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Pre-feasibility Study
Purified Bottled water
Pre-Feasibility Study
Water Bottling Plant Reverse Osmosis
Small and Medium Enterprise Development Authority Government of Pakistan www.smeda.org.pk HEAD OFFICE Waheed Trade Complex, 1st Floor , 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore Tel: (042) 111-111-456, Fax: (042) 5896619, 5899756
[email protected] REGIONAL OFFICE PUNJAB Waheed Trade Complex, 1st Floor, 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore. Tel: (042) 111-111-456 Fax: (042) 5896619, 5899756
[email protected]
REGIONAL OFFICE SINDH
REGIONAL OFFICE NWFP
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5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572
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Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 9213046-47 Fax: (091) 286908
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Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 831623, 831702 Fax: (081) 831922
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PREF-3/September, 2004/Rev1
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Purified Bottled water
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-3
Revision
1
Prepared by
SMEDA-Sindh
Approved by
Provincial Chief - Sindh
Issue Date
September, 2004
Issued by
Library Officer
PREF-3/September, 2004/Rev1
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Purified Bottled water
1
INTRODUCTION TO SMEDA .................................................................................................................3
2
PURPOSE OF THE DOCUMENT ............................................................................................................4
3 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT IN THE PROJECT...............................................................................................................................................................4 4
PROJECT PROFILE..................................................................................................................................5 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11
5
WATER AND ITS ESSENTIALITY ..................................................................................................................5 OPPORTUNITY RATIONALE .........................................................................................................................6 PROJECT BRIEF ..........................................................................................................................................6 PROJECT INVESTMENT ...............................................................................................................................6 PROCESS ....................................................................................................................................................7 PROJECT CAPACITY AND RATIONALE ........................................................................................................7 PROPOSED PRODUCT MIX ..........................................................................................................................8 PROPOSED BUSINESS LEGAL STATUS .........................................................................................................8 FINANCIAL SUMMARY ...............................................................................................................................8 PROCESS FLOW ..........................................................................................................................................8 PROPOSED LOCATION ................................................................................................................................9
STRATEGIC RECOMMENDATIONS ..................................................................................................10 5.1 MARKET ENTRY TIMING .........................................................................................................................10 5.2 KEY SUCCESS FACTORS ...........................................................................................................................10 5.2.1 Marketinge....................................................................................................................................10 5.2.2 Pricing ..........................................................................................................................................10 5.2.3 Product Packaging……………………………………………………….……….……………………….. 10 5.2.4 Availability……………………………………………………………..…………………………………….11
6
SECTOR AND INDUSTRY ANALYSIS.................................................................................................11 6.1 6.2
BRANDS AVAILABLE IN THE MARKET .....................................................................................................13 LEGAL REQUIREMENTS ............................................................................................................................14
7
MACHINERY & EQUIPMENT REQUIREMENTS…………………………..………………………17
8
HUMAN RESOURCE REQUIREMENT ...............................................................................................17
9
LAND & BUILDING REQUIREMENT .................................................................................................18
10
FINANCIAL ANALYSIS..........................................................................................................................19
11
KEY ASSUMPTIONS...............................................................................................................................19
12 FINACIAL STATEMENTS…………………………………………………….…………………………21
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INTRODUCTION TO SMEDA
The Small and Medium Enterprise Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program.1 Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved overhauling of the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development. SMEDA has so far successfully formulated strategies for sectors including, fruits and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear, textiles, surgical instruments, transport and dairy. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation. Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides help desk services as well as development of project specific documents. These documents consists of information required to make well researched investment decisions. Sectoral research studies, pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way.
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PURPOSE OF THE DOCUMENT
The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, production, marketing, finance and business management. The document also provides sectoral information, brief on government policies and international scenario, which have some bearing on the project itself. This particular pre-feasibility is regarding production of purified drinking water on commercial basis which comes under food sector. Before studying the whole document one must consider following critical aspects, which forms the basis of any investment decision.
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CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT IN THE PROJECT
Before making any investment decision, it is advisable to evaluate the associated risk factors by taking into consideration certain key elements. For establishing a water purification plant critical factors that should be considered before launching are described below. The market for purified bottled / mineral water is a growing market, but offers tough competition. Perception / positioning of the new brand. Usually the top target market for bottled mineral water follows the perception. If the perception is positive, the results will be higher sales. The positive perception for distributors and final customers may result from direct consumer experience, awareness, direct promotional activities, print media and TV advertising. Distribution is very important for the success of new brand. The stronger the distribution the more successful will be the new brand. The distribution strategy should be designed after a careful study of the market for going for regional distribution or for nation wide distribution. Pre-launch advertising is vital for positive perception of the product which will result in higher product acceptance. Compliance of the water quality standards of Pakistan Standards & Quality Control Authority (PSQCA) and license from the authority. Availability of product at A class, B class or C class shops should be decided before launching the product and availability should be persistent. Table 3-1 Project Time Lines S. No 1 2 3
Activity Civil Works Plant order and lay out Pre-opening operations
Time (Months) 2 3 1
The construction of civil works has been estimated to be completed in two months and the plant order, lay out and installation is estimated to have a time period of three months. The 3
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time required for pre-opening operations is one month. It also includes pre-launch advertisements on TV and in print media. The project time line may extend and cut back depending upon the start of activities on parallel basis or one after another.
