Pre-Feasibility Study
VIRUS FREE PATATO SEED PRODUCTION THROUGH TISSUE CULTURE
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
January 2014
Contents
LIST OF TABLES
1. DISCLAIMER
2. PURPOSE OF THE DOCUMENT
3. INTRODUCTION TO SCHEME
5. EXECUTIVE SUMMARY
2. Availability of skilled manpower.
6. BRIEF DESCRIPTION OF PROJECT
7. CRITICAL FACTORS
8. INSTALLED AND OPERATIONAL CAPACITIES
9. GEOGHRAPHICAL POTENTIAL FOR INVESTMENT
Punjab, Gilgit Baltistan and KPK province is suited for this business
10. POTENTIAL TARGET MARKET
11. PRODUCTION PROCESS FLOW
12. PROJECT COST SUMMARY
12.1: Project Economics
12.2: Project Financing
12.3: Project Cost
12.4: Space Requirement
12.5: Machinery and Equipment
12.6: Raw Material Requirements
12.7: Human Resource Requirement
12.8: Revenue Generation
13. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS
14. ANNEXURES
15: KEY ASSUMPTIONS
LIST OF TABLES
Table 1: Project Economics 9
Table 2: Project Financing 10
Table 3: Project Cost 10
Table 4: Land Requirement 11
Table 5: Machinery and Equipment 11
Table 6: Office Equipment and Office Furniture 12
Table 7: Raw Material Requirement 12
Table 8: Human Resource Requirement 13
Table 9: Revenue Generation 13
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 notassume 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, 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 potato tissue culture 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 acrossPakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).
5. EXECUTIVE SUMMARY
The project of production of virus potato seed through tissue culture.
Product(s) include virus free potato plants of different varieties.
Capacity; 5,000,000 potato seed annually.
Total Cost Estimate is Rs. 2.o2 million
The most critical considerations or factors for success of the project are;
1. Maintenance of phyto sanitary environment and regular culturing of in vitro plants.
2. Availability of skilled manpower.
6. BRIEF DESCRIPTION OF PROJECT
Potato is an important fruit crop of Pakistan cultivated over an area of 80,000 acres. New plantations are done through suckers which carry diseases with planting materials. There is dire need for disease free planting materials for new plantations.
• Technology: Through tissue culture technology disease free potato plants will be produced all-round the year. These plants are uniform, true to type and mature early as compared to suckers and give more yields.
• Location: The proposed business can be done in Punjab and Northern Areas.
• Target Market: Punjab, Sindh and KPK Potato growers/farmers are the target market for potato seed.
• Employment Generation:The proposed project will provide direct employment
to 02 people for the project life and numbers of labour will be involved when required. Indirectly number seed growers/ farmers will be involved for seed production plantations.
7. CRITICAL FACTORS
Individuals considering entering the seed production business must carefully consider the
following factors:
1. Maintenance of phytosanitary environment and quality assurance of the product.
2. Experienced growers/ manpower
8. INSTALLED AND OPERATIONAL CAPACITIES
For this project it is assumed that the cycle will start from utilizing 20,000in vitro potato plants/ cultures to be supplied by tissue culture labs. Annual production will be increase 1:5 and product will be high quality potato seed.
9. GEOGHRAPHICAL POTENTIAL FOR INVESTMENT
Punjab, Gilgit Baltistan and KPK province is suited for this business
10. POTENTIAL TARGET MARKET
All potatogrowers of the above mentioned districts will be target market for this business.
11. PRODUCTION PROCESS FLOW
Following production process is generally followed:
FLOW CHART
12. PROJECT COST SUMMARY
12.1: Project Economics
All the figures in this financial model have been calculated for the production of virus free patato seed through tissue culture of 5000000 seed/tuber production in the first year. The following table shows internal rate of return, payback period and net present value of the investment.
Table 1: Project Economics
Description / DetailInternal Rate of Return / 158%
Pay Back Periods (Years) / 1
Net Present Value(NPV) / Rs.
Rs 20,483,872.90
The results in the tables show that the net present value and internal rate of return.Returns on the business and its profitability are highly dependent on experience,suitable location and good technical practices. The project will not be able to cover the potential demand of consumers and recover payments, if these factors are not efficiently managed and will also lead to increased operating cost.
12.2: Project Financing
Following table provides details of the equity required and variables related to bankloan;
Table 2: Project Financing
Description / DetailsTotal own equity (10%) / 202,312
Bank Loan (90%) / 1,820,813
Markup to the Borrower(%age/annum) / 8%
Tenure of the loan / 8
Grace Period(years) / 1
The above table shows that the bank will provided the loan of amount of worth Rs.1, 820, 813 and owner having the equity in Rs. 202,312. The owner will be paid 8% Mark upof the borrowing amount.
12.3: Project Cost
Following requirements have been identified for operations of the proposed business.
Table 3: Project Cost
Capital Investment / Amount(Rs.)Land(leased/Rental basis)
Contraction Shed House / 268,000
Office Furniture / 20,000
Office Equipments / 40,000
Total Capital Cost / 328000
Initial Working Capital / 1,695,125
Total Project Cost / 2,023,125
12.4: Space Requirement
Virus free seed production will be produced by using the 6 acre land for the production of seed in Northern areas and Punjab.
