Pre-Feasibility Study
FARM MACHINERY SERVICE -1
LASER LAND LEVELLING AS SERVICE PROVIDER
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
www.parc.gov.pk
February 13, 2014
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Contents
1. DISCLAIMER 2
2. PURPOSE OF THE DOCUMENT 3
3. INTRODUCTION TO SCHEME 3
4. EXECUTIVE SUMMARY 3
5. BRIEF DESCRIPTION OF PROJECT 4
6. CRITICAL FACTORS 5
7. INSTALLED AND OPERATIONAL CAPACITIES 5
8. GEOGHRAPHICAL POTENTIAL FOR INVESTMENT 5
9. POTENTIAL TARGET MARKET 5
10. PROJECT COST SUMMARY 5
10.1: Project Economics 5
10.2: Project Financing 6
10.3: Project Cost 6
10.4: Space Requirement 6
10.5: Machinery and Equipment 7
10.6: Raw Material Requirements 7
10.7: Human Resource Requirement 7
10.8: Revenue Generation 8
11. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS 8
12: KEY ASSUMPTIONS 8
13. ANNEXURES 10
List of Tables
Table 1: Project Economics...... 5
Table 2: Project Financing ...... 6
Table 3: Capital Investment for the Project...... 6
Table 4: Space Requirement...... 6
Table 5: Machinery and Equipment...... 7
Table 6: Raw material (Operating) cost...... 7
Table 8: Revenue Generation...... 8
List of Annexure
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13.1 Cash Flow of the Project...... 9
1. DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general idea and information on the said subject. Although, the material included in this document is based on data / information gathered from various reliable sources; however, it is based upon certain assumptions which may differ from case to case. The information has been provided on an ‘as is where is’ basis without any warranties or assertions as to the correctness or soundness thereof. 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. PARC, its employees or agents do not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The contained information does not preclude any further professional advice. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information which is necessary for making an informed decision; including taking professional advice from a qualified consultant / technical expert before taking any decision to act upon the information.
2. 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, and 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. The purpose of this document is to facilitate potential investors in farm machinery by providing them a holistic as well as a micro view of business with the hope that such information as provided herein will help the potential investors in crucial investment decisions. The need to come up with pre-feasibility reports for undocumented or minimally documented sectors attains greater imminence as the research that precedes such reports reveal certain thumbs of rules; best practices developed by existing enterprises by trial and error, and certain industrial norms that become a guiding source regarding various aspects of business set-up and it’s successful management. Apart from carefully studying the whole document one must consider critical aspects provided later on, which form basis of any Investment Decision.
3. INTRODUCTION TO SCHEME
‘Prime Minister’s Youth Business Loan’ program , for young entrepreneurs, with an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidized financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions, initially by the National Bank of Pakistan (NBP) and the First Women Bank Ltd. (FWBL). Small business loans upto 2 million with tenure up to 8 years, inclusive of a 1 year grace-period and a debt : equity of 90: 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).
4. EXECUTIVE SUMMARY
The project is for the “Laser Land Levelling through Service Provider (Custom Hiring Services)”
Product: Service Provider
Capacity: working hours1140 per year
Total Cost: The Total cost of the project estimated Rs. 0.83 million with capital investment Rs. 0.63 million and working capital Rs. 0.2 million
Given the cost assumption IRR and pay back are 87% and 4.7 respectively.
5. BRIEF DESCRIPTION OF PROJECT
Irrigation is inevitable farming in irrigated and rainfed areas of Pakistan. Water shortage is augmenting all over the world including Pakistan, due to which agriculture sector is facing critical challenges. The preparation of the field surface for conveyance and distribution of irrigation water is as important to efficient surface irrigation as any other single management practice the farmer employs. The advent of the laser-controlled land levelling equipment has marked one of the most significant advances in surface irrigation technology. Laser land leveling has got high priority among the farmers in the country. Some studies proved that only land leveling through laser leveler saves up to 31 percent water per hectare. The crop yield also increased by 30% for wheat and 47% for maize.