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PROJECT PROFILE
12. 1
Purification of Water
The process of purified bottled water manufacturing consist of collecting water from a suitable source, filtration, demineralization, blending with salts, aeration, testing for standards conformation, bottling and packaging. A process for the production of bacteria free, clean and palatable bottled water was developed by PCSIR Laboratories complex Karachi. It had very simple process consisting of physical operations of settling, filtration and Ultra Violet radiation treatment. This plant was put into process in 1987. During 1990’s much of the mineral water was imported. But today there are more than 26 brands of drinking water available in the market thus showing a substantial growth by the industry. Table 4-1 Mineral Water Imports in Pakistan Year 1992-93 1993-94 1994-95 1995-96
Quantity (liters) 694,249 814,338 1,660,951 2,328,460
Value (‘000’ Rs.) 3188 5384 10,741 12,856
Source: Federal Bureau of Statistics
12. 2
Opportunity Rationale
The market for mineral water has been showing a mushroom growth trend over the last few years. The country’s market is very small on a global scale and was estimated at 33 million liters a year by the end of 19992. The last three years have shown more growth and the market has been estimated to grow 70 million liters and the per capita consumption is 0.5 liter. The annual growth rate for bottled water is 40%. According to a study conducted in 2001, Pakistan registered the highest growth of 140% in 2000 amongst the countries in Asia and Middle East region. The potential markets for bottled /mineral water consists of foreign tourists and foreigners working in Pakistan, hotel industry, patients (bottled water is also used to avoid the possible consumption of contaminated water for the patients) and travelers. Moreover the bottled / mineral water has been emerging as a daily preference of the elite class. Karachi being the biggest city of Pakistan has been facing the problem of drinking water shortage. This further integrates the demand for pure drinking water in Karachi city.
2
Sector Profile, Industrial Bulletin, October 2003 (Experts Advisory Cell)
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Project Brief
12. 3
This proposed project presents an investment opportunity for establishing a bottled water plant for providing pure drinking water. The proposed product line will consist of bottles of 1.5 and 0.5 liters. In the initial phase of the project only 0.5 liter and 1.5 liters bottles will be introduced in the local market. After successful introduction of the new brand of bottled water the product line may be extended to 13 and 19 liter cans.
Project Investment
12. 4
The total cost of the project has been worked out to be Rs. 20.23 million. This includes a fixed cost of Rs. 17.96 million and a working capital requirement of Rs. 2.27 million. Period of construction is two months for civil works and thee months for machinery & equipment layout and installation.
Process
12. 5
Two sources of water can be used for purification purposes on commercial basis.
Ground Water Water supply from KWSB (in Karachi)
The ground water option is relatively costly as it involves more treatment. The ground water available in Karachi at different areas has different chemical composition and the treatment would vary depending upon the chemical composition from area to area. The water supply from KWSB is more feasible as compared to the ground water available in Karachi. Water can be purchased from KWSB on commercial basis. This feasibility study focuses on KWSB water as source of water. For the purpose of this feasibility study, two samples of KWSB water has been taken and their chemical composition was analyzed The chemical analysis of these samples is as following. The cost of purification plant is dependent on the analysis of the available water. The treatment varies from place to place (incase of ground water) and from source to source. Table 4-2 Analysis of KWSB water PH
Conductivity Sulphate Bicarbonate Chloride Magnesium Calcium Potassium Sodium TDS (Total
Dissolved
Source-I 7.50 452 us/cm 58 ppm 107 ppm 48 ppm 11 ppm 36 ppm 6 ppm 34 ppm 270 ppm 5
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Source-II 7.62 492 us/cm 57 ppm 111 ppm 57 ppm 12 ppm 39 ppm 6 ppm 40 ppm 295 ppm
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solvents) Total Coliform Count Farecal Californ Count Total Bacterial Count
12. 6
Zero /DL Zero /DL 4.0x102 cfu/m
Zero /DL Zero /DL 4.6x102 cfu/m
Project Capacity and Rationale
This study has been made with the focus of Karachi city. Karachi has been facing the problem of water shortage. The population has been growing at the rate of 3.48 annually. The proportion of Urban and rural population in Sindh is 48.8 and 51.2 respectively. It also shows that the major portion of the population is in the cities and Karachi comes out to be a major target market for new product. The population of Karachi city is 9,339,023 according to 1998 population, which is around 30.69 % of the population of Sindh. The sources of drinking water for Sindh region are as following. Table 4-3 Drinking Water Sources (In percent) Sources Sindh Rural Urban
Pipe (Nul)
Hand Pump Well 41.70 36.51 16.81 52.22 74.53 15.88
Others 8.54 12.78 2.98
13.24 18.18 6.76
Source: FBS
Depending on the minimum feasible plant capacity and situation of supply of different brands of purified bottled water and future expansions, a plant size of 15,000 Gallons per day is recommended.
12. 7
Proposed Product Mix
This feasibility has been developed for a water purification plant with a capacity of 15000 gallons per day. The product mix consists of water bottles of 1.5 liters and 0.5 liter in the ratio of 80% and 20 % respectively. Table 4-4 Recommended Project Parameters Capacity Human Resource 41 15000 Gallons per day
12. 8
Technology/Machinery Local + imported
Location Karachi
Proposed Business Legal Status
There are three main forms of business: Sole Proprietorship, Partnership and Company. An enterprise can be a proprietorship or a partnership and even it can be registered under 6
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company law with corporate law authority. Although selection totally depends upon the choices of the entrepreneur, but this feasibility study has been based on a private limited company.
