Business Plan Mineral Water Plant Company Name: White Wave
Submitted To:
EXECUTIVE SUMMARY In a recent research by Ikon Marketing Consultants it has been reported that the Indian Bottled Water industry is growing a very fast rate of 19% annually and at present it is at a whopping amount of Rs. 8000 crores annually and is expected to reach 10,000 crores by the end of 2013 and is expected to grow over four folds to 36,000 crores by 2020. This growth in demand for mineral water is due to the following factors:
Increased awareness about drinking water quality and health Decreasing water quality and users having to go for ground water Environmental pressures on wastewater discharge from government pollution control boards Reducing availability of water forcing users to go for reuse & recycling of water General Industrial and Economic Growth particularly in chemical, pharmaceutical, power plants, food and textile industry
These factors have led many players to enter the mineral water industry and Parle’s Bisleri holds a leading position with a 36% market share in the organized mineral water industry, with Coca-Cola’s Kinley and Pepsi’s Aquafina fast catching up. Kinley has 25% and Aquafina approximately 15% share in the market. Parle Agro's Bailley has a 6% share in the market among the national players. The rest includes other organized brands such as Kingfisher, Himalaya, Oxyrich; McDowell’s no 1 together with an 18% share. Industry experts say that quality controls need to be in place to curb the growth of unorganized players. Still the organized mineral water Industry is able to tap only 40% of the total demand of mineral water in India and rest of the demand is fulfilled by the unorganized players at local level. South India is the biggest consumer of bottled water representing more than 50% of the total market due to water-starved areas, followed by the western region which is the home ground of major national players. To tap this ever increasing demand of mineral water in India we are setting up a mineral water plant by the name of “White Wave” which we are planning to set up in South India since it is the largest market of Mineral water in India. Major contributors to the demand in South India are from unorganized players and organized players have yet not able to penetrate deeply into south. Looking at this opportunity we will set up our bottling plant in the village of Agara in southern state of Karnataka, India. It is located in the Bangalore East taluk, on Outer Ring Road, near Koramangala and HSR Layout. It has a beautiful lake by the name of Agara Lake situated very close to HSR Layout. This lake will serve to provide water for the mineral water plant. The head office will be located in Keshvnagar in Bangalore City. Presence in Bangalore will help to tap the requirement in Bangalore city as well as all the nearby cities like Mysore, Mangalore, Ooty, Pondicherry etc. and nearby states like Tamil Nadu, Kerala and Andhra Pradesh. 1
Management Team Ms. Giteshwari Bisht will be the owner and president of White wave. The company will apply for certificate of ISI from the Indian Bureau of Standards. Key managers will be Mr. Girdhar Mohata who will assist in the financial aspects of the company; Mr. Millan Sahoo will look after the operational aspects. For the expansion of the company’s human resource and primary customer contact Ms. Chinky Chhiroliya will be responsible. Mr. Abhishek Mehrotra will look after the Marketing department. Mr. Abhishek Gupta will handle the distribution network. The company will look to manufacture bottles of 500ml, 1000ml, 2000ml and 20 liters and will serve the requirements of clubs, fitness centers, cinemas, department stores, malls, ice-cream parlors, cafes and retail outlets, besides restaurants, hotels and supermarkets.
PREREQUSITES FOR A MINERAL WATER PLANT It is compulsory for all the manufacturers who intend to set up the processing unit, to obtain the ISI mark from Bureau of India Standards. Unless the inspection is done by the staff, tests carried out in an independent lab and official confirmation and license number is obtained, unit can’t commence commercial production.
Such Lab should be equipped to carry out all physical, chemical and micro biological tests prescribed as per IS: 3025, 1070, 4905, 5401, 5402, 5403, 5887, 10146 & 10500 and has to be conducted by expert chemist / micro biologist. Only Two Packaged Natural Mineral Water governed under IS: 13428:1998, Amendment 1-5 up to 15th October 2004 and Packaged Drinking Water governed under. IS: 14543:2004
If the water is drawn from natural source, confirms to composition listed under IS: 13428:1998, Amendment 1-5 up to 15th October 2004 and is bottled WITHOUT ALTERING the composition, falls under Natural Mineral Water. In packaged drinking water, any of the processes of filtration / disinfection listed under is: 14543:2004 can be utilized, altering the composition of subject water & finally, bottling it. Under Ministry of Water Resources, Central Ground Water Authority [CGWA] regulates the use of ground water. Under power conferred to them under section 5 of Environment
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[protection] Act, 1986, CGWA has directed all processing units of bottled water to get their bore well registered with them. The same has to be applied under prescribed Performa.
