Pakistan Council of Scientific & Industrial Research (PCSIR)

Ministry of Science & Technology Govt. of Pakistan

HEAD OFFICE: 1,Constitution Avenue, Sector G-5/2

Islamabad Tel.051-9225395-99, Fax.051-9225372, 9219266

E-mail: pcsirheadoffice@gmail.com, URL: www.pcsir@gov.pk

Pak Swiss Training Centre Campus PCSIR Labs. Complex

Off University Road, Karachi-75280 Tel.021-3464163, Fax.021-34641962

E-mail: pstckarachi@gmail.com, URL: www.pstcpk.com

Note: All Services / information related to PM's Youth Business Loan are Free of Cost April, 2014

P.S.T.C Karachi Page 2

DISCLAIMER

This information memorandum is to introduce the subject matter and provide a general I guideline and information for a specific field. The material included in this document is based on data / information obtained from various reliable sources; However it cannot be taken up as a complete solution for setup of a production unit The conditions need to be given more may be custom suited to a particular region and product of particular material. This report is put up without any warranties or assertions as to the correctness or soundness thereof the degree of success and profitability may vary for different products, regions change in tariff of power and cost of raw material and labor cost.

PSTC, the persons involved in the preparation of this document do not assume any liability for any financial or other loss resulting during establishment or running the business/ project. memorandum in consequence of undertaking this activity. The contained The user of this business feasibility report should take additional precaution and Obtain detailed information. Services of a professional qualified consultant / technical expert may obtained before implementation.

PURPOSE OF DOCUMENT

The objective of the pre-feasibility study is to facilitate entrepreneurs in project identification for investment. The project pre-feasibility may form the basis of investment decision and in order to fulfill this objective, the report covers various main factors of project has been discussed finance, start up, basic requirements, development, production, marketing and business management. The purpose of this document is to provide guide line for investors in Injection Molding of Plastic Products and provide them understanding of the business in order to facilitate investors in investment decisions.

INTRODUCTION TO PSTC

The establishment of Pak Swiss Precision Mechanics and Instrumentation Training Centre, now recognized as a Centre of Excellence in Technical Education was to provide technical personnel to cater the growing need for the emerging industrial sector in the Country. PSTC came into existence in 1965 and started functioning with imparting training in the discipline of Precision Mechanics and Instrumentation.

The three years Diploma Course of Associate Engineer in Precision Mechanics & Instrument Technology, Four Years Specialized Diploma in Dies and Mould Technology and Three Years Diploma in Process Control Technology are conducted with the Affiliation of Sindh Board of Technical Education. In addition to these courses PSTC has also introduced B.Tech. Programme in Mechanical Technology (affiliated with NED University of Engineering & Technology). A Four Years DAE in Dies & Mould Technology (Evening Program) has also been introduced. PSTC is also conducting evening short courses for in-service Engineers & Technologists to upgrade their skills in the field of CNC Programming & Operation (CAD/CAM) and Control Technology (PLC). About 300 in-service Engineers & Technologists are trained every year.

Pak Swiss Training Centre has also been rendering technical services to industrial and scientific organizations public and private sector, in the field of design & development, fabrication of tools, moulds, gauges and plant spares. The dies and mould manufacturing sector is being supported the most because PSTC is the only institution in Pakistan having the state of art training facilities.

P.S.T.C Karachi Page 3

The contribution of PSTC towards the development of industries and organization through skilled manpower and design & development is always regarded by the industries and organization of Pakistan time to time. They highly inspire and appreciate the training procedure on state of art technology & machines during their visits to PSTC.

EXECUTIVE SUMMARY

The Injection Molding Plastic Products Manufacturing Unit may be established at a location where basic infra structure is available electric power, water connection,transport facilities and other necisities essential for the production are conveniently available. All industrial zones Karachi, Hyderabad, Lasbela, Hubchowki, Lahore, Gujranwala, Multan, Rawalpindi, Quetta, Peshawar etc. are suitable regions to setup the project. The proposed project is assumed to manufacture Plastic Automobile Parts using Injection Moulding Process.