Considering the above advantages, the demand of laser land levelers has been increased in many folds in few years. Due to high cost of the machine attached with tractor and its operation required proper training each farmer is unable to purchase and operate it. The provincial governments are distributing under subsidy schemes in limited quantity but demand of laser levelers is too high. Therefore it is a dire need of the day to provide this facility to the farmers through service providers at village level. This business activity is more suitable for an entrepreneur with farming back ground. The major capital investment is in the procurement and operation of tractor and laser land leveler.
The entrepreneur having laser land leveler with tractor as a complete unit will provide services on rent to the small farmers at village level for the whole year. The laser land leveler with tractor will require services of one tractor operator and one helper to carry out the requisite job orders.
The business will be setup in the rented premises having area of 800sqft.
6. CRITICAL FACTORS
This investment will be more feasible when an investor himself take a part in the activities. He will take training in the management and operations of machine and also perform the activities of manager.
· The Project will only be feasible for those investors who are already working in this field and have a tractor and other farm equiptment
7. INSTALLED AND OPERATIONAL CAPACITIES
The established capacity of the services is to provide facility to the farmers at village levels for whole years on 8 hrs daily basis.
8. GEOGHRAPHICAL POTENTIAL FOR INVESTMENT
The laser land leveler will work in the villages involved in agriculture and growing of any kind of crop, vegetables etc. Other options could be near the big cities for development of big residential areas, sports ground, roads etc
9. POTENTIAL TARGET MARKET
Overall Pakistan is the potential market of the product. But this machine is more suitable for irrigated area.
10. PROJECT COST SUMMARY
10.1: Project Economics
All figures in the financial model have been calculated for the job work on seven days a week at 8 hrs daily basis.
The following table shows internal rates of return and payback period;
Table 1: Project Economics
Internal Rate of Return / 87%
Pay Back Periods (Years) / 4.7
Net Present Value(NPV) / 5,848,736.64
Benefit-Cost Ratio / 1:137
Returns on the scheme and its profitability are dependent on getting regular work orders from the farmers and ensure availability of facility to each order
10.2: Project Financing
Following table provides details of the equity required and variables related to bank loan;
Table 2: Project Financing
Description / DetailsTotal Equity (10%) / 83000
Bank Loan (90%) / 747000
Markup to the Borrower (%age/annum) / 8%
Tenure of the Loan (Years) / 8
Grace period (Years) / 1
10.3: Project Cost
Following fixed and working capital requirements have been identified for operations of the proposed business. Additionally, rented premise has been recommended due to ease of availability and lower costs.
Table 3: Capital Investment for the Project
Capital Investment / Amount (Rs.)Machinery / 620,000
Furniture & Office equipment / 0
Pre-operating Cost / 10,000
Total Capital Cost / 630,000
Initial Working Capital / 200,000
Total Project Cost / 830,000
10.4: Space Requirement
The Machinery shed and office cum store area has been calculated on the basis of space requirement for tractor with laser land leveler parking area and office cum store. Following table shows calculations for project space requirement.
Table 4: Space Requirement
Space Requirement / Sq. ftMachinery shed area / 600
Office cum store / 200
Total Area / 800
Rent Rs./month / 12,000
Premises will be obtained on rent in the village @ Rs 10,000 per month having the required building structure along with single phase electricity connection.
10.5: Machinery and Equipment
Following table provides list of machinery and equipment required for a typical
Service provider facility to the farmers at village level;
Table 5: Machinery and Equipment
Description / Quantity / Cost Rs./Unit / TotalLaser Land Leveler / 1 / 600,000 / 600000
Hand tool set / miscellaneous / 20,000 / 20,000
Total / 620,000
The service provider will take booking orders for land leveling and will be provide facility on first come fist serve basis and maintain booking record.