Vision of White Wave People: To provide good quality and hygienic product. Employees: To provide best working environment, future growth and job satisfaction. Environment: To follow eco friendly practices.
Mission of White Wave Our mission is enduring. It also serves as a purpose of our company. To become India’s most premier consumer product focused on packaged drinking water To create values and make difference.
MANUFACTURING STRATEGY Raw Material: Water will be the raw material for the mineral water plant which will be sourced from Agara Lake near which the plant will be set up. Plastic Bottles will be used for the packaging and distribution of mineral water. These bottles will also be manufactured by us:
Production Process: The first step for setting up a water purification plant is the analysis of source of water. The lake water from Agara Lake will be fit for purification and consumption by human beings. After the chemical analysis, the specifications of the purification plant are set. In the purification plant, source water is stored in the feed water tank, passes through the sand filter for preliminary water filtration. Water then passes through the dosing pump-I where chlorine is added to kill the germs in the water. After the chlorination, water passes through carbon filter. It helps in the maintenance of proper odor and taste of the water. It also removes chlorine from water. After this stage water is passed through Ultraviolet disinfection (UV) where water is exposed to UV light of wavelength 245 nanometers (nm). A dosage of 16000 microwatt/sq.cm at 40˚ C for effective disinfection. 3
Water is then passed from dosing pump-II, where Sodium Meta Bisulphate is added. It helps in de-chlorination of water. Water is filtered next and passes through dosing pump-III, where anti scallant is added. It prevents scaling of membrane from calcium, magnesium and biological growth. Water then passes through reverse osmosis module. This stage of the process makes water clear from all the contaminations and minute particles. Water then passes through dosing pump-IV, where minerals are added for taste development. Water then passes through automatic washing, filling and capping plant. Here water is filled into bottles.
Packaging Process: Our Mineral Water Packaging and bottling process is performed following the certified quality standards norms and guidelines of Portable Water Package experts, which will separate us from unorganized competitors in the same field. We will employ highly qualified and experienced professionals perform rinsing, filling, capping and labeling operations to ensure purity and satisfaction of the customers. Filling: Bottles are fed by an air conveyor from the blowing unit directly into the in-feed of the RFC. The RFC equipment is neck run and it boasts of a mono block unit, which means that every bottle is held by the neck automatically while being inverted, rinsed and sprayed with ozonated water at 2 bar pressure. After draining, the bottles are re-inverted and transferred to the filler. At the filler, these bottles are straightened up and gradually lifted to the filling valves which open only when a bottle is placed under them. Filling is then done systematically through gravity. Capping: After completion of filling process the bottles are transferred to the capping section. Here ozonated-water rinsed caps are screwed on the bottle with uniform torque. Since our water is ozonated all product contact parts are of 316L grade stainless steel and the rubber parts are of EPDM. (All components are water lubricated above the table top.) Labeling: From the capping section the bottles are directly sent to the labeling section. All Mineral Water Bottles are labeled on a hot melt reel feed BOPP labeling machine. This machine allows each individual bottles to be spaced out and fed to the labeling station where precisely cut labels with a strip of hot melt glue at the leading and trailing edge, get rolled around the bottle. These labels are fed into the machine in a roll form too. Quality Check: For quality testing, the bottles will go through manual check up of each bottle for any leaks or breakages. They are then packed into sturdy cartons which are dispatched to the market. 4
Following is the description of Machinery and its quantity that will be required to run the Mineral Water Plant: S.No . 1. 2. 3. 4. 5. 6. 7. 8.
9. 10.
11.
12.
13. 14.
15.
Description
Quantity
Alum doses 3 liter/hr 2 No.s Pump Activated Carbon Filter Flow rate: 2000 lit./hr Pressure sand filter flow rate: 2000 lit./hr Softener Reverse Osmosis system permeate flow 500 lit/hr consist of 5 micron filter SS-304 PP H.P. Pump with 3 HP Motor Membrane 4 nos.