The injection molding setup would have an installed capacity to manufacture 3000 components per shift per day up to 10 grams. 05 persons would be required to carry out the manufacturing and managing operations.

Total cost estimates are Rs. 2.216 million with a fixed investment of Rs. 0.235 million and an initial working capital requirement of Rs. 0.231 million. Given the cost assumptions IRR and payback are 49% and 2.25 years respectively.

The most critical considerations or factors for success of the project are 1. Selection of appropriate plant and equipment / molds 2. Relevant Management Experience 3. Power / Energy Mix 4. Marketing Efficiency

BRIEF DESCRIPTION OF PROJECT AND PRODUCT

COMPOSITION

Most plastics contain organic polymers. The vast majority of these polymers are based on chains of carbon atoms alone or with oxygen, sulfur, or nitrogen as well. The backbone is that part of the chain on the main "path" linking a large number of repeat units together. To customize the properties of a plastic, different molecular groups "hang" from the backbone (usually they are "hung" as part of the monomers before the monomers are linked together to form the polymer chain). The structure of these "side chains" influence the properties of the polymer. This fine tuning of the properties of the polymer by repeating unit's molecular structure has allowed plastics to become an indispensable part of the twenty-first century world.

P.S.T.C Karachi Page 4

ADDITIVES Most plastics contain other organic or inorganic compounds blended in. The amount of additives ranges from zero percentage for polymers used to wrap foods to more than 50% for certain electronic applications. The average content of additives is 20% by weight of the polymer. Fillers improve performance and/or reduce production costs. Stabilizing additives include fire retardants to lower the flammability of the material. Many plastics contain fillers, relatively inert and inexpensive materials that make the product cheaper by weight. Typically fillers are mineral in origin, e.g., chalk. Some fillers are more chemically active and are called reinforcing agents. Since many organic polymers are too rigid for particular applications, they are blended with plasticizers (the largest group of additives), oily compounds that confer improved rheology. Colorants are common additives, although their weight contribution is small. Many of the controversies associated with plastics are associated with the additives.[ Organotin compounds are particularly toxic.

CLASSIFICATION Plastics are usually classified by their chemical structure of the polymer's backbone and side chains. Some important groups in these classifications are the acrylics, polyesters, silicones, polyurethanes, and halogenated plastics. Plastics can also be classified by the chemical process used in their synthesis, such as condensation, polyaddition, and cross-linking.

THERMOPLASTICS AND THERMOSETTING POLYMERS There are two types of plastics: thermoplastics and thermosetting polymers. Thermoplastics are the plastics that do not undergo chemical change in their composition when heated and can be molded again and again. Examples include polyethylene, polypropylene, polystyrene and polyvinylchloride. Common thermoplastics range from 20,000 to 500,000amu, while thermosets are assumed to have infinite molecular weight. These chains are made up of many repeating molecular units, known as repeat units, derived from monomers; each polymer chain will have several thousand repeating units. Thermosets can melt and take shape once; after they have solidified, they stay solid. In the thermosetting process, a chemical reaction occurs that is irreversible. The vulcanization of rubber is a thermosetting process. Before heating with sulfur, the polyisoprene is a tacky, slightly runny material, but after vulcanization the product is rigid and non-tacky.

Process : The proposed facility is to be setup with used plastic injection molding machine including molds for production of 25 grams plastic components automobile parts.

P.S.T.C Karachi Page 5

Location: The unit is proposed to be established as a manufacturing facility at a location where utilities, infrastructure and other provisions necessary for the production process are conveniently available such as industrial zones in Karachi, Hub, Hyderabad, Lahore, Gujranwala, Multan, Rawalpindi and Peshawar etc.

The per capita consumption of plastic in Pakistan is 3.1 kg, while it is 3.3 kg in India and 7 kg in China. The highest per capita consumption of plastic is in United States and Germany, where per capita consumption is 120 kg per annum. Globally, the per capita plastic consumption works out to be around 24 kg per annum. There are around 6,000 plastic manufacturers in the Pakistan and 600,000 people are directly or indirectly engaged in this business.

