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					194. PROFILE ON PRODUCTION OF GASKET
            AND WASHER
                              194-2


                      TABLE OF CONTENTS


                                                  PAGE


 I.    SUMMARY                                    194-3


II.    PRODUCT DESCRIPTION & APPLICATION          194-3


III.   MARKET STUDY AND PLANT CAPACITY            194-4
       A. MARKET STUDY                            194-4
       B. PLANT CAPACITY & PRODUCTION PROGRAMME   194-7


IV.    RAW MATERIALS AND INPUTS                   194-7
       A. RAW & AUXILIARY MATERIALS               194-7
       B. UTILITIES                               194-8


V.     TECHNOLOGY & ENGINEERING                   194-8

       A. TECHNOLOGY                              194-8
       B. ENGINEERING                             194-9


VI.    MANPOWER & TRAINING REQUIREMENT            194-12
       A. MANPOWER REQUIREMENT                    194-12
       B. TRAINING REQUIREMENT                    194-13


VII.   FINANCIAL ANALYSIS                         194-13
       A. TOTAL INITIAL INVESTMENT COST           194-13
       B. PRODUCTION COST                         194-14
       C. FINANCIAL EVALUATION                    194-15
       D. ECONOMIC BENEFITS                       194-16
                                        194-3


I.      SUMMARY


This profile envisages the establishment of a plant for the production of gasket and
washers with a capacity of        445 tonnes of gasket and 75 tonnes of washer
per annum.


The present demand for the proposed product is estimated at 300 tonnes for gasket and
52 tonnes for washer per annum. The demand is expected to reach at 590 tonnes for
gasket and 98 tonnes for washer by the year 2017.


The plant will create employment opportunities for 56 persons.


The total investment requirement is estimated at about Birr 4.91 million, out of which
Birr 1.68 million is required for plant and machinery.


The project is financially viable with an internal rate of return (IRR) of 23 % and a net
present value (NPV) of Birr 4.68 million discounted at 8.5%.


II.     PRODUCT DESCRIPTION AND APPLICATION


A gasket is a mechanical seal that fills the space between two objects, generally to
prevent leakage between the two objects while under compression. Gaskets save money
by allowing less precise mating surfaces on machine parts which can use a gasket to fill
irregularities.


One of the more desirable properties of an effective gasket in industrial applications for
compressed fiber gasket material is the ability to withstand high compressive loads. Most
industrial gasket applications involve bolts exerting compression well into the 14 MPa
(2000 psi) range or higher.
                                         194-4

A washer is a thin plate (typically disk-shaped) with a hole (typically in the middle) that
is normally used to distribute the load of a threaded fastener. Other uses are as a spacer,
spring (Belleville, wave washers), wear pad, preload indicating device, and locking
device.


Washers are usually metal or plastic. High quality cap screws require hardened steel
washers to prevent the loss of pre-load after the torque is applied (due to Brinelling).


Gaskets used in taps to stop the flow of water are sometimes referred to colloquially as
washers; while they may look similar, however, washers and gaskets are usually made
differently and designed for different functions.


Most of the raw materials required for production of gasket and washer have to be
imported. However, there is an established domestic market for the product as evidenced
by the quantity of the product annually imported. Therefore, the envisaged project is
aimed at substituting the current import.


III.      MARKET STUDY AND PLANT CAPACITY


A.        MARKET STUDY


1.        Past Supply and Present Demand


The current demand for both gaskets and washers is met mainly through import.
Although it is believed that there is some amount of local production the data could not
be found in the manufacturing industries survey conducted by CSA. As a result the
import data has been analyzed to estimate the unsatisfied demand for the products. Import
of gaskets and washers of metal and copper (excluding made of rubber and natural cork)
is given in Table 3.1
                                        194-5


                                        Table 3.1
                  IMPORT OF GASKETS AND WASHERS ( TON)


                           Year          Gaskets         Washers
                        2001                 1024.9             22.9
                        2002                     98.6           32.1
                        2003                    136.9           39.6
                        2004                    245.2           56.8
                        2005                    127.4           52.4
                        2006                    160.4           46.0
                        Source: Customs Authority.


As could be seen from Table 3.1 import of gaskets is highly erratic. On the other hand the
import data for washers generally shows an increasing trend. In order to estimate the
current demand for gaskets and washer two different approaches are utilized.


Since the import data for gaskets is highly erratic the average of the past six years is
considered to reflect the current demand. Accordingly current demand for gaskets is
estimated at about 300 tons. With respect to washers the general trend has been positive.
Hence by looking to the recent three years import data current effective demand is
estimated at 52 tons.