1 1 1 1 1 1
Pressure Vessel Ozone generator Capacity – 1 gm/hr Flow fate – 1000 lit/hr UV disinfectant flow rate-1000 lit/hr Storage tank for pure water capacity :1000lit
4 1
1 1
Bottling Section Stainless Steel Conveyor: Made of S.S, 8 meter long for conveying of 1 empty washed bottles onto the filling machine. The different operations like rinsing, filling, capping are done on the conveyor. Electrical Details: 0.5 H.P. with variable speed drive. Rinsing, Filling, And Capping: This machine is designed to fill 24 bottles per minute for 1 liter bottle & is capable to fill 500 ml, 1000 ml, and 1500 ml bottles. Machine speed is depended on the volume to be filled. The bottles are hold in groups of 6 & moved on the conveyor together. These grouped bottles are rinsed by means of spraying pressurized water inside the bottle. After Ringing the bottles are again placed on the conveyor & are loaded on the filling & capping machine one by one. Filling & capping takes place by indexing mechanism. There are total 8 indexes. Change parts for 500 ml and 1000 ml 1 set each Shrink Tunnel: This is fitted on the online conveyor to shrink labels and neck sleeves. The labels & neck sleeves are to be manually inserted on the bottle. Machine will be provided with suitable capacity Heaters, Blower, Reduction Gear Box and Electric Motor, complete in all respects ready to use. Printing Machine (for mfg. Date & batch nos.) Semiautomatic machine is proposed. This is a table top coding machine with a printing area of 35 mm x 25 mm & capable of printing 3 variable line message on labels or caps.
1
1 set each 1
1
5
MARKETING STRATEGY Specifically for attaining the marketing objective of a firm, the firm needs a complete and an unbeatable marketing strategy. The marketing strategy provides the design for achieving the linkage between marketing strategies and overall corporate success is indeed direct and vital. Realizing the marketing objectives is the purpose of two generic categories. 1. Price based 2. Differentiation based
Price based marketing strategy A business that opts for the price route in its competitive battle will enjoy certain flexibilities in matter of its product and use prices as main competitive level. It will price its product to suit the varying competitive demands. It will be enjoying certain inherent cost advantages, which permits it to resort a price based fight. The major forms where such cost advantage can occurs are economies of scale, absolute cost advantages.
The Differentiation based strategy Marketing strategy based on differentiation works on the principle that any aspect of the offer and any activity of the firm can be made distinctive compared with the competitors offers. Right from technology, plant location to post sale and service a company can perceptibly differentiate and many buyer values. Companies usually choose those functions, which give them the greatest relative advantage. Different firms adopts different strategy stances as their situational design differBroadly strategy stances can be classified under three heads1- Offensive StrategyOffensive Strategy also known as confrontation strategy is a strategy of aggression. A firm that is not presently the leader usually employs it, but it aspires to leadership position in the Industry.
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2-Defensive StrategyThe leader who has the compulsion to defend his position against the confrontation of powerful existing competitors or to dislodge the leader from his topmost position usually employs it.
3-Niche StrategyA firm practicing the niche strategy neither confronts other nor defends itself. It cultivates a small market segment for itself with unique products / services supported by a unique marketing mix.
Formulating the Marketing StrategyFormulating the marketing strategy consists of two main steps1- Selecting the target marketIt does not fully bring out the importance of the inseparable linkage between the two. When the selection of the target market is over an important part of the marketing strategy of the firm is already determined, defined and expressed. 2- Assembling the marketing mixAssembling the marketing mix means assembling the four p’s of marketing in the right combination.
We will be going with the offensive strategy as we have to confront many competitors like MNCs (Bisleri, Pepsi, Coca-cola) and local players like Flair etc. to get noticed we have to go for confrontation strategy like price, heavy advertisement etc.
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ADVERTISING CAMPAIGN
Every brand needs a good ad campaign to establish itself in the market. So it becomes very imperative to look at various ad campaigns that WHITE WAVE will undertake to build itself as a brand. We will start the ad campaign with the punch line “Water without worry”. We will stress more on the purity and refreshment of the product offered by us. Our ad campaign will rely on the print media, transit media and radio ads and internet. Print media It will include local newspapers, pamphlets; hoardings at the strategic important places, ads in local magazines, there will be the series of ads in the newspapers and magazines which will be showing our product portfolio, our commitment towards the society health and our consensus towards the environment. The ad will portray that we don’t use any harmful chemicals which are harmful to human health and environment. Transit media We will use local city buses on which we will paste our banners to get attention of the customer. This local city bus will help us to reach every corner of the society and every class of the society. Radio The local radio channels will also be used as the mode of advertisement. Internet Internet will be also used as a medium different site which is most commonly used by the peoples; we will be giving ad on them.
