THE PROJECT The scheme envisages establishment of a margarine/shortening and their by-product manufacturing unit with a rated capacity

of 18,000 tonnes to rated capacity of the project is based on 15 tonnes of processing (deodorizing )per batch of approx. 8 hours Which gives annual production of 18,000 tonnes of main products viz maragine/shortening in 300 days from 2 deodorization per day . The product range, their rated capacities and proposed selling price would be as under: S. NO ITEM RATED CAPACITY (TONNES) PROPOSED SELLING (RS./TONNES)

(MAIN PRODUCT) 24,625 1. Industrial Margarine /Shortening 18,000 (BY PRODUCT) 1Liquid Soap 1,800 15,500 2Chain Lubricant 300 14,000 (for confectionary units etc.) 3Carbon Di-oxide 150 4,500 On the basis of market demand, the proposed unit is expected to operate on the following capacity utilization: First Year 50% Second Year 55% Third Year Fourth 7 subsequent Year 60% 65%

The fixed cost of the project has been estimated at Rs.39.066 million. PRODUCT IDENTIFICATION: Margarine and shortening are diversified dibble fats products and can be classified under less Cholestrol caloric contanied food products obtained from various types of vegetable fats of saturated, unsaturated and semi-saturated categories. (saturated fats of satured, unsaturated single bond carbon linkages whereas un-saturated fats contain one or more double bond linkages). Margarine: are grainless greasy paste product containing above mentioned types of vegetable fats along with the additions of water (potable grade /disinfected), emulsifier, antioxidant, salts (in some cases), and vitamins A & D in certain quantity and specific ratio. Shortening: are from same raw materials but without addition of water, and salt they are also grainless paste products but their uses are different. Margarine /shortening, in fact, are essential ingredients of most types of bakery product classified by single fat or oil or a combination of several fats and oils. On processing shortening, certain physical changes are brought under control to achieve physical properties. Fats and oils are glycerol items of fatty acids predominantly they are triglyceroid having 3 fatty acids attached

to the glycerol. While single pure triglyceride will have a definite melting point. As temperature increases the triglyceroide melt and fat softens. The process is basically interest verification i.e molecular rearrangement. As both margarine/shortening produce uniform, unbroken greasy film these are widely used in biscuits, confectionaries, ice cream, and chocolate/toffee. Etc. By-products namely liquid soap and chain lubricants prepared fro lye obtained from soap stock (from bleacher) are widely used for cleaning of clothes and lubrication of conveyor chains of edible products respectively. Carbon di-oxide gas released from cracking plant is filled in cylinders (liquid form) and are used by bottlers and for multifarious applications. COST OF THE PROJECT & FINANCIAL PLAN

I.

COST OF THE PROJECT

Total fixed cost of the proposed project has been estimated at Rs. 39.066 million as per detail given in Annex-IV. The initial working capital to be contributed by the sponsors has been estimated at Rs. 8.534 million (annex-V). The summary of the total cost is given below: (Rs. In 000) COST OF BE TOTAL MET APPRAISED COST 600 2116 5638 30276 30276 1500 1500 500 500 552 552 34944 8534 43478 39066 8534 47600

S. NO.

PARTICULARS

1. 2. 3. 4. 5. 6.

Land Building Machinery (Installed Cost) Vehicles Furniture / Fixture Pre-Operating Expenses Total Fixed Cost: Net Initial Working Capital Total Cost

COST ALREADY MET 60 3522

4122

7.

4211

II.

FINANCING PLAN

The above cost has been proposed to be financed as under: (Rs. In 000) Total Cost Debts: IDBP L/C Assistance (LMM) IDBP L/C Assistance (BOR) Directors Loan Paid Up Capital Sponsors Contribution Total 24150 380 650

19000 47600

III.

DEBT EQUITY RATION:

The debt equity ratio in the fixed cost of the proposed scheme is estimated at 73:27 The debt equity ratio in the overall cost of the project will be 60:40 which is considered satisfactory. The sponsors stake in the total cost of the project in Rs. 19.650 million i.e. 41%.

IV.

SECURITY

The proposed IDBP local currency loan of Rs. 27.950 million (Rs. 24.150 million under SBP Scheme for LMM and Rs. 3.800 million from Banks Own Resources) will be secured by a first charge on the fixed assets of the company value estimated at s. 39.066 million on completion of the project. Project assets will provide security coverage of 1.37 times. The sponsors will provide outside collateral in shape of urban property to the extent of 25% of financial assistance worth Rs. 6.990 million. The directors of the company will also provides their personal guarantees. These security arrangements are considered satisfactory.

