HERBAL GUTKA 1.0
INTRODUCTION Manufacture of herbal gutka is a new concept. Chewing of beetle (popularly known as Paan) is an age-old Indian tradition. Since last few years, many types of gutkas have been introduced in the market and they have become very popular. Many varieties of paan or gutka are available in the market with many ingredients including chewing tobacco. Excessive consumption of tobacco is dangerous as it may cause cancer. Even non-tobacco varieties are harmful in the long run with many side effects. As a matter of fact, this is a kind of addiction. Many variants are available in the market but herbal gutka is yet to be seen.
2.0
PRODUCTS Chewing of paan or gutka is one type of addiction with many side effects. Hence a new concept of herbal gutka, which will not have side effects but may even help the digestive system, is discussed in this note. The product may also result in
de-addiction to some
extent. This product can be manufactured in many states like UP,Bihar, Jharkhand,Orissa etc and this note considers Bihar as a preferred location. 2.1 3.0
Compliance with PFA Act is necessary.
MARKET POTENTIAL 3.1
Demand and Supply
After-mints are very popular throughout the country, with chewing of tobacco or non-tobacco paan, beetle-nuts or gutka being the most popular varieties. Over a period of time, they become addiction and it becomes extremely difficult to get rid of such habits even though they are harmful in the long run. Likewise, many mouth fresheners are available in the
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market as harmless alternatives. But herbal gukta is a new concept and would amount to concept selling. Market for gutkas is very large and scattered and it is growing very rapidly. Consumption of tobacco in any form is discouraged with restrictions like non-use at public places, no sales to children below 18 years of age and so on. 3.2
Marketing Strategy
With increasing health awareness, people at large have started disliking such hazardous products. Thus, this is the most appropriate time to come out with an alternate product which is not harmful, helps reduce addiction and may prove useful. Proper understanding of consumer needs, attractive packaging and adequate and strategic placement are the key factors. 4.0
MANUFACTURING PROCESS The process of manufacture is simple. All the ingredients are cleaned and passed through sieves to remove impurities. They are then ground individually in roller grinder. Then all of them are blended in a blender to obtain a homogenous mix. Finally, the desired quantity is packed in printed pouches on form, fill and seal machine.
5.0
CAPITAL INPUTS 5.1
Building
There is no need to go in for buying a piece of land. Instead a readymade shed of around 80 sq.mtrs. may be bought. The total cost of shed is expected to be Rs. 1, 75,000/-. Production area would occupy 40 sq.mtrs. whereas packing, godowns and a small office would occupy the balance 40 sq.mtrs. 5.2
Plant and Machinery
This is a new concept and with proper network backed by publicity, the product may receive good response. Hence, rated production capacity of 20 tonnes with working of 2 shifts every day and 300 working days every year is suggested. For this, the following equipments will be required: Item
Qty.
Price (Rs.)
Blender Mixers- 25 Kgs. Capacity
2
1,00,000
Multi-screen Round Sieves
2
60,000
Roller Grinder
1
70,000
Form, Fill and Seal Machines
2
2,50,000
Weighing Scale
1
10,000
Total
4,90,000
5.3
Miscellaneous Assets
Other support assets like furniture and fixtures, storage facilities, plastic tubs etc. shall be required for which a provision of Rs. 45,000/- is made.
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5.4
Utilities
Electricity requirement will be 15 HP whereas water of around 700-750 ltrs. will be required every day. 5.5
Raw Materials
Type and individual proportion of several herbs and other ingredients may vary depending upon local tastes and preferences. But it is advisable to consult a technical expert and then finalise the quantity of each ingredient. Items like sauf, ajwain, sunth, mulethi, kala namak, menthol shall be required. Individual quantity not being very large, availability will not be a problem. Metallised pouches of 5 gms. capacity shall be required along with labels and small corrugated boxes. 6.0
7.0
MANPOWER REQUIREMENTS Particulars
Nos.
