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`Business model and project`Viability` for a Technical textile project based on 2 no Nonwoven plant Lines`. A PRESENTATION BY SNR.TECH-TEX CONSULTANT ,MUNISH TYAGI, Email: firstname.lastname@example.org , phone: 098 1125 3332. ASSOCHAM Symposium 19 March,2010.
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A PRESENTATION BY SNR.TECH-TEX CONSULTANT ,MUNISH TYAGI,
Email: email@example.com , phone: 098 1125 3332
Due to the GDP factor, it is certainly expected to clock 65000 to 70000 Cr,by 2015.As per a Study by ICRA,the Tech tex sector in India will experience a growth of 11-12% pa. for 2010-2020 decade vis a vis growth of only 6-7% in the developed countries.
Going by the past trends for growth in nonwovens and tech - textiles in developed countries like USA,Europe, Japan [ and presently for China],the Key drivers for Tech. Tex demand are/will be:
Overall, it is estimated that the Disposable type nonwovens and geo textile products will be the market preferred technical textiles in India over the present 2010-2020 Decade.Before,any meaningful and fast track investments are made into Tech.tex sector; it will be critical to understand `what is the right technology for what saleable products`
In this Presentation, I have tried to address the major area of doubt w.r.t Viability of investment considering that Tech tex projects are high technology and high capex projects.In further slides,I would like to guide the worthy audience thru`a profitable business model of a Rs100 crore Tech tex project,based on 2 non woven lines,for disposable and geo tex products,for upto 45 Metric ton/day.
It is most essential to understand the basic process of manufacturing before undertaking the project investment in Tech tex domain. The production of non woven products can be placed into 3 Core methods,as below:
Carding or Airlaid or Wet laid processes,
via Spun laid or Melt blown processes which
deploy 100% synth. Fibers ;PP or PES as polymer
nonwoven fabric via Thermal bonding,Chemical
bonding,hydro entangling and,Needle punching.
PRODUCTS AND CAPACITY PLAN: The project under ref. is for setting up a New greenfield Unit having 1 Line for Disposable nonwoven products from Airlay line and,1 Line for heavier Geotextiles from geotex/Needle punching line.
The key assumptions for planning a practical and Viable project for above ,are:
BASIS:INSTALLED CAPACITY OF 46 TON/DAY,BASED ON 2 NO. NONWOVEN LINES.
Components i.e. the different project cost heads are proposed as below:
Buildings- 80,000 sq Ft, construction Rs 4.50 “
Indeg. Plant and Misc. Assets,like Utility equipments, Rs 10.5 “
Rs 2.2 Cr/TPD,based on state of the art technology,and Imported plant being 60% of Total.
It is proposed to finance the project, under the favourable Debt-Equity ratio of 3 to 1,under the ongoing TUF scheme. For Technical textile projects, there is also provision for special Capital subsidy of 10% on the value of tech tex plant & machinery.
The break up of project financing is , therefore, proposed as below::
A rebate of 5% on the bank Term loan will be available under the TUF scheme.
Prime RM is, 100% Polyester fiber, assumed at Rs 72/Kg.
R M/fiber consumption includes a 15% process loss from feeding to packed fabric.
Main raw materials
is abt 63% of the sales turnover at optimum capacity in 3rd Year.
Indirect materials, i.e for Packing and consumable materials
Of approx. value 2.1% of the Sale.
Total RM quantity and Cost; and RM to Sale ratio.
A Summary of all major manufacturing costs is provided ,as below, for the Optimum
plant capacity at 75%. A reasonable RM to sale ratio of % leads to healthy Gross
Profit to Sale ratio of 21%.
A] Raw materials cost:
Rs 106 crore, for diretc + indirect materials
And Rs 3.5 crore for inward and outward freight costs.
B] Utility cost
Covers the power and fuel expenses at the Opt. capacity.
1. Power cost ,at Rs 6 crore p.a
2. Steam cost,at Rs 2 crore p.a
C] Manpower cost,incl. Salaries :
1.Total Manpower requirement for production will be 140 no/day
2.The yearly manpower cost ,incl. admn. Staff and benfits, works out to Rs 2.10 crore
D] Manufacturing overheads incl. repair,insurance etc
E] TOTAL PRODUCTION COST [ i.e Cost before Sale], works out to Rs 125 crore,and
which leads to the Gross Profit margin of 21% after allowing 3% sale expenses.
Key financial and Viability indicators of the project,at Opt. 75%capacity inYear 3 are;
Gross Profit, that is PBIDT.
The project has a gross profit to sale ratio of 21%,and leads to
1. Cash Profit-PBDT-before Depreciation- of 15.5%,
2. Net Profit,after tax,of 7%.
Selling cost, at 3 % of Sale
Sale turnover,Rs 162 crore,in Opt. Year 3
KEY FINANCIAL RATIOS:
PROJECT WILL HAVE PAYBACK PERIOD OF 1+5 YEARS,incl. 1 Year Gestation on Term Loan
1. For the Lenders, the project will service T-Loans,with healthy
DSCR of 1.76
2. The break even Point, will be at 55-56%, in Optimum working Year 3.
3. The project will lead to IRR of 15%; and a Return on equity of 40% on net profit.
> Under the prevailing cost of all inputs,and market value of output, the project is profitable and viable with healthy and robust financial ratios.However, like all textile units the Tech tex project is also v. sensitive to change sin raw materials and selling prices.
>>It is,therefore, imperative to constantly monitor the RM and sale prices ,to retain GP profits.