HERBAL GUTKA

1.0 INTRODUCTION Manufacture of herbal gutka is a new concept. Chewing of beetle (popularly known as Paan) is an age-old Indian tradition. Since last few years, many types of gutkas have been introduced in the market and they have become very popular. Many varieties of paan or gutka are available in the market with many ingredients including chewing tobacco. Excessive consumption of tobacco is dangerous as it may cause cancer. Even non-tobacco varieties are harmful in the long run with many side effects. As a matter of fact, this is a kind of addiction. Many variants are available in the market but herbal gutka is yet to be seen. 2.0 PRODUCTS Chewing of paan or gutka is one type of addiction with many side effects. Hence a new concept of herbal gutka, which will not have side effects but may even help the digestive system, is discussed in this note. The product may also result in etc and this note considers Bihar as a preferred location. 2.1 3.0 Compliance with PFA Act is necessary. de-addiction to some extent. This product can be manufactured in many states like UP,Bihar, Jharkhand,Orissa

MARKET POTENTIAL 3.1 Demand and Supply After-mints are very popular throughout the country, with chewing of tobacco or non-tobacco paan, beetle-nuts or gutka being the most popular varieties. Over a period of time, they become addiction and it becomes extremely difficult to get rid of such habits even though they are harmful in the long run. Likewise, many mouth fresheners are available in the

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market as harmless alternatives. But herbal gukta is a new concept and would amount to concept selling. Market for gutkas is very large and scattered and it is growing very rapidly. Consumption of tobacco in any form is discouraged with restrictions like non-use at public places, no sales to children below 18 years of age and so on. 3.2 Marketing Strategy

With increasing health awareness, people at large have started disliking such hazardous products. Thus, this is the most appropriate time to come out with an alternate product which is not harmful, helps reduce addiction and may prove useful. Proper understanding of consumer needs, attractive packaging and adequate and strategic placement are the key factors. 4.0 MANUFACTURING PROCESS The process of manufacture is simple. All the ingredients are cleaned and passed through sieves to remove impurities. They are then ground individually in roller grinder. Then all of them are blended in a blender to obtain a homogenous mix. Finally, the desired quantity is packed in printed pouches on form, fill and seal machine. 5.0 CAPITAL INPUTS 5.1 Building There is no need to go in for buying a piece of land. Instead a readymade shed of around 80 sq.mtrs. may be bought. The total cost of shed is expected to be Rs. 1, 75,000/-. Production area would occupy 40 sq.mtrs. whereas packing, godowns and a small office would occupy the balance 40 sq.mtrs. 5.2 Plant and Machinery

This is a new concept and with proper network backed by publicity, the product may receive good response. Hence, rated production capacity of 20 tonnes with working of 2 shifts every day and 300 working days every year is suggested. For this, the following equipments will be required: Item Blender Mixers- 25 Kgs. Capacity Multi-screen Round Sieves Roller Grinder Form, Fill and Seal Machines Weighing Scale Qty. 2 2 1 2 1 Total 5.3 Miscellaneous Assets Price (Rs.) 1,00,000 60,000 70,000 2,50,000 10,000 4,90,000

Other support assets like furniture and fixtures, storage facilities, plastic tubs etc. shall be required for which a provision of Rs. 45,000/- is made.

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5.4

Utilities

Electricity requirement will be 15 HP whereas water of around 700-750 ltrs. will be required every day. 5.5 Raw Materials

Type and individual proportion of several herbs and other ingredients may vary depending upon local tastes and preferences. But it is advisable to consult a technical expert and then finalise the quantity of each ingredient. Items like sauf, ajwain, sunth, mulethi, kala namak, menthol shall be required. Individual quantity not being very large, availability will not be a problem. Metallised pouches of 5 gms. capacity shall be required along with labels and small corrugated boxes. 6.0 MANPOWER REQUIREMENTS Particulars Skilled Worker Helpers Salesman Nos. 4 4 1 Monthly Salary (Rs.) 2,000 1,000 2,000 Total Total Monthly Salary (Rs.) 8,000 4,000 2,000 14,000

7.0

TENTATIVE IMPLEMENTATION SCHEDULE Activity Application and sanction of loan Site selection and commencement of civil work Completion of civil work and placement of orders for machinery Erection, installation and trial runs Period (in months) 2 1 4 1

8.0

DETAILS OF THE PROPOSED PROJECT 8.1 Building Area (Sq.Mtrs) 80 Cost (Rs.) 1,75,000

Particulars Building 8.2 Machinery

As discussed earlier, the total cost of machinery is likely to be Rs. 4.90 lacs. 8.3 Miscellaneous Assets

A provision of Rs. 45,000 is adequate under this head as explained earlier.

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8.4

Preliminary & Pre-operative Expenses

For pre-production expenses like registration, establishment and administrative expenditure, quick market survey and advice from a technical expert on composition of various ingredients, interest during implementation, trial run expenses etc. a provision of Rs. 80,000/is made. 8.5 Working Capital Requirement

It is expected that the plant would operate at 60% of its rated capacity in the first year for which there will be following working capital needs. (Rs. in lacs) Particulars Stock of Raw and Packing Materials Stock of Finished Goods Receivables Working Expenses Period 1 Month Month Month 1 Month Margin 30% 25% 25% 100% Total 8.6 Cost of the Project and Means of Financing Item Land and Building Machinery Miscellaneous Assets P&P Expenses Contingencies @ 10% on Building and Plant & Machinery Working Capital Margin Total Means of Finance Promoters' Contribution Loan from Bank/FI Total Debt Equity Ratio Promoters' Contribution 2.80 6.81 9.61 2.43 : 1 29% Total 1.00 0.80 1.00 0.30 3.10 Bank 0.70 0.60 0.75 -2.05 Promoters 0.30 0.20 0.25 0.30 1.05

(Rs. in lacs) Amount 1.75 4.90 0.45 0.80 0.66 1.05 9.61

Financial assistance in the form of grant is available from the Ministry of Food Processing Industries, Govt. of India towards expenditure on technical civil works and plant and machinery for eligible projects subject to certain terms and conditions.

