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May, 2010
Pre-Feasibility Study PET Bottles Manufacturing Unit
DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject matter
and provide a general idea and information on the said area. All the material included in
this document is based on data/information gathered from various sources and is based on
certain assumptions. Although, due care and diligence has been taken to compile this
document, the contained information may vary due to any change in any of the concerned
factors, and the actual results may differ substantially from the presented information.
SMEDA does not assume any liability for any financial or other loss resulting from this
memorandum in consequence of undertaking this activity. Therefore, the content of this
memorandum should not be relied upon for making any decision, investment or otherwise.
The prospective user of this memorandum is encouraged to carry out his/her own due
diligence and gather any information he/she considers necessary for making an informed
decision.
The content of the information memorandum does not bind SMEDA in any legal or other
form.
DOCUMENT CONTROL
Document No. PREF-37
Revision 2
Prepared by SMEDA-Punjab
Approved by GM Punjab
Issue Date May, 2010
Issued by Library Officer
PREF-37/May, 2010/2
Pre-Feasibility Study PET Bottles Manufacturing Unit
TABLE OF CONTENTS
Table of Contents .................................................................................................................3
1 Executive summary..................................................................................................1
2 Introduction ..............................................................................................................2
2.1 Project Brief ...........................................................................................................2
2.2 Project Rationale ....................................................................................................2
2.3 Proposed Capacity..................................................................................................3
2.4 Total Project Cost...................................................................................................3
3 Current Industry Structure ....................................................................................3
4 Products Offered ......................................................................................................4
4.1 Production Mix ......................................................................................................4
5 Production Process...................................................................................................5
5.1 Manufacturing Stages.............................................................................................6
5.1.1 One-Step Process ...........................................................................................6
5.1.2 Two-Step Process...........................................................................................6
6 Machinery Requirement..........................................................................................7
6.1 Injection molding machines ...................................................................................8
6.2 Compressor ............................................................................................................8
6.3 Cooling tower, Chiller unit ....................................................................................8
6.4 Workshop Machines ..............................................................................................8
7 Production.................................................................................................................8
7.1 Injection Molding...................................................................................................8
7.1.1 Injection Molding Capacity Details ...............................................................8
7.1.2 Injection Molding Process Details .................................................................9
7.2 Stretch Blow Process............................................................................................10
7.3 Production Capacity of the Project ......................................................................10
7.4 Starting Production Capacity ...............................................................................11
8 Human RESOURCE Requirement ......................................................................11
9 Land & building .....................................................................................................11
10 Project Economics..................................................................................................12
11 financial analysis ....................................................................................................13
11.1 Projected Income Statement.................................................................................13
11.2 Projected Balance Sheet.......................................................................................14
11.3 Projected Cash Flow Statement ...........................................................................15
12 Key Assumptions....................................................................................................16
13 ANNEXTURE ........................................................................................................18
PREF-37/May, 2010/2
Pre-Feasibility Study PET Bottles Manufacturing Unit
1 EXECUTIVE SUMMARY
The PET Bottles Manufacturing unit is a project of Plastic Sector, in which, the most
convenience-size bottles are made from Polyethylene Terephthalate. PET has become the
material of choice for bottled beverages because it is lightweight and shatter resistant, and
PET has been extensively tested for safety. PET resin has superior properties i.e. attractive,
pure, safe, good barrier, no leakage, design flexibility, recyclable, etc. Bottles made with
PET are widely used for everything from water and fruit juice to soft drinks etc.
Every day, million of consumers rely on the safety and ease of plastic bottles to help to
preserve the quality and freshness of what we drink and serve our families. Plastic make
possible an array of opportunities for transporting, storing and serving our favorite
beverages, and today’s convenience-size bottles are an increasingly popular choice for
busy people everywhere.