Monthly Salary (Rs.)
Total Monthly Salary (Rs.)
Skilled Worker
4
2,000
8,000
Helpers
4
1,000
4,000
Salesman
1
2,000
2,000
Total
14,000
TENTATIVE IMPLEMENTATION SCHEDULE Activity
8.0
Period (in months)
Application and sanction of loan
2
Site selection and commencement of civil work
1
Completion of civil work and placement of orders for machinery
4
Erection, installation and trial runs
1
DETAILS OF THE PROPOSED PROJECT 8.1
Building
Particulars
Area (Sq.Mtrs)
Cost (Rs.)
80
1,75,000
Building 8.2
Machinery
As discussed earlier, the total cost of machinery is likely to be Rs. 4.90 lacs. 8.3
Miscellaneous Assets
A provision of Rs. 45,000 is adequate under this head as explained earlier.
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8.4
Preliminary & Pre-operative Expenses
For pre-production expenses like registration, establishment and administrative expenditure, quick market survey and advice from a technical expert on composition of various ingredients, interest during implementation, trial run expenses etc. a provision of Rs. 80,000/is made. 8.5
Working Capital Requirement
It is expected that the plant would operate at 60% of its rated capacity in the first year for which there will be following working capital needs. (Rs. in lacs) Particulars
Period
Margin
Total
Bank
Promoters
Stock of Raw and Packing Materials
1 Month
30%
1.00
0.70
0.30
Stock of Finished Goods
½ Month
25%
0.80
0.60
0.20
Receivables
½ Month
25%
1.00
0.75
0.25
Working Expenses
1 Month
100%
0.30
--
0.30
Total
3.10
2.05
1.05
8.6
Cost of the Project and Means of Financing Item
(Rs. in lacs) Amount
Land and Building
1.75
Machinery
4.90
Miscellaneous Assets
0.45
P&P Expenses
0.80
Contingencies @ 10% on Building and Plant & Machinery
0.66
Working Capital Margin
1.05
Total
9.61
Means of Finance Promoters' Contribution
2.80
Loan from Bank/FI
6.81
Total
9.61
Debt Equity Ratio
2.43 : 1
Promoters' Contribution
29%
Financial assistance in the form of grant is available from the Ministry of Food Processing Industries, Govt. of India towards expenditure on technical civil works and plant and machinery for eligible projects subject to certain terms and conditions.
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9.0
PROFITABILITY CALCULATIONS 9.1
Production Capacity and Build-up
As against the rated capacity of 20 tonnes per year, the plant is expected to run at 60% and 75% respectively during first 2 years. 9.2
Sales Revenue at 100%
No. of Pouches (5 gms each) 40,00,000 9.3
Selling Price
Sales
per Pouch
Value (Rs.)
Re.1/-
40,00,000
Raw Materials Required at 100% (Rs. in lacs)
Product
Qty. (Tonnes)
Rate per Ton (Rs.)
Value
2.4
1,00,000
2.40
9.00
50,000
4.52
Mulethi
2.5
70,000
1.75
Sunth
4.0
1,00,000
4.00
Kala Namak
2.8
20,000
0.56
Menthol
0.3
4,50,000
1.35
Ajwain Sauf
Total [A] Metallised Pouches
14.58 42.00 Lac (Nos.)
Rs.0.10 per pouch
4.20
--
--
1.00
Labels, Box strapping and corrugated boxes, etc. Total [B]
5.20
Grand Total [A] + [B]
9.4
19.78
Utilities
Requirements are already explained earlier. Annual expenditure at 100% is assumed to be Rs. 72,000/-. 9.5
Selling Expenses
Dealers, retailers need to be offered attractive discounts, schemes, sampling etc. Publicity in local media like scroll in local TV channel, pamphlets, and hoardings are also needed. Hence a provision of 20% of sales is made every year.