MARKET PROSPECTS

COST OF THE PROJECT Margarine was developed by French Chemist H. Mege-Mouries in the late 1860s. In Pakistan margarine (Industrial and Table) was introduced by M/s. Lever Brothers in 1985 under the brand name of Blue Band Margarine. Now, industrial margarine is also being manufactured by M/s. Agro Processor (Pvt.) LTd., Karachi. Another two new units in Karachi namely M/s. N.Y. Oil Mills (Pvt.) Ltd. and M/s. Saigal Ghee Mills (Pvt.) Ltd. would likely to commence production of margarine in mid of 1993.

Product Definition Margarine and shortening are diversified edible fat products and can be classified under the category of less cholesterol caloric contained food products obtained from various types of vegetable fats of saturated categories. Types There are mainly two types of margarine i.e. Table Margarine and Industrial Margarine, whereas shortening is also a type of industrial margarine which is without water. Uses of Margarine / Shortening Table margarine is a partial substitution of butter used by house holds whereas industrial margarine / shortening is used a s fat in bakeries items (patties, cream roll, ties, baker khani pillar sticks etc.) and other industrial end-users like confectionaries, ice cream and biscuits manufactures. RAW MATERIALS The basic raw materials are BD palm oil and soya bean oil, besides, other additives namely citric acid (food grade), phosphoric acid (for soya bean oil) and vitamin A&D

The import of palm oil and soya bean oil during last five years are given in the following table: Table I Import of Oil (Qty: Tons) Year 1987-88 1988-89 1989-90 1990-91 1991-92 Source : Palm Oil 458256 475007 594131 687957 886000 Foreign Trade Statistics Soyabean Oil 500313 383744 63219 271665 N.A.

These edible oil are being imported mainly from Argentina, Malaysia and the USA

DOMESTIC PRODUCTION CAPACITY At present four units in organized sector-three units in Sindh and one in Punjab (R.Y. Khan) are engaged in the production of margarine with a combined installed capacity of 22800 tons, details of which are given below: S.No. 1. Name M/s. Lever Brothers Pakistan Ltd. Rahim Yar Khan M/s. Agro Processors & Atmospheric Gases (Pvt). Ltd, Karachi M/s. Nutri Pak Food Industries (Pvt) Ltd. Karachi M/s. H.M. Oil Mills Ltd, Karachi Capacity (M.Ton) 7500

2.

900(22800)

3.

5400

4.

9000 (under implementation) 24000 46800

5.

M/s. Saigal Ghee Mills (Pvt) Ltd. Total Installed Capacity by 1992-93

NOTE: * National Bank of Pakistan Sanctioned financial assistance to M/s. Saigol Ghee Mills (Pvt) Ltd. in 1990 for expansion of their existing ghee unit for making industrial margarine with an installed capacity of 24000 tons. The unit is expected to commence production in July, 1993.

- 18 -

BAS MARGARINE

As can be seen from above table that industrial margarine is being produced by ghee/cooking oil mills and there is no sales tax/excise duty on production of these items whereas production of margarine in subject of sales tax (12.5%). Therefore, they hide the production of margarine and market their product in the name of Industrial Fat Thus authentic production figures of margarine are not available however, it was reliable learnt that M/s. Lever Bothers, Agro Processes and Nutri Pak are working at 80% capacity while the remaining unit namely H.M. Oil Mills has just started production and expected to utilize 50% of its installed capacity in 1992-393 on the basis of capacity utilization, the estimated production therefore was around 11040 tone during 1991-92 DEMAND FOR INDUSTRIAL MARGARINE The demand for industrial margarine / shortening stems for bakeries, biscuit, confectionary and ice cream manufacturers and to the some extent from Desi Sweet producers like Ahmed Food Industries (Pvt) Ltd. and by hotels / restaurants for frying purposes. The demand for industrial margarine / shortening can be worked out by considering the following factors of industrial end-users and bakeries: i. Installed capacity, capacity utilization and percentage of use by end users (biscuit, confectionary and ice cream manufacturers); Total number of bakeries and their average annual consumption of industrial margarine

ii.

1.

Installed Capacity of Biscuit, Confectionary and Ice Cream Manufactures

The installed capacities of industrial end users of industrial margarine / shortening is given below: Table II Installed Capacities of Biscuit, Confectionary and Ice Cream Manufacturers in Pakistan (Qty: in Tons) Province Sindh Punjab Balochistan NWFP/Islamabad Misc. Total Biscuit / Wafers 24572 10344 4800 3328 43066 Confectionary (Toffees etc.) 19600 19510 1180 1457 53754 Ice Cream 3252 3616 448 1604 8920

Source: Market Enquiries

2.