12. 9
Financial Summary
The financial cost of the project can be summarized as under: Project Cost 13,599,037 12. 10
IRR 57%
MIRR 27%
Payback Period (yrs) 2.18
NPV 44,764,923
The Process Flow
The first step for setting up a water purification plant is the analysis of source of water. After the chemical analysis, the specifications of the purification plant are set. In the purification plant, source water is stored in the feed water tank, passes through the sand filter for preliminary water filtration. Water then passes through the dosing pump-I where chlorine is added to kill the germs in the water. After the chlorination, water passes through carbon filter. It helps in the maintenance of proper odour and taste of the water. It also removes chlorine from water. Water is then passes from dosing pump-II, where Sodium Meta Bisulphate is added. It helps in dechlorination of water. Water is filtered next and passes through dosing pump-III, where anti scallant is added. It prevents scaling of membrane from calcium, magnesium and biological growth. Water then passes through reverse osmosis module. This stage of the process makes water clear from all the contaminations and minute particles. Water then passes through dosing pump-IV, where minerals are added for taste development. After this stage, water undergoes Ultra Violet treatment to avoid any contamination from bacteria and other micro organisms. The water then passes through Ozonator to further kill the germs and micro organisms. Water then passes through automatic washing, filling and capping plant. Here water is filled into bottles. After filling bottles are taken into the ware house or shipped to the retailers. The complete process flow diagram3 is as under.
3
WATERMAN INTERNATIONAL, Karachi
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Feed Water Tank
Feed Water Pump
Sand Filter
Dosing Pump-II
Carbon Filter
Dosing Pump -I
Micron Filter
Dosing Pump-III
Reverse Osmosis Plant
Ultra Violet
Product Water Tank
Dosing Pump IV
Ozonator
Automatic Washing, Filling & Capping plant
Ware house
12. 11
Proposed Location
Any industrial area in Karachi where KWSB water is easily available is ideal for this project.
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STRATEGIC RECOMMENDATIONS
12. 12
Market Entry Timing
The weather is the main dynamic that may bring changes in the market size of the purified drinking water as the daily water requirement increases in summer. When launching a new brand of purified water for bulk market, weather is the main dynamic, which should be given proper consideration. The demand pattern for retail market of purified bottled water is not affected by the weather. The advertisement including TV and print media is expected to bring changes in the demand. However, it is suggested that the new brand of purified bottled water is launched in the start of summer season. The entrepreneur have to match the brand launching time with the advertisement and weather that would drive the demand of bottled water and willingness of consumers to switch towards new brands.
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12. 13 5.1.1
Purified Bottled Water
Key Success Factors Marketing
Branding and marketing of bottled water is as essential as water for the survival of the human body. The traditional marketing tools include site advertisements, TV and print media advertising and brochures. This study allocates 10% of the revenue for advertising and promotional purposes. Apart from the traditional marketing tools, this study suggests to focus more on other marketing magnets that include interactive marketing. Interactive marketing may include educating the general public about the importance of water and its daily consumption requirements for human body through the participation in seminars and in general public gatherings (e.g. College and university gatherings). One of the marketing options is to sponsor public events like cricket matches or hospital campaigns, distributing free brochures about water and its daily consumption, water requirements in different age brackets. The interactive marketing may be designed through seminars and workshops about the daily human consumption requirements and diseases originating from the lack of pure water. Over all marketing strategy may change with the change of target market. A market research study is recommended to design the different dynamics of marketing before launching the new brand. Marketing expense has been included in the total project cost and it has been estimated around Rs. 5 million. The entrepreneur may decide to increase or decrease the amount of marketing expense depending upon his choice of promotion activities and type of media used. Following table gives the break up of the marketing expense.
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Purified Bottled Water In % age of the marketing expense
TV Advertisement SITE Advertisement Newspapers Magazines Point of Sales Marketing
40% 10% 38% 4% 8%
Pricing
5.1.2
The pricing strategy should be in line with the going rate market prices of the different local brands. Since a new brand has to face a lot of competition from the market, it is suggested that the price ceiling should not be crossed what ever price strategy be adopted. Product Packaging
5.1.3
Product packaging and presentation is one of the main dynamics which control the flow of target customers towards the product. Packaging should be inline with the industrial norms. Packaging may also vary with the understanding of the target market. It is suggested that the bottles of 0.5 liter and 1.5 liter capacity should be used. Bottles should be clear. The bottle should give a reflection of light sky blue color, which is considered a natural symbol of the water. This color also adds a tinge of purity. The water should give a shiny and a glossy reflection. The opening of the bottle should be large enough to accommodate outflow and inflow of water. The bottles should be placed in special racks and stands meant for bottled water at retail outlets, which will be having a unique color and a unique design. The color and the design will create a positive perception for the new brand. The wrapper of the bottle is suggested to be in four color printing and should have the following information in addition to the logo of the company. 5.1.4
Water Specifications Certificate mark of the Pakistan Standards & Quality Control Authority Expiry Date (Best Before Date) A brief intro of the company with address Website address of the company Brand Name / Trade Name Net volume in System International / Metric System Batch Number or code number Availability
In the first phase of the launch of the new brand, availability will also play the key role in attracting the customers. It is suggested that the entrepreneur decides the availability of the product at A-class, B-class, or C-class retail outlets or mass availability of the product (aggressive marketing). Since, the perception of the product is also directly related with its availability so it is suggested that the strategy for the availability of the product be designed according to the target market and the perception and positioning the entrepreneur is targeting. 10
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SECTOR & INDUSTRY ANALYSIS
There are around 26 players in the bottled water sector. According to the industry sources, the number of bottlers scales up well above 70 during summer season due to increased demand for drinking water. However, the much publicized laboratory report Published by the PCRWR (Pakistan Council of Research on Water Resources) after conducting a survey of 26 brands in the Rawalpindi and Islamabad region declaring that, all the 26 brands available in the market are contaminated while 10out of them are unsafe for drinking, forced the Pakistan Standards & Quality Control Authority (PSQCA) to make it obligatory for the companies to obtain license from the authority before commencing operations. Pakistan’s bottled water market comprises of two main segments i.e. retail market and bulk market. The retail market consists of 0.5 liter, 1.5 liter, 3.0 liter and 5.0 liters capacity PET bottles. The bulk market consists of home and office deliveries in 3 and 5 gallon Cans.