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9.0

PROFITABILITY CALCULATIONS 9.1 Production Capacity and Build-up As against the rated capacity of 20 tonnes per year, the plant is expected to run at 60% and 75% respectively during first 2 years. 9.2 Sales Revenue at 100% Selling Price per Pouch Re.1/Sales Value (Rs.) 40,00,000

No. of Pouches (5 gms each) 40,00,000 9.3

Raw Materials Required at 100% (Rs. in lacs) Qty. (Tonnes) 2.4 9.00 2.5 4.0 2.8 0.3 Rate per Ton (Rs.) 1,00,000 50,000 70,000 1,00,000 20,000 4,50,000 Value 2.40 4.52 1.75 4.00 0.56 1.35 14.58 42.00 Lac (Nos.) Rs.0.10 per pouch 4.20

Product Ajwain Sauf Mulethi Sunth Kala Namak Menthol Total [A] Metallised Pouches Labels, Box strapping and corrugated boxes, etc. Total [B] Grand Total [A] + [B]

--

--

1.00 5.20 19.78

9.4

Utilities

Requirements are already explained earlier. Annual expenditure at 100% is assumed to be Rs. 72,000/-. 9.5 Selling Expenses

Dealers, retailers need to be offered attractive discounts, schemes, sampling etc. Publicity in local media like scroll in local TV channel, pamphlets, and hoardings are also needed. Hence a provision of 20% of sales is made every year.

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9.6

Interest

Interest on term loan assistance is calculated @ 12% per annum assuming repayment of loan in 4 years including a moratorium period of 1 year. Interest on working capital assistance from bank is worked out as 14% per annum. 9.7 assets. 10.0 PROJECTED PROFITABILITY (Rs. in lacs) No. A Particulars Installed Capacity Capacity Utilisation Sales Realisation B Cost of Production Raw and Packing Materials Utilities Salaries Stores & Spares Repairs & Maintenance Selling Expenses @ 20% of Sales Administrative Expenses Total C Profit before Interest & Depreciation Interest on Term Loan Interest on Working Capital Depreciation Net Profit Income-tax @ 20% Profit after Tax Cash Accruals Repayment of Term Loan 11.86 0.43 1.68 0.24 0.36 4.80 0.48 19.85 4.15 0.76 0.28 1.18 1.93 0.40 1.53 2.71 -14.82 0.54 1.90 0.36 0.48 6.00 0.66 24.76 5.24 0.50 0.33 0.94 3.47 0.70 2.77 3.71 2.10 1st Year 60% 24.00 2nd Year 75% 30.00 ---- 20 Tonnes ---Depreciation

It is calculated on WDV basis @ 10% on building and 20% on machinery and miscellaneous

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11.0

BREAK-EVEN ANALYSIS No [A] [B] Particulars Sales Variable Costs Raw & Packing Materials Utilities (70%) Salaries (70%) Stores & Spares Selling Expenses (70%) Admn. Expenses (50%) Interest on WC [C] [D] [E] Contribution [A - [B] Fixed Cost Break-Even Point [D] [C] 14.82 0.38 0.95 0.36 4.20 0.33 0.33

(Rs. in lacs) Amount 30.00

21.37 8.63 5.16 59%

12.0

[A]

LEVERAGES Financial Leverage = EBIT/EBT = 2.97 1.93 = 1.54

Operating Leverage = Contribution/EBT = 6.68 1.93 = 3.46

Degree of Total Leverage = FL/OL = 1.54 3.46 = 0.45

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[B]

Debt Service Coverage Ratio (DSCR) (Rs. in lacs)

Particulars Cash Accruals Interest on TL Total [A] Interest on TL Repayment of TL Total [B] DSCR [A] [B] Average DSCR

1st Yr 2.71 0.76 3.47 0.76 -0.76 4.57

2nd Yr 3.71 0.50 4.21 0.50 2.27 2.77 1.52

3rd Yr 4.24 0.32 4.56 0.32 2.27 2.59 1.76

4th Yr 4.83 0.11 4.94 0.11 2.27 2.38 2.07

---------------------------- 2.48----------------------------

[C]

Internal Rate of Return (IRR)

Cost of the project is Rs. 9.61 lacs. (Rs. in lacs) Year 1 2 3 4 5 Cash Accruals 2.71 3.71 4.24 4.83 5.27 20.76 24% 2.18 2.41 2.22 2.04 1.80 10.65 28% 2.12 2.26 2.02 1.80 1.53 9.73 32% 2.05 2.13 1.84 1.59 1.32 8.93

The IRR is around 28%.

Some of the machinery and packing material suppliers are as under: 1. 2. 3. AMS Engg, Station Road, Patna S R Trading Co, MG Road, Patna Lakhanpal Food Processing Machinery, 36/6, Balkashwar RD,Agra-282004. Tel No. 2540726. 4. Sadanand Aprotech Pvt. Ltd., B-34, Mini Nagar, Dahisar(E), Mumbai-400068. Tel No. 28114536/28104143 5. Jain Packaging Products, 33, Sarai Pipal Thala, Sabjimandi, New Delhi-110033.

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