There is no need for furniture and office equipment to fulfill the basic requirements, because the investor is already in this field and he wants to extend his services.
10.6: Raw Material Requirements
Table 6: Raw material (Operating) cost
Description / Tractor and Laser Land Leveler / RemarksFuel cost @ Rs. 114/ltr / 684 / Fuel consumption 6 ltr/hr
Repair & maintenance Rs./hr / 39.90
Lubricant cost / 9.57
Labour cost Rs./hr / 161.28
Total variable cost Rs./hr / 894.75
Laser land leveling cost Rs./acre ≈ 1802 (Assumes as average work @ 5 acres/day (8 hrs/day for 6 days a week))
10.7: Human Resource Requirement
Table 7: Human Resource Requirement
Description / No. of Employees / Salary per monthManager(Owner) / 1 / 10,000
Tractor Operator / 1 / 5,000
Total Staff / 2 / 15,000
The above table provides details of human resource required to run such a laser land leveling as service provider on rental basis at village level business. The owner must be a trained farmer or member of farmer’s family and at least Matric pass with training of laser leveling operation. He will communicate with farmers and tractor operator for booking and take care of payments/receipts matters. A tractor operator and helper will be hired to perform the work of operating the tractor. In this case the owner is already in this business and will give him a certain amount of additional french benefits.
10.8: Revenue Generation
In the field price is charged on the basis of working hour machine work/day.
Table 8: Revenue Generation
Rental Services / Working Hours/Day(Average) / Total
(Hours/ Year) / Revenue
(Rs./Hour) / Revenue
(Rs./Year)
Laser Land leveling / 5 / 1440 / 2000 / 2880000
11. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS
Eng. Shabbir Kalwar
Ph: 03009840703/ 051-8443608
Email:
12: KEY ASSUMPTIONS
DescriptionInterest Rate / 8 8%
Loan Tenure / 8 Years
Grace Period / 1 Years
Debt Equity Ratio / 90:10
Sale Price Growth Rate / 5%
Repair and Maintenance Rate / 5%
Prepaid Rent Period / 1 Year
Increase in Staff Salaries / 10%
Increase in Office Expense / 10%
Increase in Input Price / 10%
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13. ANNEXURES
13.1: Cash Flow of the Project (Rs.)
Years / Total Investment / R & M /Depresiation / Variable Cost / Rental Charges / Interest Rate / Total Cost / Revenue / Benefits / Pv cost / Pv benefit / DF0 / 830,000 / 830,000 / 0 / -830000 / 830000 / 0 / 1.0000
1 / 0 / 126800 / 2061734 / 144000 / 59,760 / 2,392,294 / 2880000 / 487706 / 2215087.407 / 2666666.667 / 0.9259
2 / 0 / 126800 / 2164821 / 151200 / 59,760 / 2,502,581 / 3175200 / 672619 / 2145559.945 / 2722222.222 / 0.8573
3 / 0 / 126800 / 2273062 / 158760 / 53,063 / 2,611,685 / 3500658 / 888973 / 2073239.541 / 2778935.185 / 0.7938
4 / 0 / 126800 / 2386715 / 166698 / 45,829 / 2,726,043 / 3859475 / 1133433 / 2003722.688 / 2836829.668 / 0.7350
5 / 0 / 126800 / 2506051 / 175033 / 38,017 / 2,845,901 / 4255072 / 1409170 / 1936872.645 / 2895930.286 / 0.6806
6 / 0 / 126800 / 2631354 / 183785 / 29,581 / 2,971,519 / 4691217 / 1719698 / 1872560.831 / 2956262.167 / 0.6302
7 / 0 / 126800 / 2762921 / 192974 / 20,469 / 3,103,164 / 5172066 / 2068902 / 1810666.276 / 3017850.962 / 0.5835
8 / 0 / 126800 / 2901067 / 202622 / 10,628 / 3,241,118 / 5702203 / 2461085 / 1751075.105 / 3080722.857 / 0.5403
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