A PET Bottles Manufacturing Unit with a capacity of 5.27 million bottles per year needs a
capital investment estimated at Rs. 10.97 million for construction and purchasing
machinery & equipment. In addition to this, an estimated sum of Rs. 2.72 million is
required as working capital. The total project cost is estimated at Rs. 13.69 million.
Projected IRR, Net Present Value (NPV) and Payback of this project are 38%, Rs.
16,221,149 and 4.32 years respectively.
In this pre-feasibility study, all the calculations have been based on 5.27 million bottles of
three different sizes 0.5, 1.5 & 5 litter bottles. Due to high demand of 1.5 litter bottles its
percentage in the product mix is high 65.57% as compared to 0.5 and 5.0 litter bottles
which are 32.79% and 1.64% respectively.
PREF-37/May, 2010/2
Pre-Feasibility Study PET Bottles Manufacturing Unit
2 INTRODUCTION
2.1 Project Brief
PET bottles are a packaging medium, made up of Polyethylene Terephthalate (PET). These
are widely used in food grade packaging and are the preferred packaging medium in this
segment, due to their several advantages over other resins like PE, HDPE and PVE.1
The objective of this pre-feasibility study is to provide information for setting up a PET
bottles manufacturing unit. Proposed location for this project is Lahore.
1
PE stands for Polyethylene, HDPE stands for High Density Polyethylene, PVE stands for Poly Vinyl
Ethylene
2
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Pre-Feasibility Study PET Bottles Manufacturing Unit
improved by 25% on volume compared to glass. High strength, low weight PET bottles
can be stacked as high as glass.
♦ No leakage: Absolute closure integrity is possible because of the injection molded
neck finish. The absence of a weld line in the base means that PET bottles have no
leakage.
♦ Design flexibility: PET bottles are suitable for containers of all shapes, sizes, neck
finish designs and colors.
♦ Recyclable: Used PET bottles can be washed, granulated into flakes and reshaped as
PET bottles or employed as material for strapping, carpeting, fiber filling, etc.
Specially designed thick-wall bottles can be washed, refilled and reused. PET is made
from the same three elements (carbon, oxygen, and hydrogen) as paper, and contains
no toxic substances. When burned, it produces carbon dioxide gas and water, leaving
no toxic residues. Being recyclable is the most important factor of success of business
of PET bottles. It consumes less energy and produces less pollution than glass or metal
packaging. PET is completely recyclable material, and in many European and Latin
American countries, PET bottles are designed to be refilled and used over and over
again. In the US, more than 600,000,000 pounds of PET bottles are recycled annually.
Because of the high demand of PET bottles, there has been an increase in small
manufacturing units of PET bottles in the main cities of Pakistan. The major players of the
industry are Gatron and Five Star Industries. There are around 35 small and medium units
working in Lahore including Mega Plast, Plas Pack, S.K. Plast (Pvt.) Ltd, Uni Plast
International, Al Quresh Bottles etc. These units manufacture variety of products, ranging
from bottles for mineral water to packaging for pesticides.
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4 PRODUCTS OFFERED
The proposed project will be capable of making PET bottles of different sizes. Commonly
manufactured sizes shall be 0.5, 1.5 and 5 liter. The size of bottles will depend on customer
specifications.
Table 4-1 Details of Product Mix
Product Offered
0.5 Liters PET Bottles
1.5 Liters PET Bottles
5 Liters PET Bottles
The target customers of Pet bottle are Mineral Water, Beverages and Edible oil industries.
The production of 1.5-liter bottles is the highest, as they are used in the beverage and
mineral water industries which are the two largest consumers of PET bottles. Along with
this, the production of 0.5 liter bottles is also increasing because of the increase of usage in
mineral water bottles. The production of 5 liter is lower then the other two because they are
mostly used in edible oil packaging.
2
Production ratios have been calculated from the capacities of the machinery and are explained in the
following pages.