Others 35% Nestle 50% BSW 5%
Nestle Sparklet BSW Others
Sparklet 10%
According to the market figures4, the Nestle pure life brand dominates the retail market with market share of 50%. The Sparklet holds 10% of the market share and BSW brand of M/s Wah Valley Corporation has share of 5%. The rest of the market consists of small players.
4
Sector Profile, Industrial Bulletin, October 2003 (Experts Advisory Cell)
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Purified Bottled Water
Brands Available in the Market
Table 6-1 Brands available in the market5 Local and Imported Brands Available in the market Niagra Nestle Pure Ava Sparklets Masafi Aqua Safe Cool Ab-e-Hayat Rainbow Pearl Askari Safa Zam Zam Fresh Musaffa Mineral Plus Wellgreen Aqua Flow Max Wellpur Himalaya Brecon Carreg Evian Perrier Oslo Vital Classic Blue ever pure Jeema Vittel Gulfa Volvic Highland spring SPA Hayat
5
All of these brands appeared during a market survey and are known to ordinary consumers. There may be other brands available in the local market which did not appear in our survey.
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The price range for 1.5 liters category is from Rs. 20-95 including local and imported brands and the price range for 0.5 liters category is from Rs. 10-85 for local and imported brands.
12. 15
Legal Requirements
The Pakistan Quality Standards defines bottled drinking water as.” Bottled drinking waters are waters other than natural mineral waters which are filled into hermetically sealed containers of various compositions forms and capacities that is safe and suitable for direct consumption bottled drinking water is considered food” The Pakistan Standard Quality Control Authority (PSQCA) was established under section 3 of the Act-1996. The establishment of any mineral water plant in Pakistan is required to get a license from the Pakistan Standards Quality Control Authority. An application on a prescribed application form, which can be obtained for Rs.100/- only from the office of the Pakistan Standards Quality Control Authority. And it is to be submitted to the Pakistan Quality Standards. The manufacturer is required to have a laboratory and a technical person who will be checking the samples for constant quality. The team from the Pakistan Standards and Quality Control Authority then visits the plant and collects samples. After the conformity of the samples to the standards the PSQCA issues a license. The PSQCA has developed standards for bottled and mineral water and all the water plants being established in the country are required to follow these standards. A manufacturer could market bottled / mineral water without obtaining a license from the quality control authority. The authority examines the availability of proper facilities including standardized laboratory and purification processing plant for ensuring the quality of purified drinking water with a team of experts. Manufacturing, stocking and sale of bottled drinking water and bottled mineral water without certification marks license is prohibited under the Pakistan Standard and Quality Control Act. Violation of the Pakistan Quality Standards is punishable by imprisonment for one year or a fine of Rs. 50,000 or both. The general requirements for establishing a bottled / mineral water plant as developed by PSQCA6 are as following. 6.1.1
Suitability
The assessment of the suitability of water for human consumption shall be based on consideration of its physical, chemical and microbiological requirements and limits for toxic substances. The water should be free from all chemical and bacteriological contaminations which are hazardous to health.
6
Specifications for bottled drinking water as developed by Standards Development Center of Pakistan Standards and Quality Control Authority
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Requirements
Units 7.0-80
PH
Range Total Dissolved Solids (TDS) Max Total Hardness as CaCo3 Max Chemical Requirements Nitrite (NO2) Chloride Sulphate Sodium Potassium Magnesium Calcium Microbiological Requirements Escherichla Coli Total Coliforms Entercocci (Streptocoi Sporulated SRA Pseudomonas Aeruginosa Parasites and pathogenic micro organisms 6.1.2
200 mg/L 40 mg/L 0.020 mg/L 40 mg/L 10 mg/L 20 mg/L 10 mg/L 5 mg/L 20 mg/L 0/250 ml 0/250 ml 0/250 ml 0/100 ml 0/250 ml Shall be free
Hygiene
Drinking water for the purpose of bottling shall be prepared in accordance with PS:39441997 for the code of practice-General principal of food Hygiene and in accordance with the PS:4718-2001 for Code of Practice for the collecting, processing and marketing of natural mineral waters. 6.1.3
Packaging
The containers shall be hygienic suitable completely clean and shall not cause any undesirable change in taste, odour or color or quality of the water. It shall be packed in hermetically sealed containers of Food Grade material to prevent contamination of bottled water. Filling and sealing operations of containers shall be done in an aseptic atmosphere so as to prevent any contamination. 6.1.4
Transportation
Bottled water shall be transported by any suitable means of transport to protect it from contamination.
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6.1.5
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Marking
In addition to the PS:1485-1994 ® for Pakistan Standard for the labeling of Pre-Packaged Foods, the following provisions shall apply. a) b) c) d) e) f) g) h) 6.1.6
Name of the product for example bottled drinking water Brand name or trade name Net Volumes in System International/Metric System Name and address of the manufacturer Batch Number or Code Number Date of expiry Chemical composition e.g. Sulphate, Magnesium, Potassium etc. Pakistan Standard Number. Sampling
In any consignment all the bottles of the same size and belonging to one batch of manufacture or supply shall constitute a LOT. Each bottle of the sample shall be marked with necessary details of sampling and the bottles for bacteriological testing shall be marked separately. The bottles of the sample shall be stored in such a manner that there shall be no deterioration of quality of water. The bottles for bacteriological testing shall be brought to the testing laboratory within one hour, of sampling. If this is not possible the bottles shall be stored at 10 0 C or below and transported to the testing laboratory with in 24 hours. In case of small units, the original packing shall be treated as sample. 6.1.7
Scale of Sample
Sample shall be tested from each lot for ascertaining its conformity to the requirements of this specification. The number of bottles to be selected from a lot shall be in accordance with the following table Table 6-2 R-1 Number of Bottles in the Lot Up to 1000 1001 to 3000 3001 to 10,000 10001 and above
Number of bottles to be selected 15 17 18 24
R-2:If bottles are packed in cases, 10 percent of the cases subject to a minimum of five cases shall be selected from the lot and as far as possible an equal number of bottles shall be selected from each case so selected to form a sample of sizes given in the table R-1.