Other sources which can be used for the advertisement are: Free Trials Company will offer free trial pack to the customer of 500ml. pack. These free trial pack will be mainly distributed at the Bus stations and Railway stations as the big volume of the packaged water sale come from there only. Feedback of the customers will also be taken. 8
Trade and Consumer Shows Attendance and exhibits at local home and mall shows is also planned, to keep the WHITE WAVE Bottled Water name constantly in front of consumers.
PACKAGING AND DISTRIBUTION Packaging Variety is spices of life. Today for any business organization to be successful it has to provide its customer with the differentiated product that is a value buy for them. In order to cater to the changing needs of the customer the business has to continuously come out with the variants of the products so that it can target the maximum segments. Today Aqua Minerals offers a variety of packaging options: 1 lit, 2 lit, 5 lit, 20 lit. The 5 liter bottles account for 35 % of sales showing a growing health concern among the Indian society. 1 liter bottles account for 30% of the share. But we will be offering 500ml, 1litre, 2litre and 20litre Packs initially. As 500 ml. bottles are also gaining popularity and cost of making them is also reasonable.
Distribution It’s obvious that availability holds the key to the market .For any product to be successful the distribution system has to be really good. Large tracts of the country have not been explored by the national brands, which explain the proliferation of smaller brands. We will be going for indirect distribution system, all the transportation system will be outsourced, and contract will be given to those companies those have reach to almost every city of Karnataka. The distribution channel will be like these:
Company’s warehouse
Distributor 9
Retailer
Customer
As well as company will also try to work on establishing B2B channels like:
Restaurants Hotels Canteens Various private bus service providers
MARKETING MIX Product: The main product of the company is the mineral water by the name of WHITE WAVE Mineral water. The main challenge facing the company or any other player in this mineral water industry is that there is no scope of invention and innovation in the product, which can be added as the additional benefits of the product. As for the Indian customer water is water only a medium to satisfy thirst, so any new innovation or value addition will not be able to generate curiosity among customer as well as not much innovation is possible with the water.
Place: In the case of the mineral water industry the distribution network is the important factor in being competitive and the catch lies in making water available to maximum number of places in the targeted area. The company has to rely on its distribution model and network as the key lies in the perfect and strong distribution network once a brand become popular in the targeted area then we can stretch our boundaries.
Promotion: Company will follow and use various marketing tools and they have been discussed earlier.
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Price: In India, where the majority of the population comprise of the middle-income group and lower income groups it is not hard to understand that pricing is one of the most important factor in the buying decisions. Since we are adopting price based strategy, so we have kept the price of our 2liter and 20liter bottles Re.1 less than the price of competitor’s in the market. White Wave is following the aggressive pricing: 20 lit. - Rs.79 2 lit- Rs.29 1 lit.-Rs.15 500 ml. - Rs.10
COMPETITION IN MARKET In a recent research by Ikon Marketing Consultants it has been reported that the Indian Bottled Water industry is growing a very fast rate of 19% annually and at present it is at a whopping amount of Rs. 8000 crores annually and is expected to reach 10,000 crores by the end of 2013 and is expected to grow over four folds to 36,000 crores by 2020. These is drawing the big guns attention, there are various competitors in market:
Parle bailey Parle Bisleri Pepsi Aquafina Coca cola Kinley Nestle Mount Everest Kingfisher Rail Neer Qua 100s of unorganized vendors 11
Market Segmentation: Mineral water comes under impulsive buying i.e. customer purchases them on an impulse when he is thirsty. So it is very important for this kind of product to be visible to the consumer wherever it is available. Customer segmentation is based on the following variables: Segmentation Variables 1. Geographic Country Cities Density Climate 2. Demographic Age Gender Family Size Family Life Cycle