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5 PRODUCTION PROCESS
Figure 5-1 Process Flow Diagram of PET Bottles Manufacturing
Drying the PET
Opitimizing the
Preform
Temperature
The temperature of the preform is
adjusted to the correct profile for
blowing.
Container
ejection
The finished container
is ejected.
PREF-37/May, 2010/2
Pre-Feasibility Study PET Bottles Manufacturing Unit
PET bottles manufacturing process involves two basic stages of Pre-form manufacturing
and Bottle Stretch Blow Molding.
1. Pre-form manufacturing process consists of following steps:
a. Resin drying and dehumidification
b. Melting of resin and injection into mold
c. Injection blow molding
d. Primary cooling
e. Secondary cooling
f. Ejection and storage
2. Bottle Stretch Blow Molding, process involves:
a. Pre-form feeding
b. Pre-form heating
c. Transfer of heated pre-forms to blow wheel
d. Bottle stretch blow molding
e. Bottle ejection
PREF-37/May, 2010/2
Pre-Feasibility Study PET Bottles Manufacturing Unit
3. Different cycle times of the two separate machines, so the outputs are matched by
increasing the number of injection cavities.
4. More suitable for high volume production of less technically demanding containers
such as carbonated soft drink bottles.
5. Thermal efficiency lower since the pre-forms are first cooled to the room
temperature for storage purposes and then re-heated to suitable blowing
temperature.
6. Better adaptability to fluctuation in demand, as pre-forms can be stockpiled. Care
must be taken in controlling storage conditions to ensure consistent aging and
moisture absorption of different pre-form batches.
7. Centralized pre-form production facility can be created to supply several blow
molders.
8. Higher flexibility, as bottle makers can make or buy pre-forms.
9. Higher inventory of pre-forms, as they are frequently scuffed before blowing.
10. Degree of ovality restricted owing to the difficult of temperature profiling of the
pre-forms.
11. Thinner pre-form walls, so that it heats up faster where stretching is required.
6 MACHINERY REQUIREMENT
Table 6-1 Machinery Requirement
Unit Cost Total Cost (Rs.)
Injection Molding Machine I 1 500,000 500,000
Injection Molding Machine II 1 450,000 450,000
Blow Molding Machine I 1 595,000 595,000
Blow Molding Machine II 1 595,000 595,000
Compressor 1 250,000 250,000
Cooling Tower 1 170,000 170,000
Chiller Unit 1 100,000 100,000
Lathe 8 ft, refurbished 1 350,000 350,000
Lathe 5.5 ft, 1 200,000 200,000
Pillar Drill 26 inches, with 1 100,000 100,000
pump
Facer 1 192,000 192,000
Shaper 26 inch 1 168,000 168,000
Die Molds 250,000 250,000
Production Shells 150,000 150,000
Generator (50 KWH) Made in 1 295,000 295,000
3
China
Total Cost 4,365,000
3
As per prevailing policy, industrial grids provide consistent electric supply to industrial units. In case if
unit doesn't place in industrial grid area then generator is required
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Pre-Feasibility Study PET Bottles Manufacturing Unit
6.2 Compressor
The compressor will be used with the stretch blow machine. It will supply compressed air
to the blow-molding machine.
7 PRODUCTION
For the purpose of this project, the injection molding machine with total barrel capacity of
111 grams will be used for the production of pre-forms of 0.5 liter bottles only. The other
injection-molding machine will be used for the production of pre-forms of 1.5 liters and 5
liter bottles in the ratio of 80:20. This machine with high barrel capacity will enable the
business to make 19 liter bottles at a later stage.
PREF-37/May, 2010/2
Pre-Feasibility Study PET Bottles Manufacturing Unit
Second machine will be used for the production of 1.5 and 5-liter PET bottles (Kawaguchi
Series). 175 ton machine comes in Shot Weights of 302 grams or 373 grams or 537 grams.