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6.1.8
Purified Bottled Water
Number of Test
A. Each bottle selected as in R-1 and R-2 shall be inspected for packaging and marking requirements. B. The bottle shall be selected from the bottles, selected as in R-1 and R-2 and tested individually for bacteriological limits. C. A sufficiently quantity of water shall be drawn from each of the remaining bottles and mixed to form a composite sample and the composite sample thus obtained shall be tested for the requirements for its suitability and chemical composition. 6.1.9
Criteria for Conformity
A LOT shall be declared as conforming to the requirements of this specification, if the following conditions are satisfied.
Each bottle inspected as “A” satisfies the relevant requirements. Each bottle when tested as in “B” satisfies the relevant information. Composite sample when tested as in “C” satisfies the relevant requirements.
Government has initiated steps to launch programs against substandard bottled water. The Pakistan Council of Research on Water Resources (PCRWR) has launched a campaign against substandard and unlicensed brands of mineral water being sold in the market. The PCRWR has conducted a series of tests of 21 brands of mineral water last year and 11 were found contaminated and some of them substandard. It is recommended to fulfill all the requirements of the Pakistan Standard Quality Control Authority for getting a license for the production and marketing of bottled / mineral water in Pakistan.
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MACHINERY & EQUIPMENT REQUIREMENTS
Most of the water purification plants being installed in the country are reverse osmosis based. Government also recommends the RO based technology. This pre-feasibility study is based on the reverse osmosis plant. The details of the machinery & equipment are as following. Table 7-1 Machinery Details in Rs. Machinery Name
Quantity
Reverse Osmosis Water purification plant Ozonator† Washing, Filling & Capping Plant* Washing, Filling & Capping Plant* Conveyer belt UV Lamp‡ Total
1 1 1 1 1 1
*Inclusive of sales tax †Included in the Filling plant ‡Included in the RO plant 16
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Unit Cost (Rs.) 1,495,000 2,645,000 2,070,000 30,000 -
Total Cost (Rs.) 1,495,000* 2,645,000 2,070,000 30,000 6,240,000
Pre-feasibility Study
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Purified Bottled Water
HUMAN RESOURCE REQUIREMENT
The following requirement of staff along with their levels and monthly salary is foreseen for this project. Table 8-1 Human Resource Requirement
Designation CEO Admin & Accounts Manager Area Sales Manager Sales Supervisor Sales Rep Driver Washer Filler Loader Plant Helper Packing Supervisor Marketing Manager Marketing Officer Watchman
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No. of Staff 1 1 1 2 25 2 1 2 2 1 1 1 1 1 42
Monthly Salary 60,000 30,000 44,000 40,000 12,000 20,000 9,000 16,000 16,000 8,000 8,000 36,000 24,000 8,000
Annual Cost 720,000 360,000 528,000 480,000 3,600,000 240,000 108,000 192,000 192,000 96,000 96,000 432,000 288,000 96,000 7,428,000
LAND & BUILDING REQUIREMENTS
For the proposed set up of water purification plant, a total of 2050 square feet is required. This land requirement includes space for the installation of plant and machinery, management office and store for bottles, finished product and parking. Table 9-1 Covered Area Requirement
Space Requirement Bottle Storage Room (50,000 bottles) Bottles washing & Mineral Water plant Conveyer belt & finished product packing Finished Product Storage Room Management Offices Parking Total Area
Required Area (Sq. Ft.) 400 200 300 350 500 300 2050
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Purified Bottled Water
Table 9-2 Total Land Cost & Construction Cost
Total Land 2050 Square feet Covered Area Requirement Time required for civil works Construction Cost Management building 500 sq. ft @ Rs.600 Factory 500 sq. ft @ Rs. 600 Stores 700 sq. ft @ Rs.600 Driveway 200 sq. ft @ 150 Parking Ground 100 sq. ft @ 25 Total Construction Cost 12. 16
Total Cost (Rs.) 1,230,000 2050 2 months 300,000 300,000 420,000 30,000 2,500 1,082,500
Recommended Mode of Land Acquisition
Since purified bottled water is a kind of project which needs an extended span of time for its perception and brand recognition, so the recommended mode for the acquisition of land is owned or leased (100 years).