Income Occupation Education Religion Race Nationality 3. Psychographic Social Class 4. Behavioral Occasions User Status Attitude towards product
Data India All Major Cities of Karnataka & Nearby States Urban Moderate and Dry All age groups Male and Female Any size Young and Single ; Young, Married, No children; Young, Married, with children; Older, Married, with children; Young, Married with no children under 18; Older and Single; etc. All income groups Any Occupation Any All religions of India Asian Indian Lower class, Working class, middle class, upper class On Impulse Any time buyer Positive
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Product Segmentation: We offer Bottled Mineral Water, which contains minerals such as magnesium sulphate and potassium bicarbonate. These minerals are very essential for healthy living, which maintain the pH balance of the body and also help in keeping you fit and energetic at all the times. Drinking Mineral Water is best for digestion system and is important for the healthy bones. It is refreshing and add splash to life. Excellent if it is taken by people suffering from high blood pressure. Sparkling Mineral Water is supplied for parties at home or offices. It contains nutrients essential for healthy gems and teeth. We provide following range of Products: 1. Mineral Water Bottle (500ml): It is difficult find pure and Pure Mineral Water all around. Keeping this in mind, we will launch Mineral Water Bottle of 500 ml pack @ Rs. 10 per bottle, which is very easy to carry, even in handbags. It is healthy-friendly and highly effective for those people who are suffering from high blood pressure. White Wave Mineral Water offers Pure Mineral Water at very cost-effective priecs to ensure satisfaction of the customers. 2. Mineral Water Bottle (1 & 2 litre): We will manufacture and supply customers handy Mineral Water Bottle (1 & 2 litre) which will meet their thirst needs while travelling with family or on a long journey. In order to ensure purity and better taste of Mineral Water, we conduct multistate purification. Our Mineral Water Bottle (1 & 2 litre) will be available at very nominal prices of Rs. 15 and Rs. 29 respectively. 3. Mineral Water Bottle (20 litres): Our Company will offer safe family drinking Mineral Water in form of 20 litre bottles, which will have enjoyable taste and will be available at minimal price of Rs. 79. Ozonated Mineral Water Bottle is refreshingly clean, help in eliminating toxin from body and make healthy and energetic to people. White Wave’s Minerals Water Packaging of 20litre will be mainly used for household work. It contains mineral, which is good for both brain and heart. For maintaining purity of water, it has to undergo several purification tests.
SWOT Analysis of White Wave Strengths Quality Standard: Every bottle of White Wave will go through multi stage purification that will ensure that 99.9% pure water is delivered to the consumers Workforce will be guided by good management for good operation of the plant. Growing awareness among the people about the importance of mineral water.
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Varied skills of all the department heads who are all management graduate in their respective fields and posses the vision to take the company forward. The industry is growing @ 19% annually.
Weakness Any local player can start manufacturing which increases the competition with unorganized players. Government laws and regulations are becoming day by day for the manufacturers of mineral water. Rural population is not using packaged water. Not very economical as water is available for free in all parts of the country. Presence is only in south India at present and that too limited to Karnataka.
Opportunity
Sustained market growth in coming years. Literacy rate is growing, hence awareness of safe drinking water to avoid disease. Huge population & untapped market in the Southern part of the country. Mass consumption which will result in economies of scale. Scope to expand in other parts of the country as many smaller cities have yet not been tapped by organized players. Introduction of 2litre bottles in the second year and 20 litre bottles in the 3 rd year is expected to increase the revenues and profits to a great deal.
Threat
Many substitutes are available. Too many players will dilute the market. Many players entering the race. Many big players are already present in the market who will give a huge competition as they are already well established.