BAKERIES

In order to ascertain the demand for industrial margarine by bakeries a sample survey of bakeries located in five cities namely Lahore, Faisalabad, Rawalpindi/Islamabad and Peshawar was undertaken. The details of daily consumption pattern of industrial margarine used by bakeries are summarized below: Table III Name of City Bakeries Surveyed Lahore 27 Faisalabad 20 Rawalpindi/Islamabad 32 Peshawar 11 Karachi 10 Total 100 Bakeries Not Using Margarine 9 8 3 1 2 23 Ice Cream 33% 40% 9% 9% 20% 23%

Table IV Daily Consumption No. of Bakeries Margarine Usage Kgs/Daily Av: (Kgs. Day) Lahore 27 373 13.82 Faisalabad 20 129 6.45 Pindi/ Islamabad 32 410 12.81 Peshawar 11 132 12.00 Karachi 10 142 14.2 Total 100 1186 11.86

Margarine consumption of a bakery per annum = 4.2 tons No. of Operating days = 360

Number of Bakeries: The total number of bakeries in Pakistan as informed by various bakery owners / association are around 17000 to 18000. It is pertinent to mention that total number of bakeries as listed by Federal Bureau of Statistics (FBS) were 6281 in 1983-84 in the country as per PSIC Survey in 1987. The survey conducted by Punjab Small Industries Corporation (PSIC) in 1987-88 have taken a growth rate of 6% to 25% for bakeries during the period 1983-88. Assuming a conservative growth of 10% per annum, the bakery units in the country would number between 17000 to 18000 and the same seems to be justified

B-Furnace Oil Quantity / Ann @ Rs. / Ton Furnace Oil = Rs. C-Water Quantity / Ann @ Rs. Total Cost = Rs. 2000 2400 4800 5000 100 500

Power, Water, Fuel & Other (Year wise) Year of Operation Yr 1 1740 5806 7546 Yr2 1740 6387 8127 Yr 3 1740 6968 8708 Yr4 1740 7548 9288

Fixed Cost Variable Cost

(1)

Depreciation

(Rs. In 000) Cost 30276 5638 Rate % 0.1 0.05 Amount 3028 282 3309

Machinery Building

(2)

Depreciation

(Rs. In 000) Cost 500 1500 Rate % 0.15 0.2 Amount 75 300 375

Furniture / Fixture Building

Estimate of General & Admin Expenses & Selling Expenses Years of Operation General & Admin Expenses Salaries Office Salaries Printing & Stationery Postage, Telephone, Telegram, Elect Rent Rates, Taxes & Insurance Traveling Expense Legal & Entertainment Depreciation Pre-Operating Expenses Written off Sub-Total (A) Total Packing & Selling Expenses Year of Operation Commission & Distribution 100% Yr. 1 1557 200 300 100 500 100 375 110 3242 Yr. 1 2228 5470 Yr. 2 1635 250 350 125 600 125 375 110 3570 Yr. 2 2576 6146 Yr. 3 1713 300 400 150 700 15 375 110 3898 Yr. 3 2811 6709 Yr. 4 1794 350 450 175 800 175 375 110 4230 Yr. 4 3047 7276

(2)

Office Sales Staff Salaries No. 1 1 2 2 1 Salary Rs. Per Month 15000 8000 4000 3000 3000 Salary Rs. Per Annum 180000 96000 96000 72000 36000

(Aamir) Office Salaries) General Manager C. Accountant Accountant Accountant Asstt. Labour Officer

Security Officer Store Keeper Typist / Clerks Driver Peon Chowkidar Sub-Total (A) Total

1 1 4 3 4 4

3000 2500 1500 1500 1000 1000

36000 30000 72000 54000 48000 48000 768000

2. (B) Sales Staff Sales Manager Sales Officer Sales Assistant Sub-Total 2 (B) TOTAL 2 (A+B)

No. 1 2 3

Salary Rs. Per Month 8000 3500 2500

Salary Rs. Per Annum 96000 84000 90000 270000 1038

(Rs. In 000)

Year of Operation Basic Salary Increment 5.00% Total Basic Salary Fringe Benefits Total Office Salaries 50.00%

Yr. 1 Yr. 2 Yr. 3 Yr. 4 1038 1038 1090 142 52 52 54 1038 1090 1142 1196 519 1557 545 1635 571 1713 598 1794

THE PROPOSED MARKETING MIX: The intended marketing mix of M/S. MARGARINE would be as follows: 1. The Product:

The proposed product is industrial margarine/shortening which is used with different melting points by bakeries, confectioners, ice cream makers where as shortening is used by biscuit manufacturers. M/s. Lever Brothers are marketing their product in the brand name of Uni Puff/Master Puff. The brand name of Agro Processors product is Taqat, whereas Maza Industrial Fat is being marketed by M/s. M.H. Oil Mills.