12. 17
Suitable Location
This project has been developed with a focus of Karachi city. The appropriate location would be any industrial area of Karachi city where KWSB water is available along with other infrastructure facilities. Table 9-3 Furniture & Fixture
Workstation
Quantity
Table & Chair for CEO Table & Chairs for Manager Table & Chairs for officers & Supervisors Tables & Chairs for other staff Visitors chairs for Management office Other staff chairs
1 3 3 10 13 10
Cost per Unit (Rs.) 9,600 8,000 5,500 4400 800 400
Total Cost (Rs.) 9,600 24,000 16,500 44,000 10,400 4,000
Table 9-4 Office Equipment Requirements
Equipment Computer Laser Printer Dot Matrix UPS Air Conditioner
Quantity 4 1 1 4 4
Cost per Unit (Rs.) Total Cost (Rs.) 22,000 88,000 10,000 10,000 15,000 15,000 8,500 34,000 15,000 60,000 18
PREF3/ September, 2004/Rev1
Pre-feasibility Study
Purified Bottled Water
10 FINANCIAL ANALYSIS Table 10.1 Project Cost Capital Investment Land Building/Infrastructure Machinery & equipment Furniture & fixtures Office vehicles Office equipment Pre-operating costs Training costs Total Capital Costs
Rs. in actual 1,082,500 6,345,000 243,250 2,056,360 202,500 1,816,268 11,745,878
Table 10-2 Means of Financing Initial Financing Debt Equity Total Investment
Rs. in actual 8,159,422 5,439,615 13,599,037
19
PREF3/ September, 2004/Rev1
Pre-feasibility Study
Purified Bottled Water
20
PREF3/ September, 2004/Rev1
Pre-feasibility Study
Purified Bottled Water
11 KEY ASSUMPTIONS
Table 11-1 Project Assumption
Period of Construction & machinery installation (months) Total Covered Area Projected Life of the project
6 2050 10
Table 11-2 Operating Assumptions
330 8
No. of Working days in one year No. of Working hours in one day
Table 11-3 Revenue Assumptions
Plant Capacity liters per hour Production per year (liters) Ratio of 1.5 liter and 0.5 liter bottle Production of 1.5 Liter bottle Production of 0.5 Liter bottle Total Annual Production Sale Price of 1.5 Liter Bottle (Rs.) Sales Price of 0.5 Liter Bottle (Rs.) Capacity Utilization in first year Sales Price growth rates Production capacity utilization growth rate Maximum Capacity Utilization
2,363 18,711,000 80:20 9,979,200 7,484,400 17,463,600 15 8 30% 5% 10% 95%
21
PREF3/ September, 2004/Rev1
Pre-feasibility Study
Purified Bottled Water
Table 11-4 Financial Assumptions
Debt Equity Interest rate Interest rate on short term debt Interest on cash in bank Corporate tax rate Turnover tax rate Dividend rate Required rate of return on equity WACC Down payment on machinery & equipment lease Interest rate on machinery & equipment lease Down payment on office equipment lease Interest rate on office equipment lease Down payment on vehicles lease Interest rate on office vehicles lease
60% 40% 12% 16% 0.02% 41% 1% 50% 25% 15% 20% 22% 20% 22% 20% 22%
Table 11-5 Expense Assumptions
Description Cost of goods sold growth rate Operating costs growth rate Administration benefits expense Traveling expense Communication expense Office vehicles running expense Office expenses (stationary, entertainment, janitorial services, etc.) Promotional expense Machinery & equipment insurance rate Office vehicles insurance rate Professional fees (legal, audit, consultants, etc.) Bad debt expense
Cost / Rate 5.0% 5.0% 3.0% 3.0% 2.0% 5.0% 1.0% 10.0% 2.0% 3.0% 0.5% 3.0%
Table 11-6 Depreciation Expense
Depreciation Method Machinery & Equipment Office Furniture & Fixture
Straight Line 10% 10%
22
PREF3/ September, 2004/Rev1
Pre-feasibility Study
Purified Bottled Water
12. FINANCIAL STATEMENTS 12.1 Projected Income Statement
Revenue Cost of goods sold
Year 1 48,773,340 27,052,621
Year 2 58,018,653 30,667,836
Year 3 65,594,529 35,093,127
Year 4 75,492,648 39,886,698
Year 5 83,983,284 45,074,565
Year 6 95,095,539 50,684,447
Year 7 104,500,935 56,745,882
Year 8 116,827,326 63,290,331
Year 9 133,278,453 70,351,312
Rs. in actuals Year 10 147,159,936 77,964,521
Gross Profit
21,720,719
27,350,817
30,501,402
35,605,950
38,908,719
44,411,092
47,755,053
53,536,995
62,927,141
69,195,415
6,946,320 102,500 284,202
3,811,312 102,500 312,622
4,182,386 102,500 343,885
4,589,590 102,500 378,273
5,036,438 102,500 416,100
5,526,793 102,500 457,711
6,064,890 102,500 503,482
6,655,376 102,500 553,830
7,303,353 102,500 609,213
8,014,417 102,500 670,134
337,200 102,818 67,440 4,877,334 188,591 243,867 1,144,472 363,254 1,463,200 16,121,198
185,015 113,100 37,003 5,801,865 163,563 290,093 1,144,472 363,254 1,740,560 14,065,359
203,028 124,410 40,606 6,559,453 138,534 327,973 1,144,472 363,254 1,967,836 15,498,337
222,796 136,851 44,559 7,549,265 113,506 377,463 1,144,472 363,254 2,264,779 17,287,308