Marketing Research The Rs. 8000 crore bottled water market is witnessing hectic activity with many players entering the fray and still more to come. Part of the fast moving consumer goods (FMCG) sector, bottled water is the segment to have shown phenomenal growth of about 19 per cent in the recent year. The market is expected to continue to grow at a healthy clip. In fact, in the last few years, there has been a doubling of growth. Major players include Parle Bisleri, Parle Agro, Coca 14
Cola, PepsiCo, and among domestic players UB and Britannia. The success of bottled water could be attributed to two factors. First, it has been an underdeveloped business for a while now and, second, soft drink manufacturers have priced themselves out by a long shot. The prices of soft drinks have, in fact, doubled in the last ten years and this has happened because the price of concentrates has shot up during this period. In fact, soft drink major Coke launched its Kinley brand of bottled water and Pepsi its global brand Aquafina. PepsiCo is reportedly contemplating two more pack sizes for its bottled water. Kinley's new product follows the launch of `Chhotu' Bailley, which is a 350 ml bottle introduced by Parle Agro. Kinley water was launched in August 2000 in one-litre bottles for Rs.10. The water is produced at Coca-Cola's three Greenfield manufacturing plants at Bidadi near Bangalore, Dasna in Uttar Pradesh and Goa. The company plans to either add more water bottling operations or go for contract bottling as it goes national. Marketing Consultants, with a current market share of 36%, Bisleri offers the maximum number of pack sizes. Kinley follows it with a 25% share. The other brands including Aquafina and Bailley constitute 15% & 6% per cent market share in the bottled water market. The Samsika survey further says that there are as many as 186 brands in the water market. Out of this, two are national brands, 17 regional and 167 local brands. With over 200 players jostling to be the thirst-quenching favorite of the Indian consumer, the business is growing at a rate of over 19 per cent annually. The country's bottled water business is estimated to be around Rs. 10000/- crore, of which the branded market accounts for Rs. 7000 crore and about 700 million litres in volume. India’s 1 billion plus population needs between 1-2 billion litres a day. More than 200 brands of bottled water are being retailed across the country. An estimated 850 million liters of bottled water is bought every year. 100 90 80 70 60 Rainy 50
Winter
40
Summer
30 20 10 0 Mineral Water Sales Per Year
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As we can see from the diagram above that most of the sales of Bottled water comes in the summer season. Therefore, the right time to launch such type of product is summer season. In monsoon time also a good response can be generated because there are people who are very much conscious of their health and this makes them to go for packaged water. Therefore, the sales are good in rainy season. In winter season the sales are very low because of climatic conditions.
MANAGEMENT AND STAFFING There are six owners of this Project who will have equal share and stakes in the company. M. Giteshwari Bisht will be the Managing Director of the company. In her guidance the other owners will strive hard to achieve the aims and objectives of the company. Mr. Girdhar Mohata will be handling the Chief Financial Officer (CFO) position in the company. His knowledge and skills in the finance department will lead the company to better wealth management and reduce any chances of risk. He will also be looking after the accounting of the company. Mr. Millan Sahoo will be handling the Operations department and in his guidance the operations department will achieve lean manufacturing and hassle free production. Ms. Chinky Chhiroliya will be handling staffing and public relations. Any complaints and media related communications will be handled by her. Mr. Abhishek Mehrotra will be handling the Marketing department. In his able guidance the company will look to expand in other parts of South India during the first 5years of operations and later with the success the company will look to expand in other parts of the company. Mr. Abhishek Gupta will be handling the distribution channel and will look to expand the channel in the rural sector as well since that is untapped market for mineral water industry even today. Other than these heads other human resource required will be: S. No 1. 2. 3. 4.
Designation Clerk cum Typist Sweeper Lab Assistant Supervisor
No. 1 1 1 1
Salary 15000 7500 15000 15000 16
5. 6. 7. 8.
Skilled Worker in plant Unskilled Worker Sales Representatives Driver
2 6 3 1
15000 each 7500 each 15000 each 7500 each
Human Resource Policy and Employee Welfare: 1. Every Worker appointed in our plant will be properly interviewed and screened before being employed. There technical skills will be checked before appointment. 2. Every Worker will be given proper training of their job for 15days before they start doing their work. 3. Management will ensure that every relevant need of the workers is satisfied and they are given proper working environment in the plant and vice versa for the workers also. 4. Incentive Policy:
Additional 10% of their daily wage will be given to the workers who complete their assigned task for the day.
Additional 15% of the daily wage will be given to the supervisor if he achieves the set target for his team for that day.
5. Every Employee working in the plant will have a set line of authority and defined regulations which he must follow. 6. Workers will be evaluated purely on their performance 7. Workers will be given work according to their skills 8. Each subordinate will receive order from only one superior 9. Fair wages will be paid to the employees 10. Stability of employees will be ensured through personnel planning, and if vacancies arises proper methods of filling them will be arranged by HRM director 11. Chain of command will be maintained, each subordinate will report to his immediate superior. Cross Communication is also allowed under certain circumstances. 12. Team spirit will be promoted in order to ensure unity in the organization 13. Discipline in the organization will be ensured by fixing working rules and regulations which will be followed by the entire hierarchy of the organization
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HR Motive: Every division in the organization will work in harmony and coordination to achieve the organizational goals. Group activity will be promoted more than individual efforts. Every member of the organization should work for a common motive and that is to take the organization to a higher level. Management will ensure that every employee working in the organization satisfies his personal objectives and the objectives of the employees should fall in the zone of indifference. Employees in the organization will be treated as such that they feel that they are working in their own organization and not for some individual’s organization. They will be praised for their good performance and will motivate to improve or raise their performance through appraisal programs. Time to time interaction sessions will be organized so that the employees can socialize with other employees of the organization.
