PRE-FESIBILITY STUDY

(Sheep Fattening)

PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD

MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH

Government of Pakistan

January 2014

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CONTENTS

1. DISCLAIMER...... 1

2. PURPOSE OF THE DOCUMENT...... 2

3. INTRODUCTION TO SCHEME...... 2

4. EXECUTIVE SUMMARY...... 2

5. BRIEF DESCRIPTION OF PROJECT...... 2

  • Selection of Suitable Breed……………………………………………………………………….3
  • Location…………………………………………………………………………………………..3
  • Target Markets……………………………………………………………………………………3
  • Employment Generation…………………………………………………………………………3

6. CRITICAL FACTORS...... ….3

7. OPERATIONAL CAPACITIES...... 4

8. POTENTIAL TARGET MARKET...... 4

9. PRODUCTION PROCESS FLOW...... 4

10. BREED SELECTION...... 4

11. PROJECT COST SUMMARY...... 4

12. PROJECT ECONOMICS……..………………………………………………………………………4

13. PROJECT FINANCING……..………………………………………………………………………..5

  1. Project Cost………………………………………………………………………….……5
  2. Space Requirement……………………………………………………………………….5
  3. Machinery and Equipment……..……………………………………………………..….6
  4. Human Resource Requirement……………………..…………………………………....6
  5. Revenue Generation………………………………………………………………………6

14.CONTACTS-SUPPLIERS, EXPERTS/CONSULTANTS……………………………………………6

15. ANNEXURES...... 7

16. KEY ASSUMPTIONS...... …9

LIST OF TABLES

Table 1: Project Economics 4

Table 2: Project Financing 5

Table 3: Project Cost 5

Table 4:Space Requirement 5

Table 5: List of Machinery and Equipment 6

Table 6: Human Resource Requirement 6

Table 7: Revenue Generation6

LIST OFANNEXURES

14.1. Income Statement7

14.2. Cash Flow Statement8

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  1. DISCLAIMER

This information memorandum is to introduce the subject matter and provide a general idea and information on the subject. Although, the material included in this document is based on data / information generated from experiments and field testing by a team of relevant scientists; however, it is based upon certain assumptions which may differ from case to case. The contained information may vary due to any change in any of the concerned factors, and the actual results may differ accordingly from the presented information. The PARC and its employees do not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The prospective user of this memorandum is encouraged to contact qualified consultant/technical expert, especially designated focal person(s) of this enterprise for reaching to an informed decision.

  1. PURPOSE OF DOCUMENT

The purpose of this document is to facilitate potential investors in Sheep Fatteningby providing them with a general understanding of the business, with the intention of supporting potential investors in crucial investment decisions. 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, finance, and business management. 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 thumb rules; best practices developed by existing enterprises by trial and error, certain industrial norms and well established research findings 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 the basis of investment decisions.

  1. 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 through National Bank of Pakistan (NBP) and First Women Bank Ltd. (FWBL). Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8 years inclusive of 1 year grace period, and a debt: equity of 90: 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan, Gilgit-Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).

  1. EXECUTIVE SUMMARY

Sheep Fattening Farm is proposed to be located at any suitable areas of Pakistan. Theproject is related to sheep fattening purposes, the total capacity is 50 sheep. Project Cost Estimate is Rs. 0.66 Million with fixedinvestment of Rs. 0.07Million. Given the costassumptions, IRR and payback are 15% and 7.56years for sheep.

  1. BRIEF DESCRIPTION OF PROJECT

The following parameters must be addressed as per pre-feasibility study,

  • Selection of SuitableSheep Breed

In Punjab Kajli, Lohi, Thali and Fateh Khani of Salt range sheep breeds, in KPK, Balkhi, Hashtnagri and Waziri sheep breeds , in Baluchistant, Baluchi sheep breed, in Sindh Dumbi, Kachi and Kooka are most suitable breed.