Product: The project is assumed to manufacture plastic automobile components using injection grade PP PE employing plastic injection moulding machine operating 12 hours a day, The production units should have an installed capacity to manufacture 1600 components of 10 grams plastic automobile use per day.

Target Market: Karachi, Hub, Hyderabad, Lahore, Gujranwala, Multan, Sialkot, Faisalabad, Gujrat, Rawalpindi, Quetta and Peshawar etc. are good markets for the product under consideration.

Employment Generation: The project will provide direct employment to 05 people. In future it may be extended to staff of 12 in period of 03 years.

IMPORTANT FACTORS

The factors that are related to the decision to invest in the proposed project are: Selection of appropriate plant and equipment / moulds Relevant Experienced Management and Trained and Experienced Technical

Staff Available uninterruptable of Electrical power ( alternate source of power in case

of load shedding ) Marketing Efficiency Linkages

OPERATIONAL CAPACITIES The proposed injection molding plastic products setup is may be established as a manufacturing facility. The setup would have an capacity to manufacture 1600 components of 10 grams per day 424000 per annum. However the plant is estimated to manufacture components operating at an 85% capacity. Sales are expected to increase at a rate of 15% annually with the same installed capacity.

P.S.T.C Karachi Page 6

IMPORTANCE OF GEOGRAPHICAL LOCATION For the success of the project, it is important to find a location preferably in an industrial ZONES where utilities especially electricity and other infrastructure and raw material are conveniently available. All industrial zones in Karachi, Hub , Lasbela, Hyderabad, Lahore, Gujranwala, Multan, Rawalpindi, Quetta and Peshawar etc. are suitable for establishment of the project. Establishing the unit in large cities would have an advantage of being close to potential buyers and easy transportation, which may facilitate continuous orders and wide spread referrals.

POTENTIAL TARGET MARKETS / CITIES Plastic, print and packaging industries are among the leading sectors in the economy of Pakistan, possessing a high growth potential. The government should promote these sectors as they can generate jobs and business opportunities. These views were expressed by participants of the seventh international plastic, printing and packaging industry exhibition held at the Expo Centre. The three day Exhibition, which started on March 12 and concluded on Monday, brought over 200 businessmen from different sectors under one roof.

It was an international conference, attended by participants from China, India, Belgium, Denmark, Germany, Iran, Japan, Malaysia, Netherlands, Oman, Saudi Arabia, Singapore, Switzerland, Taiwan, Turkey, UAE, UK and USA. CEMS Pakistan arranged the event in Lahore for the first time in order to encourage plastic and packaging industry in the north zone of country.

Growth of plastic, packaging and printing industry was stagnant in the 1980s and 1990s. However, an increase in usage of plastic products at homes and corporate level has driven robust growth in the industry. Participants stated that plastic is the basic material for products ranging from lunch boxes to dinning plates. They added that the exhibition provided an opportunity to display their products, as no such event has been organised in the past.

Said that similar events should be held frequently, as they allow the government to generate revenue. Plaspack Managing Director Suhail Akbar said that he had received an astounding response from the exhibition. Around 200 visitors came to my stall for inquiries, he said, adding that the response gave an edge to his business. We developed a lot of international contacts through the event, he added. Saleem Akhter of Comutype Media, who had come from India to participate in the event, said he was amazed to see the mega event. He maintained that such events provide an opportunity for business expansion and help in bringing people together. He appreciated the efforts of organizers, saying that he liked his stay in Pakistan. Raja Imran, another participant of the exhibition, said that his business lacked mass scale contacts.

P.S.T.C Karachi Page 7

I have met a number of international participants and they were keen in dealing with my company. I have booked almost a dozen orders in the last three days, he said. He added that plastic industry in Pakistan has a huge potential as it can generate significant amounts of revenue. He urged the government to address issues of the plastic, print and packaging industries. The plastic industry, over the last decade, has seen tremendous growth, as dependency on plastic has increased. Promoting the industry is, therefore, need of the hour, he added.

PROJECT COST SUMMARY A brief financial model has been developed to analyze the commercial viability of this project. main costs and revenue related figures (estimated) along with results of the analysis are tabulated as below.