244,487 150,536 48,897 8,398,328 88,478 419,916 1,144,472 363,254 2,519,499 18,932,907
268,291 165,589 53,658 9,509,554 162,804 475,478 1,395,558 2,852,866 20,970,801
294,412 182,148 58,882 10,450,094 130,243 522,505 1,395,558 3,135,028 22,839,741
323,076 200,363 64,615 11,682,733 97,682 584,137 1,395,558 3,504,820 25,164,689
354,532 220,400 70,906 13,327,845 65,121 666,392 1,395,558 3,998,354 28,114,173
389,049 242,439 77,810 14,715,994 32,561 735,800 1,395,558 4,414,798 30,791,060
5,599,522
13,285,458
15,003,065
18,318,642
19,975,813
23,440,290
24,915,313
28,372,305
34,812,968
38,404,355
191 -
468 -
719 -
886 -
1,748 822,544
3,907 -
6,783 -
9,933 -
13,621 -
18,388 -
5,599,713
13,285,926
15,003,784
18,319,528
20,800,104
23,444,197
24,922,096
28,382,238
34,826,589
38,422,743
971,403
793,576
593,604
396,497
209,470
Earnings Before Tax
4,628,310
12,492,350
14,410,180
17,923,031
20,590,635
Tax
1,897,607
5,121,864
5,908,174
7,348,443
NET PROFIT/(LOSS) AFTER TAX
2,730,703
7,370,487
8,502,006
10,574,588
2,730,703 2,730,703
2,730,703 10,101,189 5,050,595 5,050,595
5,050,595 13,552,601 6,776,300 6,776,300
6,776,300 17,350,889 8,675,444 8,675,444
8,675,444 20,823,919 20,823,919
General administration & selling expenses Administration expense Rental expense Utilities expense Travelling & Comm. expense (phone, fax, etc.) Office vehicles running expense Office expenses (stationary, etc.) Promotional expense Insurance expense Professional fees (legal, audit, etc.) Depreciation expense Amortization expense Property tax expense Miscellaneous expense Subtotal Operating Income Other income Gain / (loss) on sale of assets Earnings Before Interest & Taxes Interest expense
Balance brought forward Total profit available for appropriation Dividend Balance carried forward
1
PREF3/ September, 2004/Rev1
-
-
-
-
-
23,444,197
24,922,096
28,382,238
34,826,589
38,422,743
8,442,160
9,612,121
10,218,059
11,636,718
14,278,902
15,753,325
12,148,474
13,832,076
14,704,036
16,745,520
20,547,688
22,669,419
20,823,919 34,655,995 34,655,995
34,655,995 49,360,031 49,360,031
49,360,031 66,105,552 66,105,552
66,105,552 86,653,239 86,653,239
86,653,239 109,322,658 109,322,658
Pre-feasibility Study
Purified Bottled Water
12.2Projected Balance Sheet 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
500,000
1,407,584
3,272,332
3,920,424
4,939,513
12,539,355
26,526,620
41,303,865
58,021,298
78,191,980
105,688,393
Accounts receivable
-
4,008,768
4,388,712
5,079,994
5,798,103
6,553,805
7,359,404
8,202,595
9,095,682
10,278,320
11,524,865
Finished goods inventory
-
1,176,201
1,282,685
1,467,308
1,667,290
1,883,713
2,117,735
2,370,585
2,643,576
2,938,106
3,255,661
1,395
1,720
2,069
2,471
2,935
3,467
4,077
4,777
5,576
6,490
-
1,060,674
1,300,859
1,564,724
1,869,014
2,219,244
2,621,636
3,083,201
3,611,845
4,216,467
4,907,089
-
102,500
102,500
102,500
102,500
102,500
102,500
102,500
102,500
102,500
102,500
-
Pre-paid building rent
-
-
-
-
-
-
-
-
-
-
-
Pre-paid lease interest
-
-
-
-
-
-
-
-
-
-
-
188,591
163,563
138,534
113,506
88,478
162,804
130,243
97,682
65,121
32,561
-
1,853,160
8,161,194
10,751,556
12,555,218
14,818,063
23,867,279
39,323,780
55,693,848
74,150,221
96,457,045
120,468,920
Equipment spare part inventory Raw material inventory Pre-paid annual land lease
Pre-paid insurance Total Current Assets
Fixed assets Land
-
-
-
-
-
-
-
-
-
-
-
Building/Infrastructure
1,082,500
1,028,375
974,250
920,125
866,000
811,875
757,750
703,625
649,500
595,375
541,250
Machinery & equipment
6,345,000
5,710,500
5,076,000
4,441,500
3,807,000
3,172,500
2,538,000
1,903,500
1,269,000
634,500
-
243,250
218,925
194,600
170,275
145,950
121,625
97,300
72,975
48,650
24,325
-
2,056,360
1,645,088
1,233,816
822,544
411,272
3,311,788
2,649,431
1,987,073
1,324,715
662,358
-
202,500
182,250
162,000
141,750
121,500
101,250
81,000
60,750
40,500
20,250
-
9,929,610
8,785,138
7,640,666
6,496,194
5,351,722
7,519,038
6,123,481
4,727,923
3,332,365
1,936,808
541,250
1,816,268
1,453,014
1,089,761
726,507
363,254
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Furniture & fixtures Office vehicles Office equipment Total Fixed Assets
Intangible assets Pre-operation costs Legal, licensing, & training costs Total Intangible Assets TOTAL ASSETS
1,816,268
1,453,014
1,089,761
726,507
363,254
-
-
-
-
-
-
13,599,037
18,399,346
19,481,983
19,777,919
20,533,039
31,386,318
45,447,261
60,421,771
77,482,586
98,393,853
121,010,170
Liabilities & Shareholders' Equity
2
PREF3/ September, 2004/Rev1
Pre-feasibility Study
Purified Bottled Water
Current liabilities Accounts payable
-
2,202,101