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FINANCIAL ANALYSIS 1. Total Fixed Assets SI. No. 1 2 3 4 5 6 7 8
Description
Amount (Rs.)
Land Building Plant & Machinery Furniture Gen Set Bore tube well Start-up cost Delivery van
3500000 1500000 3500000 50000 500000 150000 100000 450000 Total
9750000
2. Working Capital (Yearly) SI. No. 1 2 3 4 5 6 7 8 9
Description
Amount (Rs.)
Electricity Fuel & Others Postage & Stationery Telephone/Fax charges Maintenance & Repairs Advertisement Miscellaneous Expenses Raw Material Salary & Wages
1200000 90000 6000 36000 60000 60000 180000 21600000 2340000 Total
25572000
3. Total Capital Investment SI. No. 1 2
Description
Amount (Rs.)
Capital Expenditure Working Capital
9750000 25572000 Total
35322000
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Risk Analysis Fixed Cost SI. No. 1 2
Description
Amount(Rs.) Yr-I
40% Salary & Wages 40% Utilities & Expenses
3 4 5
Depreciation 40% Raw Material Interest Total
936000 652800
Amount (Rs.) Yr-II 936000 652800
Amount (Rs.) Yr-III 936000 652800
485000 720000 405000
439250 720000 342000
398088 720000 252000
3198800
3090050
2958888
Cost of production SI. No. 1 2 3 4 5 6
Description
Amount (Rs.)
Working Capital Depreciation on Building @ 5% Depreciation on machinery @ 10% Depreciation on Furniture @ 20% Depreciation on Gen Set @ 10% Interest on TCI @ 25%
25572000 75000 350000 10000 50000 9541903
Total
35598900
Turnover SI. No. 1
Description
Amount (Rs.)
19.5*493000*12
63591000
Net Profit Ratio: SI. No. 1
Description
Amount (Rs.)
Profit * 100/ Turnover
44.02%
Rate of return: SI. No. 1
Description
Value (%)
Profit*100/Total capital investment
73.34
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Break-Even Point: Year 1 2 3
Value (%) 42 37 33
Particulars Initial Outlay Optimistic Most Likely Pessimistic Range(Optimistic to Pessimistic)
Expected Possibility 33013200 5851370 (Profit for a sale of 83591000) 4451370 (profit for a sale of 63591000 ) 3051370 (profit for a sale of 43591000 ) 2800000 (5851370 - 3051370)
Sensitivity
Assumptions taken by us:
40% of the contingent costs are fixed cost. Cash flows are on yearly basis. Other assets are taken just to tally the balance sheet. Loan is 4500000 @ 9% (rest is capital by partners). Cost of 1l bottle is rs. 9.5/- (1st year). Cost of 0.5l bottle is rs. 6.25/- (1st year). Cost of 2l bottle is rs. 19/- (2nd year). Cost of 20l bottle is rs. 57/- (3rd year). 3rd year bottles of 1l, 0.5l, 2l, 20l were sold at rs. 12, 7, 24, and 65 respectively. Tax is assumed to be 30%. Contingent liability is assumed for any type of risk. Retained earnings are at the 3rd year because of the extra surplus. Minimum rate expected by us is 10%. Depreciation is calculated on the basis of written down value method. We have assumed 20% as accounts receivables.
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Projected Projected Profit and Loss/ Income statement for year - I Particulars Income Revenue For 1 liter Bottle For 0.5 liter bottle Total Expenditure Cost of goods sold For 1 liter bottle For .05 liter bottle Operating Expenses Fixed Cost Variable Cost Promoter’s salary Net Profit Total
Amount (Rs.)
50715000 12876000
39330000 11100000 3198800 3463200
Amount (Rs.)
63591000 63591000
50430000
6662000 2000000 4499000 63591000
Projected Balance sheet for year – I Particulars Assets Current asset Cash at hand Accounts Receivable Inventory Cash at bank Fixed asset (Note financials 1) Less: Depreciation Total Liabilities Capital Owner’s Equity Loan Net profit Interest on Loan @ 9% Contingent liability Total
Amount (Rs.)