  • Location

The farm can be established in sheep rearing areas of country where range grazing is available. In Punjab, the suitable areas to establish the sheep farming are Southern Punjab (Thal, Cholistan) and also pothowar areas. In Balochistan the suitable areas to establish sheep farm are northern and central parts. Major production areas in Northern Balochistan include Killla Saifullah, Ziarat, Loralai, Zhob, Barkhan and Musakhel Districts, Central Balochistan includes Sibi, Kalat, Mastung and Khuzdar Districts. In KPK, the northern areas, Malakanad and Hazara divisions.

  • Targets Market

In addition to major cities such as Lahore, Multan, Quetta, Karachi, Hyderabad and Islamabad, there is demand of Pakistani mutton in Middle East and Malaysia countries.

  • Employment Generation: The proposed project will provide direct employment to two individuals. Financial analysis shows the profitability of proposed business within first year of its operation.
  1. CRITICAL FACTORS
  • Establishment of the farm in areas where cheap land is available, but it should not be far away from the market.
  • The farming should be done on scientific grounds taking care of Vaccination, Medicine etc.
  • Healthy and quality male stock should be selected for fattening.
  • New feeding techniques including concentrate feeding and preparation of urea molasses blocksetcshould be used for better results.
  • Well-trained / experienced staff adding to the efficiency of the farm.

Strict vaccination and deworming program for successful operation may be followed.

  • Good feeding and management practice will give the success in the business. Fresh water will be available all the time. In the concentrate; minerals may also be included.
  1. OPERATIONAL CAPACITY

The farm will start production with 50sheep. The limit of 50 sheep has been imposed on the farm because a very large flock would bedifficult to manage. The farm would focus on rearing of young stock for fattening andmarketing. Sheep from aged less than 1 year of age will be purchased and resold in themarket after a fattening period of 120 days.

  1. POTENTIAL MARKETS

Target market would be the areas where breeding is being undertaken as well as majorcities like Karachi,Quetta, Lahore, Rawalpindi, Islamabad, Peshawar etc. In addition to localmarkets there is an enormous export potential to Middle Eastern countries.

  1. PRODUCTION PROCESS FLOW

Animals selected for fattening should be of about of age of 6 months. During this age the daily weight-gain capacity is also better particularly in sheep.

  1. BREED SELECTION

The farmers should not only select good quality breed which can bring better results for fattening but also select most suitable animals from the selected breeds. Through bettermanagement, the weight gain of these selected breeds would be higher.

  1. PROJECT COST SUMMARY

A detailed financial model has been developed to analyze the commercial viability of Sheep Fattening Farm. Various cost and revenue related assumptions along with results of the analysis are outlined in this section.

  1. PROJECT ECONOMICS

All the figures in this financial model have been calculated for 50 sheep for total area of around 21,00 sq.ft, that would be used for different functions of the farm. The following table shows internal rates of return and payback period.

Table 1. Project Economics

Description / Sheep
Internal Rate of Return (IRR) / 15%
Payback Period (yrs) / 7.56
Net Present Value (NPV) / 311,704
  1. PROJECT FINANCING

Following table provides details of the equity required and variables related to bank loan;

Table 2. Project Financing

Description / Sheep
Total Equity (@ 10%) / Rs. 73,848
Bank Loan (@ 90%) / Rs. 664,636
Markup to the Borrower (%age/annum) / 8%
Tenure of the Loan (Years) / 8
Grace Period (Year) / 1
  1. Project cost

Following requirements have been identified for operations of the proposed business.

Table 3. Project cost

Project Investment / Amount (Rs.)
Building / 330000
Machinery & Equipment / 90000
Total Capital Cost / 420000
  1. Space Requirement

Details of the area required are given below:

Table 4 Space requirement

Description / Space per animal sq ft / Total space sq ft / Cost per sq ft / Total cost (Rs.)
Shed for 50 kids (covered) / 12 / 600 / 300 / 180000
Open paddock for 50 kids / 24 / 1200 / 50 / 60000
Isolation Pen for 5 kids (covered) / 12 / 60 / 300 / 18000
Stores for ration & machinery (12x20) / - / 240 / 300 / 72000
Total / 330000
  1. Machinery and Equipment

Following table provides list of machinery and equipment required for Sheep Fattening Farm working for Livestock sector.