Table 4: Land Requirement
Area Required / Area(acre ) / Monthly Rent Charges(Rs.) / Yearly Rent(Rs.)Northern Areas / 1 / 12,500 / 37,500
Punjab / 5 / 12,500 / 187,500
Total Rent / 25,000 / 225,000
12.5: Machinery and Equipment
Following table provides list equipment use for the construction of shade housesfor the potato seed production
Table 6: Construction of Shade Houses
Description / Quantity / Cost Rs/Unit / Total CostPipes / 60(no) / 2800 / 168,000
Green Net / 3 Roll / 25,000 / 75,000
others / 25,000
Total / 268,000
The following tables shows the office/lab equipment and office furniture which is needed in the office.
Table 7: Office Equipment and Office Furniture
Description / Quantity / Cost Rs/Unit / Total CostOffice Equipment
Computer / 1 / 30,000 / 30,000
Telephone / 1 / 10,000 / 10,000
Furniture and Fixture
Table and Chair / 1 / 10,000 / 10000
Visiting Chair / 4 / 2,500 / 10000
12.6: Raw Material Requirements
The detail of rawmaterial required for the production of the potato seed production is given below.
Table 8: Raw Material Requirement
Description / Total cost/Rs.Plants / 500,000
Fertilizer / 383,550
12.7: Human Resource Requirement
The table above provides details of human resource required to run a business of seed production. Salaries of all employees are estimated to increase 10% annually.
Table 9: HumanResourceRequirement
Description / Nos. / Salary per Employee per Month(Rs.)Owner/ Technician / 1 / 20,000
Assistant/Helper / 1 / 10,000
Total Staff / 2 / 30,000
12.8: Revenue Generation
The revenue generation through the seed/ tuber production is given below. The price of the seed will be estimated to increase by 5%.
Table 10: Revenue Generation
Year / Unit(seed) / Sale Price(Rs./Unit) / First Year ProductionFirst Year / 5000000 / 1 / 5000000
13. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS
DR. AISH MUHAMMA
PGRI, NARC, ISLAMABAD
Ph: 051-8443108
Email:
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14. ANNEXURES
14.1 Income Statement
Year / 1 / 2 / 3 / 4 / 5 / 6 / 7 / 8 / 9 / 10Sales/Revenue / 5000000 / 5250000 / 5512500 / 5788125 / 6077531 / 6381408 / 6700478 / 7035502 / 7387277 / 7756641
Cost of Sales
Raw material cost / 500000 / 550000 / 605000 / 665500 / 732050 / 805255 / 885781 / 974359 / 1071794 / 1178974
Cost of Production / 729550 / 802505 / 882756 / 971031 / 1068134 / 1174948 / 1292442 / 1421687 / 1563855 / 1720241
Direct labour / 143700 / 158070 / 173877 / 191265 / 210391 / 231430 / 254573 / 280031 / 308034 / 338837
Cost of Good Sold / 1373250 / 1510575 / 1661633 / 1827796 / 2010575 / 2211633 / 2432796 / 2676076 / 2943683 / 3238052
Gross Profit / 3626750 / 3739425 / 3850868 / 3960329 / 4066956 / 4169775 / 4267682 / 4359426 / 4443594 / 4518589
Gross Profit Margin / 73% / 71% / 70% / 68% / 67% / 65% / 64% / 62% / 60% / 58%
Salaries / 360000 / 396000 / 435600 / 479160 / 527076 / 579784 / 637762 / 701538 / 771692 / 848861
Advertising / 12000 / 13200 / 14520 / 15972 / 17569 / 19326 / 21259 / 23385 / 25723 / 28295
communication expense / 12000 / 13200 / 14520 / 15972 / 17569 / 19326 / 21259 / 23385 / 25723 / 28295
Depreciation Cost / 16400 / 54000 / 54000 / 54000 / 54000 / 54000 / 54000 / 54000 / 54000 / 54000
Amortization of pre-operating expense / 8560 / 8560 / 8560 / 8560 / 8560
utilities / 18000 / 11000 / 12100 / 13310 / 14641 / 16105 / 17716 / 19487 / 21436 / 23579
rent for building / 120000
Operating Expense / 426960 / 495960 / 539300 / 586974 / 639415 / 688541 / 751995 / 821795 / 898574 / 983031
Operating Income / 3199790 / 3243465 / 3311568 / 3373355 / 3427541 / 3481234 / 3515687 / 3537632 / 3545020 / 3535558
Financial Charges (8% per annum) / 151127 / 138358 / 121576 / 103400 / 83717 / 62399 / 39312 / 14309
Profit before tax / 3048663 / 3105107 / 3189992 / 3269955 / 3343824 / 3418835 / 3476375 / 3523322 / 3545020 / 3535558
Tax / 268521 / 285498 / 301491 / 316265 / 331267 / 342775 / 352164 / 356504 / 354612
Net Profit after tax / 3048663 / 2836586 / 2904494 / 2968464 / 3027559 / 3087568 / 3133600 / 3171158 / 3188516 / 3180946
Monthly Profit after Tax / 254055 / 236382 / 242041 / 247372 / 252297 / 257297 / 261133 / 264263 / 265710 / 265079
15: KEY ASSUMPTIONS
DescriptionInterest Rate / 8%
Loan Tenure / 8 Years
Grace Period / 1 Years
Debt Equity Ratio / 90:10
Sale Price Growth Rate / 5%
Repair and Maintenance Rate / 5%
Increase in Staff Salaries / 10%
Increase in Office Expense / 10%
Increase in building Rent / 10%
Increase in Input Price / 10%
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