15679840 3919960 888000 7794400 9750000 485000
28822000 3800000 4499000
Amount (Rs.)
28282200 9265000 37547200
37121000 405000 21200 37547200
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Projected Profit & Loss/Income statement for year – II Particulars Income Revenue For 1 liter Bottle For 0.5 liter bottle For 2 liter bottle Total Expenditure Cost of goods sold For 1 liter bottle For .05 liter bottle For 2 liter bottle Operating Expenses Fixed Cost Variable Cost Promoter’s salary Net Profit Total
Amount (Rs.)
5296000 13230000 14256000
43776000 11812500 11286000 3090050 5417450
Amount (Rs.)
82782000 82782000
66874500
8507500 2500000 4900000 82782000
Projected Balance sheet for year – II Particulars Assets Current asset Cash at hand Accounts Receivable Inventory Cash at bank Fixed asset (Note financials 1) Less: Depreciation Total Liabilities Capital Owner’s Equity Loan Net profit Interest on Loan @ 9% Contingent liability Total
Amount (Rs.)
15414800 3853700 1218000 5101750 9265000 439250
26322000 2800000 4900000
Amount (Rs.)
25588250 8825750 34414000
34022000 342000 50000 344144000
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Projected Profit & Loss/Income statement for year – III Particulars Income Revenue For 1 liter Bottle For 0.5 liter bottle For 2 liter bottle For 20 liter bottle Total
Amount (Rs.)
56592000 13188000 22752000 46410000
Expenditure Cost of goods sold For 1 liter bottle For .05 liter bottle For 2 liter bottle For 20 liter bottle Operating Expenses Fixed Cost Variable Cost Promoter’s salary Net Profit Total
47160000 12246000 18960000 40698000 2958888 8019112
Amount (Rs.)
138942000 138942000
119064000
10978000 3000000 5900000 138942000
Projected Balance sheet for year – III Particulars Assets Current asset Cash at hand Accounts Receivable Inventory Cash at bank Fixed asset (Note financials 1) Less: Depreciation Total Liabilities Capital Owner’s Equity Loan Retained earnings Net profit Interest on Loan @ 9% Contingent liability Total
Amount (Rs.)
13217600 3304400 1938000 6856338 8825750 398088
23322000 1400000 2800000 5900000
Amount (Rs.)
25316338 8427662 33744000
33422000 252000 70000 33744000 24
Projected Cash flows for three years Particulars Initial investment : Capital expenditure Working capital (Monthly) Total Operating cash flows : Units produced Sales revenue Cost of goods sold Operating expenses Total cost EBIDT Depreciation EBIT Interest EBT Tax EAT Depreciation CFAT
Year 0
Year 1
Year 2
Year 3
493000 63591000 (50430000) (7772000) (58202000) 5389000 (485000) 4904000 (405000) 4499000 (1349700) 3149300 485000 3634300
591000 82782000 (66874500) (10226250) (77100750) 5681250 (439250) 5242000 (342000) 4900000 (2220000) 5180000 439250 5619250
688500 138942000 (119064000) (13327912) (132391912) 6550088 (398088) 6152000 (252000) 5900000 (1770000) 4130000 398088 4528088
9750000 2131000 11881000
Projected Net Present Value: Year 0 1 2 3
Cash flows -11881000 3634300 5619250 4508088
P. V factor @ 10% 0.94 0.88 0.82 Total
Present Value 3416242 4944940 3696632 12057814
Net Present Value (NPV) = present value of cash inflows – present value of cash outflows = 12057814 - 11881000 NPV
= 176814
Since NPV is positive with the high value, therefore we accept the project.
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Internal Rate of Return (IRR): Year 0 1 2 3
Cash Flows -11881000 3634300 5619250 4508088
Calculated on excel = 7% So, it implies that at 7%, NPV is zero.
Payback period: 2 Years & 4 months.
Profitability Index: Year 1
Value 1.15
BIBLIOGRAPHY: 1. 2. 3. 4.
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3084479/ http://honeyrich.tradeget.com/Company_Profile.html Project report on Packaged drinking water by MSME, India http://www.mineralwaterplants.net/laboratory-set-up.html
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