- 23 -

BAS MARGARINE

2.

PRICE:

The intended ex-factory price of 16 kgs. Carton would be Rs. 380/3. BY-PRODUCTS 1. 2. 3. Liquid Soap Cain Lubricant Carbon Di-oxide Rs. Rs. Rs. 12000/- ton 14000/- ton 45000/- ton

4.

PROMOTION

The samples of products shall be provided to the bakeries to the bakeries and other industrial end-users for test / use. 5. PLACE

M/S. MARGARINE proposed to appoint distributors in main cities of Pakistan especially in Karachi and other parts of Sindh. Manufacturer

Distributor

Direct Purchases

Door to Door Delivery

CONCLUSION From the foregoing analysis, the conclusion drawn that proposal of M/S. MARGARINE (*Pvt) Ltd., Nooriabad to setup an industrial margarine / shortening manufacturing unit would not face difficulty in marketing their product if they could produce good quality product and execute an efficient marketing / sales promotion strategy.

CONCUSSION AND RECOMMENDATION Having appraised and evaluated, the project is considered technically, economically and financially viable and suitable for IDBP financing. It is, therefore, recommended that a local currency assistances of Rs. 27.950 million Rs. 24.150 million under SBP Scheme for locally manufactured machinery (LMM) and Rs. 3.800 million from Banks own recourses) may be sanctioned to M/S. MARGARINE (Pvt) Ltd., at resale price of Rs. 71.406 million (Net rebate Rs. 44.502 million) on the Banks standard terms and the following conditions: 1. SCHEDULE OF PAYMENTS OF RESALE PRICE Rs. 24.150 million under SBP Scheme for LMM

Resale price of Rs. 63.322 million to be paid by the customer in 16 equal half yearly installments of Rs. 6.958 million each (rebated installment of Rs. 2.322 million each will be accepted if paid within due date): The resale price and schedule of payments are subject to change as may be determined by IDBP as soon as practicable or when purchase price has been paid by IDBP. Rs. 3.800 million from banks Own Resources Resale price of Rs. 8.804 million to be paid by the customer in 20 equal quarterly installments of Rs. 0.404 million each. In case if payment is made on or before due date the amount of installment shall stand reduced to Rs. 0.368 million. The resale price and schedule of payments are subject to change as may be determined by IDBP as soon as practicable or when purchase price has been paid by IDBP. 2. i. BANKS CHARGES Commitment charges @ percent of the 1st quarter and @ percent per quarter for the subsequent quarters on the undisguised portion of financial assistance. Charges for IDBPs interim finance as per rates in fore, presently @ 22 paisas per rupee per annum (without rebate). Documentation charges @ % of financial assistance. Monitoring fee @ 0.125% per annum on the outstanding liability amount. Other charges as per rates inforce.

ii.

iii. iv. v.

3.

DISBURSEMENT SCHEDULE

Local currency assistance of Rs. 27.950 million (Rs. 24.150 million under SBP schema for LMM and Rs. 3.800 million form banks Own Resources) shall be disbursed in installment or in full to the local machinery supplier for purchase of locally manufactured machinery in accordance with

the Banks procurement procedure for purchase of locally manufactured machinery. The disbursement will be made keeping in view security coverage of 1.5 times. 4. DURATION AND REPAYMENT For LMM scheme Financial assistance under SBP scheme for LMM to be repaid in 10 years including a grace period of 2 years in 16 biannual installments. First installment of resale price shall be payable by the company on March 31 or September, 30 whichever date falls first after 2 years from the date of disbursement of 1st installment of IDBPs financial assistance. For Banks Own Resources Financial assistance from Banks Own Resources to be repaid in 7 years including a grace period of 2 years in 20 quarterly installments. First installment of resale price shall e payable installments. First installment of resale price shall be payable by the company on March 31, June, 30, September 30 and December 31 whichever date falls first after 2 years from the date of disbursement of 1st installment of IDBPs financial assistance SECURITY

a.

b.

5.

Before signing the financing agreement / disbursement of letter of funds the company shall: i. Transfer the title deeds of land measuring 4 acres located at Nooriabld Industrial Estate, District Dadu, Sindh in the name of the company and the same will be mortgaged with the Bank. The cost of land including development charges is estimated at Rs. 0.600 million. Execute an agreement to mortgage / hypothecate the existing and future fixed assets of the company value estimated as under:

ii.