2,575,892
2,957,140
3,371,672
3,822,059
4,311,071
4,841,689
5,417,129
6,040,854
6,247,897
Export re-finance facility
-
-
-
-
-
-
-
-
-
-
-
Short term debt
-
-
-
-
-
-
-
-
-
-
-
Other liabilities
-
-
-
-
-
-
-
-
-
-
-
Total Current Liabilities
-
2,202,101
2,575,892
2,957,140
3,371,672
3,822,059
4,311,071
4,841,689
5,417,129
6,040,854
6,247,897
Other liabilities Lease payable
-
-
-
-
-
-
-
-
-
-
-
Deferred tax
-
1,300,725
1,300,725
1,300,725
1,300,725
1,300,725
1,040,580
780,435
520,290
260,145
-
Long term debt
8,159,422
6,726,203
5,115,157
3,304,138
1,745,583
-
-
-
-
-
-
Total Long Term Liabilities
8,159,422
8,026,928
6,415,882
4,604,863
3,046,308
1,300,725
1,040,580
780,435
520,290
260,145
-
Shareholders' equity Paid-up capital Retained earnings Total Equity TOTAL CAPITAL AND LIABILITIES
5,439,615
5,439,615
5,439,615
5,439,615
5,439,615
5,439,615
5,439,615
5,439,615
5,439,615
5,439,615
5,439,615
-
2,730,703
5,050,595
6,776,300
8,675,444
20,823,919
34,655,995
49,360,031
66,105,552
86,653,239
109,322,658
5,439,615
8,170,318
10,490,210
12,215,915
14,115,059
26,263,534
40,095,610
54,799,646
71,545,167
92,092,854
114,762,273
13,599,037
18,399,346
19,481,983
19,777,919
20,533,039
31,386,318
45,447,261
60,421,771
77,482,586
98,393,853
121,010,170
Note: Total assets value will differ from project cost due to first installment of leases paid at the start of year 0
3
PREF3/ September, 2004/Rev1
Pre-feasibility Study
Purified Bottled Water
12.3Projected Cash flow Statement 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
Net profit
-
2,730,703
7,370,487
8,502,006
10,574,588
12,148,474
13,832,076
14,704,036
16,745,520
20,547,688
22,669,419
Add: depreciation expense
-
1,144,472
1,144,472
1,144,472
1,144,472
1,144,472
1,395,558
1,395,558
1,395,558
1,395,558
1,395,558
-
363,254
363,254
363,254
363,254
363,254
-
-
-
-
-
Deferred income tax
-
1,300,725
-
-
-
-
(260,145)
(260,145)
(260,145)
(260,145)
(260,145)
Accounts receivable
-
(4,008,768)
(379,944)
(691,282)
(718,109)
(755,702)
(805,598)
(843,191)
(893,087)
(1,182,638)
(1,246,546)
Finished good inventory
-
(1,176,201)
(106,484)
(184,623)
(199,981)
(216,424)
(234,021)
(252,851)
(272,991)
(294,529)
(317,555)
(1,395)
(325)
(349)
(402)
(463)
(532)
(610)
(699)
(800)
(913)
6,490
(1,060,674)
(240,185)
(263,865)
(304,290)
(350,230)
(402,391)
(461,566)
(528,643)
(604,622)
(690,623)
4,907,089
-
-
-
-
-
-
-
-
-
-
-
Operating activities
amortization expense
Equipment inventory Raw material inventory Pre-paid building rent Pre-paid lease interest
-
-
-
-
-
-
-
-
-
-
-
(188,591)
25,028
25,028
25,028
25,028
(74,325)
32,561
32,561
32,561
32,561
32,561
Accounts payable
-
2,202,101
373,791
381,248
414,532
450,387
489,012
530,619
575,440
623,724
207,043
Other liabilities
-
-
-
-
-
-
-
-
-
-
-
(1,250,660)
2,340,804
8,526,389
9,235,410
11,253,090
12,657,212
13,987,265
14,777,245
16,717,433
20,170,682
27,393,913
Change in long term debt
8,159,422
(1,433,220)
(1,611,046)
(1,811,018)
(1,558,556)
(1,745,583)
-
-
-
-
-
Change in short term debt
-
-
-
-
-
-
-
-
-
-
-
Change in export re-finance facility
-
-
-
-
-
-
-
-
-
-
-
Advance insurance premium
Cash provided by operations
Financing activities
Add: land lease expense Land lease payment Change in lease financing Issuance of shares Purchase of (treasury) shares Cash provided by / (used for) financing activities
-
102,500
102,500
102,500
102,500
102,500
102,500
102,500
102,500
102,500
102,500
(102,500)
(102,500)
(102,500)
(102,500)
(102,500)
(102,500)
(102,500)
(102,500)
(102,500)
(102,500)
-
-
-
-
-
-
-
-
-
-
-
-
5,439,615
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,496,537
(1,433,220)
(1,611,046)
(1,811,018)
(1,558,556)
(1,745,583)
-
-
-
-
102,500
Investing activities
4
PREF3/ September, 2004/Rev1
Pre-feasibility Study Capital expenditure Acquisitions Cash (used for) / provided by investing activities NET CASH
Purified Bottled Water (11,745,878)
-
-
-
-
Dividend Cash carried forward
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,311,788)
-
-
-
-
-
500,000
907,584
6,915,343
7,424,392
9,694,534
7,599,841
13,987,265
14,777,245
16,717,433
20,170,682
27,496,413
500,000
1,407,584
3,272,332
3,920,424
4,939,513
12,539,355
26,526,620
41,303,865
58,021,298
78,191,980
500,000
1,407,584
8,322,927
10,696,724
13,614,958
12,539,355
26,526,620
41,303,865
58,021,298
78,191,980
105,688,393
-
-
5,050,595
6,776,300
8,675,444
-
-
-
-
-
-
500,000
1,407,584
3,272,332
3,920,424
4,939,513
12,539,355
26,526,620
41,303,865
58,021,298
78,191,980
105,688,393
5
PREF3/ September, 2004/Rev1
-
(11,745,878)
Cash balance brought forward Cash available for appropriation
(3,311,788)