The projected Income Statement, Cash Flow Statement and Balance Sheet are attached as appendices.

Project Economics The following table shows internal rate of return, payback period and NPV for injection molding plastic products project operating at 80% of capacity in its first year of operations.

Returns on the project and its profitability are highly dependent on the availability of uninterruptable electrical power, Condition of machine, availability of raw material,

stability of raw material cost, relevant management and technical experience, marketing efficiency and quality of moulds.

PROJECT FINANCING Following table provides details of the equity required and variables related to bank loan.

Table Project Financing

Description Details

Total Equity (10 %) Rs. 235800/=

Bank Loan (90%) Rs. 21222200/=

Markup to the Borrower (%age/annum) Rs. 8%

Tenure of the Loan (years) 8

Grace period 1 year

Description Details Internal Rate of Return 49% Pay back period (years) 2.25 Net present Value Rs 2.726 million

P.S.T.C Karachi Page 8

Project Cost Following requirements have been estimated for the operations of the Project

Table Capital Investment for the Project

Capital Investment Amount

Furniture and Fixture & Office support Equipment Rs. 50,000/=

Machinery & Equipment Rs. 17,00,000/=

Security Deposit Rs. 1,80,000/=

Miscelleanous Expenses Rs. 50,000/=

Total Capital Cost Rs. 19,80,000/=

Initial working Capital Rs.2,36,000 /=

Total Project Cost Rs. 22,16,000/=

Space Requirement

The building required is around 2000 sq ft in area in industrial area where all utilities and facilities are available. The rented Building will allow proper installation of production machines and machines of tool room, office and warehouse.

The allocation of space may be as follows :

Table Space Requirement

Space requirement Area (Sq. Ft.) Production Area 1100 Tool Shop 150 Office 150 Ware house 600 Total Area 2000

P.S.T.C Karachi Page 9

Machinery and Equipment

The Injection Moulding Production Unit for production of plastic components and Support Tool room would require following Tools and Equipment

Name and Specification of Machine Qty. Cost / unit Total Rupees Used/Refurbished Injection Moulding Machine Capacity 10 ton for plastic components up to 100 grams.

01 10,00000 1000000/=

Machine lathe 01 60,000/= 80,000/= Milling Machine 01 70,000/= 70,000/= Mould Set 02 250000/= 500000/= Accessories, Tools and Measuring Instruments

Assorted 50,000/= 50000/=

Total 1700000/=

Furniture Fixture and Office Equipment

Description Qty Cost Amount

Table and Chair 02 5000 10000

Chair for Visitors 04 1000 4000

Filing Cabinet 01 8000/= 6000

Steel Almirah 01 10000/= 10000

Computer with Printer 02 10000 20000

Total Rs. 50,000/=

The furniture and office support equipment may be purchased in

used/refurbished condition for cost saving.

Raw Material Requirement

Considering the price competition, decreasing margins at retail level, prevailing credit in the market (2-3 months) and limited investment, toll manufacturing or contract manufacturing mode is proposed for the injection molding project. The margins tend to be above average, if the manufacturer is in possession of a rare or considering the price competition, decreasing margins at retail level, prevailing credit in the market and limited investment, toll manufacturing or contact manufacturing mode may be adopted to avoid losses in the project.

P.S.T.C Karachi Page 10

Human Resource Requirement

Designation No of

employees

Salary per month Total yearly salary

Manager (Owner ) 01 35,000 x 1 = 35,000/= 35,000 x 12 =420,000/=

Office assistant 01 10,000 x 1 = 10,000/= 10,000 x 12 = 120000/=

Machine Operator 01 10,000 x 1 = 20000/= 10,000 x 12 = 120,000/=

Fitter cum

Electrician

01 12,000 x 1 = 12000/= 12000 x 12 = 144,000/=

Helper 01 8000 x 1 = 8000/= 9000 x 12 = 96000/=

Total Rs. 75,000/= Total Rs. 9,00,000/=

It is assumed that the owner would be managing the overall affairs of the plastic molding setup. An accountant / Office Assistant is required to process bills, invoices, receivables and also maintain accounts etc.