For the purpose of this study, the machine of 537 grams has been used. Using the 70%
recommended factor, this machine will be able to make a shot size of 376 grams (537
grams X 70%)
A 1.5-liter Bottle weighs roughly 33 grams. Hence the 537-gram machine will be able to
make a maximum of 10 pre-forms in one stroke.
A 5-liter Bottle weighs roughly 340 grams. Hence the 537-gram machine will be able to
make a maximum of 1 pre-form in one stroke.
Both injection-molding machines take 18-20 seconds to complete one stroke.
4
pounds per square inch
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5
Stretch Blow machine blows 4 bottles in one stroke.
10
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10 PROJECT ECONOMICS
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11 FINANCIAL ANALYSIS
11.1 Projected Income Statement
Statement Summaries SMEDA
Income Statement
Rs. In actuals
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue 16,257,024 22,353,408 29,506,499 37,866,673 47,603,818 58,909,724 64,800,697 71,280,766 78,408,843 86,249,727
Cost of goods sold 12,347,210 16,470,549 20,664,692 25,304,121 30,431,003 36,091,566 38,341,738 40,748,705 43,324,710 46,083,045
Gross Profit 3,909,814 5,882,859 8,841,806 12,562,553 17,172,815 22,818,158 26,458,959 30,532,061 35,084,133 40,166,682
Other income 21,471 27,017 44,007 113,337 247,239 494,816 871,180 1,340,227 1,894,188 2,739,840
Earnings Before Interest & Taxes 1,413,300 3,472,488 6,152,852 9,605,770 13,965,829 19,421,677 23,122,054 27,316,122 32,039,690 37,547,646
Taxable earnings for the year 1,413,300 2,457,666 5,332,486 9,013,360 13,640,645 19,373,386 23,122,054 27,316,122 32,039,690 37,547,646
Tax 494,655 860,183 1,866,370 3,154,676 4,774,226 6,780,685 8,092,719 9,560,643 11,213,891 13,141,676
NET PROFIT/(LOSS) AFTER TAX 918,645 1,597,483 3,466,116 5,858,684 8,866,419 12,592,701 15,029,335 17,755,480 20,825,798 24,405,970
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Rs. In actuals
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Assets
Current assets
Cash & Bank 410,710 1,020,712 780,453 2,153,334 5,402,478 11,080,153 21,907,564 36,171,111 53,177,352 73,101,830 109,554,201
Accounts receivable - 812,851 1,930,522 2,592,995 3,368,659 4,273,525 5,325,677 6,185,521 6,804,073 7,484,480 8,232,929
Finished goods inventory - 102,893 137,255 172,206 210,868 253,592 300,763 319,514 339,573 361,039 384,025
Equipment spare part inventory - - - - - - - - - - -
Raw material inventory 2,312,572 3,187,013 4,216,419 5,423,369 6,833,445 8,475,607 9,344,356 10,302,153 11,358,124 12,522,331 -
Total Current Assets 2,723,282 5,123,470 7,064,648 10,341,904 15,815,449 24,082,876 36,878,361 52,978,300 71,679,121 93,469,681 118,171,155
Fixed assets
Land 2,358,889 2,358,889 2,358,889 2,358,889 2,358,889 2,358,889 2,358,889 2,358,889 2,358,889 2,358,889 2,358,889
Building/Infrastructure 3,541,900 3,364,805 3,187,710 3,010,615 2,833,520 2,656,425 2,479,330 2,302,235 2,125,140 1,948,045 1,770,950
Machinery & equipment 4,365,000 3,928,500 3,492,000 3,055,500 2,619,000 2,182,500 1,746,000 1,309,500 873,000 436,500 -
Furniture & fixtures 81,250 73,125 65,000 56,875 48,750 40,625 32,500 24,375 16,250 8,125 -
Office equipment 112,000 100,800 89,600 78,400 67,200 56,000 44,800 33,600 22,400 11,200 -