Table 5. List of Machinery and Equipment

Farm supplies / Unit Cost (Rs) / Total Cost (Rs)
Feeding mangers 5 / 3000 / 15000
Chaff cutter / 50000 / 50000
Water pump / 20000 / 20000
Other farm equipment / - / 5000
Total cost / 90000
  1. Human resource requirement

The table above provides details of human resource required for sheep fattening farm.

Table 6 Human resource requirement

Description / No. of Employees / Salary per
month
Worker / 1 / 10,000
  1. Revenue Generation

Table 7 Revenue Generation

Product / Sales
Price
(Rs./Unit) / Average weight per kg live weight / First Year
Production / First Year
Sales
Revenue (Rs)
Sale of Live Sheeps / 400 kg / 45 / 50 / 900000
Total Sales Revenue / 900000
  1. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS

Dr. M. FatehUllah Khan

Animal Sciences Institute (ASI), NARC

Email: , Phone: 051-8443944

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  1. ANNEXURES

15.1 Income Statement

Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9 / Year 10
Revenue / 882000 / 948150 / 1019261 / 1095706 / 1177884 / 1266225 / 1361192 / 1463281 / 1573027 / 1691005
Cost of Goods Sold
Feed & Vaccination Cost / 252500 / 265125 / 278368.8 / 292312.2 / 306937.8 / 322279.7 / 338373.7 / 355307.4 / 373070.2 / 391703.7
Cost of Calves / 450000 / 472500 / 496125 / 520931.3 / 546977.8 / 574326.7 / 603043 / 633195.2 / 664854.9 / 698097.7
Direct Labor / 60000 / 66000 / 72600 / 79860 / 87846 / 96630.6 / 106293.7 / 116923 / 128615.3 / 141476.9
Repair & Maintenance / 4900 / 5145 / 5402.25 / 5672.363 / 5955.981 / 6253.78 / 6566.469 / 6894.792 / 7239.532 / 7601.508
Utilities / 29400 / 32340 / 35574 / 39131.4 / 43044.54 / 47348.99 / 52083.89 / 57292.28 / 63021.51 / 69323.66
Total Cost of Sales / 798800 / 843210 / 890275 / 940222 / 993193 / 1049392 / 1109041 / 1172427 / 1239756 / 1311306
Gross Profit / 83200 / 104940 / 128986 / 155483 / 184691 / 216833 / 252151 / 290854 / 333271 / 379698
Travelling & Comm. expense (phone, fax, etc.) / 6000 / 6300 / 6615 / 6945.75 / 7293.038 / 7657.689 / 8040.574 / 8442.603 / 8864.733 / 9307.969
Office expenses (stationary, etc.) / 12000 / 12600 / 13230 / 13891.5 / 14586.08 / 15315.38 / 16081.15 / 16885.21 / 17729.47 / 18615.94
Depreciation expense / 42000 / 42000 / 42000 / 42000 / 42000 / 42000 / 42000 / 42000 / 42000 / 42000
Amortization expense / 9716.882 / 9716.882 / 9716.882 / 9716.882 / 9716.882 / 0 / 0 / 0 / 0 / 0
Subtotal / 69716.88 / 70616.88 / 71561.88 / 72554.13 / 73595.99 / 64973.07 / 66121.72 / 67327.81 / 68594.2 / 69923.91
Operating Income / 13483.12 / 34323.12 / 57424.37 / 82929.26 / 111094.6 / 151859.7 / 186029.3 / 223526.7 / 264676.8 / 309774.5
Earnings Before Interest & Taxes / 13483.12 / 34323.12 / 57424.37 / 82929.26 / 111094.6 / 151859.7 / 186029.3 / 223526.7 / 264676.8 / 309774.5
Interest expense / 55164.46 / 50503.6 / 44377.72 / 37743.38 / 30558.41 / 22777.08 / 14349.9 / 5223.276 / 0 / 0
Earnings Before Tax / -41681.3 / -16180.5 / 13046.65 / 45185.88 / 80536.24 / 129082.6 / 171679.4 / 218303.4 / 264676.8 / 309774.5
NET PROFIT/(LOSS) AFTER TAX / -41681 / -16180 / 13046.7 / 45185.9 / 80536.2 / 129083 / 171679 / 218303 / 264677 / 309774
Balance brought forward / -41681.3 / -57861.8 / -44815.2 / 370.7057 / 80906.95 / 209989.5 / 381668.9 / 599972.3 / 864649.1
Total profit available for appropriation / -41681.3 / -57861.8 / -44815.2 / 370.7057 / 80906.95 / 209989.5 / 381668.9 / 599972.3 / 864649.1 / 1174424
Balance carried forward / -41681.3 / -57861.8 / -44815.2 / 370.7057 / 80906.95 / 209989.5 / 381668.9 / 599972.3 / 864649.1 / 1174424