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9.6
Interest
Interest on term loan assistance is calculated @ 12% per annum assuming repayment of loan in 4 years including a moratorium period of 1 year. Interest on working capital assistance from bank is worked out as 14% per annum. 9.7
Depreciation
It is calculated on WDV basis @ 10% on building and 20% on machinery and miscellaneous assets. 10.0
PROJECTED PROFITABILITY (Rs. in lacs) No.
Particulars
A
Installed Capacity
1st Year
---- 20 Tonnes ----
Capacity Utilisation
60%
75%
24.00
30.00
11.86
14.82
Utilities
0.43
0.54
Salaries
1.68
1.90
Stores & Spares
0.24
0.36
Repairs & Maintenance
0.36
0.48
Selling Expenses @ 20% of Sales
4.80
6.00
Administrative Expenses
0.48
0.66
19.85
24.76
Profit before Interest & Depreciation
4.15
5.24
Interest on Term Loan
0.76
0.50
Interest on Working Capital
0.28
0.33
Depreciation
1.18
0.94
Net Profit
1.93
3.47
Income-tax @ 20%
0.40
0.70
Profit after Tax
1.53
2.77
Cash Accruals
2.71
3.71
--
2.10
Sales Realisation B
Cost of Production Raw and Packing Materials
Total C
2nd Year
Repayment of Term Loan
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11.0
BREAK-EVEN ANALYSIS
(Rs. in lacs)
No
Particulars
Amount
[A]
Sales
[B]
Variable Costs
30.00
Raw & Packing Materials
12.0
14.82
Utilities (70%)
0.38
Salaries (70%)
0.95
Stores & Spares
0.36
Selling Expenses (70%)
4.20
Admn. Expenses (50%)
0.33
Interest on WC
0.33
21.37
[C]
Contribution [A - [B]
8.63
[D]
Fixed Cost
5.16
[E]
Break-Even Point [D] ÷ [C]
59%
[A]
LEVERAGES Financial Leverage = EBIT/EBT = 2.97 ÷ 1.93 = 1.54
Operating Leverage = Contribution/EBT = 6.68 ÷ 1.93 = 3.46
Degree of Total Leverage = FL/OL = 1.54 ÷ 3.46 = 0.45
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[B]
Debt Service Coverage Ratio (DSCR) (Rs. in lacs)
Particulars
1st Yr
2nd Yr
3rd Yr
4th Yr
Cash Accruals
2.71
3.71
4.24
4.83
Interest on TL
0.76
0.50
0.32
0.11
Total [A]
3.47
4.21
4.56
4.94
Interest on TL
0.76
0.50
0.32
0.11
--
2.27
2.27
2.27
Total [B]
0.76
2.77
2.59
2.38
DSCR [A] ÷ [B]
4.57
1.52
1.76
2.07
Repayment of TL
Average DSCR
[C]
---------------------------- 2.48----------------------------
Internal Rate of Return (IRR)
Cost of the project is Rs. 9.61 lacs. (Rs. in lacs) Year
Cash Accruals
24%
28%
32%
1
2.71
2.18
2.12
2.05
2
3.71
2.41
2.26
2.13
3
4.24
2.22
2.02
1.84
4
4.83
2.04
1.80
1.59
5
5.27
1.80
1.53
1.32
20.76
10.65
9.73
8.93
The IRR is around 28%.
Some of the machinery and packing material suppliers are as under: 1.
AMS Engg, Station Road, Patna
2.
S R Trading Co, MG Road, Patna
3.
Lakhanpal Food Processing Machinery, 36/6, Balkashwar RD,Agra-282004. Tel No. 2540726.
4.
Sadanand Aprotech Pvt. Ltd., B-34, Mini Nagar, Dahisar(E), Mumbai-400068. Tel No. 28114536/28104143
5.
Jain Packaging Products, 33, Sarai Pipal Thala, Sabjimandi, New Delhi-110033.
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