The Production Manager should have considerable knowledge about polymer technology and its properties; preferably having a diploma in plastic technology with 5 to 7 years experience. The machine operators should also have relevant experience of handling and operating injection molding machines and plastic processing.

Revenue Generation

The Sales are expected to increase by 10% every year. The 10% annual increase in revenue is expected to result from increase in product price. The prices are exclusive of the General Sales Tax. The item wise generated revenue from injection molded plastic components is as

follows

Detail of product

Sales Price (Rs. / Unit)

First Year Sales No, of components

First year sales revenue

Plastic Automobile Component

12/= Per component

424000 components or 5300 Kg

Rs. 5088000/= (working 265 days per year)

OTHER COST

Machinery Maintenance: The Injection Molding Machine and molds have a long life, however, the maintenance cost of the machines are usually high, since they need to be oiled and cleaned regularly specially before installing a new mold or starting a fresh production process.

P.S.T.C Karachi Page 11

The yearly maintenance cost has been taken to be 5% of the written down value of the machine. It is anticipated that the machinery would require an overhaul after every five years. It is, therefore, assumed that machinery overhauling expenditures would be incurred at 10% of the price of the Machinery in 5 Years.

Rent and deposits: The proposed premises will be acquired on a rental basis with 6 months deposit after which rent will be payable on monthly basis. The monthly rent is estimated to be Rs. 15 / Sq ft. amounting to Rs. 30,000 per month for the proposed injection molding plastic products unit (2000 Sq Ft.). The rent is estimated to increase at the rate of 10% per annum for the projected period.

Utilities Requirement The following table gives the estimated breakup of utilities on monthly basis

Utilities Monthly Charges Rs. Electricity 100,000/= Water 5000/= Telephone 6000/= Conveyance 5000/= Miscellaneous 10,000/= Total 126000/=

The Utilities expense is estimated to increase at the rate of 10% per annum for the project period

Working Capital Requirements: It is estimated that an additional amount of Rs. 2,36,000/= will be required as cash in hand to meet the initial working capital requirements during operations. The requirement is based on the rent, utilities and salaries expenses for at least one month. The following table gives the break up.

Description Month

Utilities Rs. 126,000/= 01

Salaries Rs 75,000/= 01

Rent Rs. 30,000/= 01

Total Rs 231000/=

P.S.T.C Karachi Page 12

IMPORTANT ASSUMPTIONS

DETAILS ASSUMPTIONS

Sales Increase 10% 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

Increase Rent 10% per year

Increase In Office Expenses 10% per year

Debt / Equity Ratio 90 : 10

Depreciation

o Plant Building 10% per annum (Diminishing Balance)

o Machinery & Moulds 10% per annum (Diminishing Balance)

o Office Furniture & Equipment 10% per annum (Diminishing Balance)

Machine Overhauling Cost 10% of Cost Price (Year 5 & Year 10)

Machine Annual Maintenance Cost 5 % of Written Down Value

Loan Period 8 Years

Loan Grace Period 1 Year

Loan Installments Monthly

Financial Charges(Loan Rate) 08 % per annum

Tax Rate Tax rates for non-salaried individuals

P.S.T.C Karachi Page 13

Income Statement

INJECTION MOULDING OF PLASTIC PRODUCTS

Income Statement Amount Revenue (Net Income) (A) 5088000 Production Labor (Wages) (B) 550000 Utilities (C) 1512000 Cost of sales (Expenses) (B+C=D) 2062000 Gross Profit (A-D=E) 3026000 General Administrative & Selling Expenses Salaries 900000 Rent Expenses 360000 Office & Miscellaneous Expenses 150000 Amortization Expenses 10000 Depreciation Expenses 200000 Maintenance 50000 Sub-total (F) 1670000 Operating Income (E-F=G) 1356000 Financial Charges (08% per annum) (H) 125000 Earnings before Taxes (G-H) 1231000 Tax 300000 Yearly Profit (Income) 931000 Monthly profit (Income) Approx. 77000