15.2 CASHFLOW STATEMENT

Operating activities / Year 0 / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9 / Year 10
Net profit / - / (41,681) / (16,180) / 13,047 / 45,186 / 80,536 / 129,083 / 171,679 / 218,303 / 264,677 / 309,774
Add: depreciation expense / - / 42,000 / 42,000 / 42,000 / 42,000 / 42,000 / 42,000 / 42,000 / 42,000 / 42,000 / 42,000
amortization expense / - / 9,717 / 9,717 / 9,717 / 9,717 / 9,717 / - / - / - / - / -
Equipment inventory / (1,633) / (167) / (185) / (203) / (224) / (247) / (273) / (301) / (331) / (365) / 3,931
Raw material inventory / (234,167) / (24,002) / (26,458) / (29,184) / (32,170) / (35,461) / (39,089) / (43,111) / (47,522) / (52,384) / 563,547
Accounts payable / - / 39,755 / 2,548 / 2,733 / 2,935 / 3,151 / 3,384 / 3,638 / 3,915 / 4,213 / (21,174)
Cash provided by operations / (235,800) / 25,621 / 11,443 / 38,110 / 67,444 / 99,696 / 135,105 / 173,906 / 216,365 / 258,141 / 898,078
Financing activities - Change in long term debt / 664,636 / - / (73,806) / (79,932) / (86,567) / (93,751) / (101,533) / (109,960) / (119,087) / - / -
Issuance of shares / 73,848 / - / - / - / - / - / - / - / - / - / -
Cash provided by / (used for) financing activities / 738,484 / - / (71,164) / (38,110) / (67,444) / (99,696) / (135,105) / (134,032) / (119,087) / - / -
Investing activities - Capital expenditure / (468,584) / - / - / - / - / - / - / - / - / - / -
Cash (used for) / provided by investing activities / (468,584) / - / - / - / - / - / - / - / - / - / -
NET CASH / 34,100 / 25,621 / (59,721) / - / - / - / - / 39,874 / 97,278 / 258,141 / 898,078
Cash balance brought forward / 34,100 / 59,721 / - / - / - / - / - / 39,874 / 137,153 / 395,293
Cash available for appropriation / 34,100 / 59,721 / - / - / - / - / - / 39,874 / 137,153 / 395,293 / 1,293,371
Cash carried forward / 34,100 / 59,721 / - / - / - / - / - / 39,874 / 137,153 / 395,293 / 1,293,371
  1. Key Assumptions

Particulars / Assumption
Sales Price Growth Rate / 5 % per year
Capacity Utilization Growth Rate / 5 % per year
Increase in Cost of Raw Materials / 10 % per year
Increase in Staff Salaries / 10 % per year
Increase in Utilities (Electricity / Water / Gas) / 10 % per year
Debt / Equity Ratio / 90 : 10
Depreciation
PlantBuilding / 10 % per annum
Machinery / 10 % per annum
Office Furniture & Equipment / 10 % per annum
Loan Period / 8 Years (inclusive of 1 year grace
Loan Installments / period)
Financial Charges (Loan Rate) / Quarterly

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