533

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Annexure M – Projected Balance Sheet

AS ON 2019 2020 2021 2022 2023 2024
ASSETS
CURRENT ASSETS
CASH & BANK 55,000,316 70,743,472 68,278,281 71,099,041 77,246,451 142,624,871
ACCOUNTS RECEIVABLE 12,526,667 21,975,800 25,382,049 29,316,267 33,860,288 39,108,633
INVENTORY 4,500,000 7,026,250 8,115,319 9,373,193 10,826,038 12,504,074
PRE-PAID INSURANCE - - - - - -
TOTAL CURRENT ASSETS 72,026,982 99,745,522 101,775,649 109,788,501 121,932,777 194,237,577
FIXED ASSETS
LAND FARMING 130,000,000 130,000,000 130,000,000 130,000,000 130,000,000 130,000,000
BUILDING/INFRASTRUCTURE - W6 31,062,500 26,403,125 22,442,656 19,076,258 16,214,819 14,170,838
DAIRY ANIMALS - W9 280,000,000 323,400,000 373,527,000 431,423,685 498,294,356 575,529,981
MACHINERY & EQUIPMENT -W6 51,918,750 44,130,938 37,511,297 31,884,602 27,101,912 23,685,544
FURNITURE & FIXTURES-W6 3,106,250 2,640,313 2,244,266 1,907,626 1,621,482 1,417,084
OFFICE VEHICLES - W6 7,987,500 6,789,375 5,770,969 4,905,323 4,169,525 708,542
OFFICE EQUIPMENT -W6 1,368,750 1,163,438 988,922 840,584 714,496 607,322
INVESTMENT - - - - - -
TOTAL FIXED ASSETS 505,443,750 534,527,188 572,485,109 620,038,078 678,116,590 746,119,311
TOTAL ASSETS 577,470,732 634,272,710 674,260,758 729,826,578 800,049,367 940,356,889
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE - - - - - -
SHORT TERM DEBT - - - - - -
TOTAL CURRENT LIABILITIES - - - - - -
OTHER LIABILITIES
LEASE PAYABLE - - - - - -
SECURITY DEPOSIT - - - - - -
LONG TERM DEBT W-7 360,000,000 280,000,000 200,000,000 120,000,000 40,000,000 -
TOTAL LONG TERM LIABILITIES 360,000,000 280,000,000 200,000,000 120,000,000 40,000,000 -
SHAREHOLDERS' EQUITY
PAID-UP CAPITAL 174,000,000 174,000,000 174,000,000 174,000,000 174,000,000 174,000,000
GAIN / LOSS ON NET VALUE OF ANIMALS - - - - - -
RETAINED EARNINGS W-10 43,470,732 180,272,710 300,260,758 435,826,578 586,049,367 766,356,889
TOTAL EQUITY 217,470,732 354,272,710 474,260,758 609,826,578 760,049,367 940,356,889
TOTAL CAPITAL AND LIABILITIES 577,470,732 634,272,710 674,260,758 729,826,578 800,049,367 940,356,889

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Annexure N – Depreciation Schedule

WORKING 6 ; DEPRICIATION SCHEDULE 2019 2020 2021 2022 2023 2024
DEPRICIATION METHOD REDUCING BAL. REDUCING BAL. REDUCING BAL. REDUCING BAL. REDUCING BAL. REDUCING BAL.
DEPRICIATION RATE 15% 15% 15% 15% 15% 15%
COST -BUILDING/INFRASTRUCTURE 35,000,000 31,062,500 26,403,125 22,442,656 19,076,258 16,214,819
DEP -BUILDING/INFRASTRUCTURE 3,937,500 4,659,375.00 3,960,469 3,366,398 2,861,439 2,432,223
COST -MACHINERY & EQUIPMENT 58,500,000 51,918,750 44,130,938 37,511,297 31,884,602 27,101,912
DEP -MACHINERY & EQUIPMENT 6,581,250 7,787,813 6,619,641 5,626,695 4,782,690 4,065,287
COST -FURNITURE & FIXTURES 3,500,000 3,106,250 2,640,313 2,244,266 1,907,626 1,621,482
DEP -FURNITURE & FIXTURES 393,750 465,938 396,047 336,640 286,144 243,222
COST -OFFICE VEHICLES 9,000,000 7,987,500 6,789,375 5,770,969 4,905,323 4,169,525
DEP -OFFICE VEHICLES 1,012,500 1,198,125 1,018,406 865,645 735,799 625,429
COST -OFFICE EQUIPMENT 1,500,000 1,368,750 1,163,438 988,922 840,584 714,496
DEP -OFFICE EQUIPMENT 131,250 205,313 174,516 148,338 126,088 107,174
DEPRICIATION EXPENSE FOR THE YEAR 12,056,250 14,316,563 12,169,078 10,343,716 8,792,159 7,473,335

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6. RATIO ANALYSIS

FINANCTIAL RATIO UOM 2019 2020 2021 2022 2023 2024

RATIO GROSS PROFIT OVER TOTAL REVENUE % 47% 55% 57% 58% 59% 60%
RATIO NET PROFIT OVER TOTAL REVENUE % 22% 31% 34% 36% 38% 39%
SALES GROWTH RATE % N/A 75% 16% 16% 16% 16%
GROSS PROFIT GROWTH RATE % N/A 105% 19% 18% 18% 17%
NET PROFIT GROWTH RATE % N/A 140% 27% 24% 21% 20%
TIMES INTEREST EARNED TIMES 4 7 11 20 38 270

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