Total Fixed Assets 10,459,039 9,826,119 9,193,199 8,560,279 7,927,359 7,294,439 6,661,519 6,028,599 5,395,679 4,762,759 4,129,839
Intangible assets
Pre-operation costs 508,000 457,200 406,400 355,600 304,800 254,000 203,200 152,400 101,600 50,800 -
Total Intangible Assets 508,000 457,200 406,400 355,600 304,800 254,000 203,200 152,400 101,600 50,800 -
TOTAL ASSETS 13,690,320 15,406,789 16,664,247 19,257,783 24,047,607 31,631,315 43,743,080 59,159,298 77,176,400 98,283,240 122,300,993
Other liabilities
Long term debt 6,845,160 6,845,160 5,716,375 4,393,134 2,841,936 1,023,513 - - - - -
Total Long Term Liabilities 6,845,160 6,845,160 5,716,375 4,393,134 2,841,936 1,023,513 - - - - -
Shareholders' equity
Paid-up capital 6,845,160 6,845,160 6,845,160 6,845,160 6,845,160 6,845,160 6,845,160 6,845,160 6,845,160 6,845,160 6,845,160
Retained earnings - 918,645 2,516,128 5,982,244 11,840,928 20,707,347 33,300,048 48,329,383 66,084,863 86,910,661 111,316,631
Total Equity 6,845,160 7,763,805 9,361,288 12,827,404 18,686,088 27,552,507 40,145,208 55,174,543 72,930,023 93,755,821 118,161,791
TOTAL CAPITAL AND LIABILITIES 13,690,320 15,406,789 16,664,247 19,257,783 24,047,607 31,631,315 43,743,080 59,159,298 77,176,400 98,283,240 122,300,993
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Rs. In actuals
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Operating activities
Net profit - 918,645 1,597,483 3,466,116 5,858,684 8,866,419 12,592,701 15,029,335 17,755,480 20,825,798 24,405,970
Add: depreciation expense - 632,920 632,920 632,920 632,920 632,920 632,920 632,920 632,920 632,920 632,920
amortization expense - 50,800 50,800 50,800 50,800 50,800 50,800 50,800 50,800 50,800 50,800
Deferred income tax - - - - - - - - - - -
Accounts receivable - (812,851) (1,117,670) (662,474) (775,663) (904,866) (1,052,153) (859,844) (618,552) (680,407) (748,448)
Finished good inventory - (102,893) (34,361) (34,951) (38,662) (42,724) (47,171) (18,751) (20,058) (21,467) (22,986)
Equipment inventory - - - - - - - - - - -
Raw material inventory (2,312,572) (874,441) (1,029,405) (1,206,950) (1,410,076) (1,642,162) (868,750) (957,797) (1,055,971) (1,164,208) 12,522,331
Accounts payable - 797,824 788,760 450,661 482,338 535,712 542,576 386,884 261,622 281,042 (388,217)
Cash provided by operations (2,312,572) 610,003 888,526 2,696,122 4,800,341 7,496,099 11,850,924 14,263,547 17,006,241 19,924,478 36,452,370
Financing activities
Change in long term debt 6,845,160 - (1,128,785) (1,323,242) (1,551,197) (1,818,424) (1,023,513) - - - -
Issuance of shares 6,845,160 - - - - - - - - - -
Cash provided by / (used for) financing activ 13,690,320 - (1,128,785) (1,323,242) (1,551,197) (1,818,424) (1,023,513) - - - -
Investing activities
Capital expenditure (10,967,039) - - - - - - - - - -
Cash (used for) / provided by investing activ (10,967,039) - - - - - - - - - -
NET CASH 410,710 610,003 (240,259) 1,372,881 3,249,143 5,677,676 10,827,411 14,263,547 17,006,241 19,924,478 36,452,370
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12 KEY ASSUMPTIONS
Table 12-1: Operating Assumptions
Hours operational per day 8
Days operational per month 25
Days operational per year 300
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13 ANNEXTURE
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