2.     Demand Projection


The demand for gaskets and washers is influenced by many factors due to their wide
application. Gaskets are one used a seal in pressure vessel, between cylinder head and
cylinder block of automobile engine, in cluch. starting piston, breaks etc. Washers are
used in joints (bolts and nuts) or assemblies of insure tightness. Therefore, the demand
for the product generally will grow parallel with the growth of the economy. Considering
the GDP growth achieved in the past few year annual growth rate of 7% is considered in
forecasting the unsatisfied demand for the products (see Table 3.2.).
                                        194-6



                                        Table 3.2
             FORECASTED DEMAND FOR GASKETS & WASHERS


                                       Quantity     ( Ton.)
                           Year        Gaskets         Washers
                           2008             321               54
                           2009             343               57
                           2010             368               61
                           2011             393               66
                           2012             421               70
                           2013             450               75
                           2014             482               80
                           2015             515               86
                           2016             551               92
                           2017             590               98


Demand for gaskets will grow form 321 tons in the year 2008 to 368 tons and 515 tons by
the year 2010 and 2015 respectively. Similarly the demand for washer will increase from
54 tons in the year 2008 to 61 tons and 86 tons by the year 2010 and 2015 respectively.


3.     Pricing and distribution


Based on the average import price a factory gate price of Birr 8,000 per ton of gasket and
Birr 3,000 per ton of washers is recommended.
                                         194-7


B.       PLANT CAPACITY AND PRODUCTION PROGRAMME


1.       Plant Capacity

According to the market study above, the envisaged plant will have a capacity of 445 and
75 tones of gaskets and washers respectively. The plant will operate single shift of eight
hours a day and 300 days per annum.


2.       Production Programme

The plant is intended starting production at 70% of installed capacity in the first year. It
will then raise its capacity to 85% in the second year, and finally to 100% in year three
and thereafter.


IV.      MATERIALS AND INPUT


A.       RAW AND AUXILIARY MATERIALS


The raw material required by the plant for the manufacture of gasket and washer is
asbestos sheet and mild steel sheet respectively. Except for packing material all the raw
materials required have to be imported. Annual requirement of raw and auxiliary
materials is shown in Table 4.1.

                                        TABLE 4.1
     RAW MATERIALS REQUIREMENT AT FULL CAPACITY OPERATIONS

 Sr.                                         Qty.       Unit cost             Total cost ('000 Birr)
                  Description
 No.                                       (tones)     ('000 Birr)       FC          LC          Total
     1   Asbestos Sheet                      580                1.50   870.00         217.50     1087.50

     2    Mild Steel Sheets                  120                5.83   699.60         174.90       874.50
     3   Packing materials                   L.S                1.75      -            25.00        25.00
                                                                       1,569.6                   1,987.00
                   TOTAL                                                            417.40
                                                                             0
                                          194-8


B.     UTILITIES


Inputs required by the plant consist of electricity, and water. Electricity is required for
supplying power to all production equipment, and also to power sockets, lighting system
and other auxiliary equipment of the plant.

For the plant operating single shift of eight hours a day, and 300 days a year, the total
annual electrical energy requirement will be 30,000 Kwhs. The annual electricity bill will
then be Birr 14,208.-.

Water is required for cleaning, drinking and general purpose.              The annual water
                                     3
requirement is estimated at 1,000m , and the corresponding expenditure is Birr 10,000.-.

Thus, the total annual cost of utilities is estimated at about Birr 24,208.-.


V.     TECHNOLOGY AND ENGINEERING


A.     TECHNOLOGY


1.     Process Description

The manufacturing process for the production of gasket comprises design the shape and
cutting the asbestos sheet to the desired shape. It is usually desirable that the gasket be
made from a material that is to some degree compressible such that it tightly fills the
space it is designed for, including any slight irregularities. Then the finished product is
inspected and packed.

The commercial washers are usually punched out from sheets in larger size and the
blanks coming out are used again for the manufacturing of smaller sizes of washers.

Dies and punches are used on presses for the manufacture of washers.

Finally after inspection, it will be packed.
                                        194-9


2.     Source of Technology


The machinery and equipment required can be obtained from the following companies.
     SHANDONG WEICHAI IMP.& EXP.CORP.
     NO.6A,SIPING Rd.,KUIWEN DISTRICT,
     WEIFANG, SHANDONG, P.R. OF CHINA
       Tel +8269988
        Fax: +86-536-8232079/8262666


B.     ENGINEERING


1.     Machinery and Equipment


Plant machinery and equipment required for gasket and washer plant is presented in table
5.1. The total cost of plant machinery and equipment is estimated at Birr 1.68 million.
Out of which Birr 1.35 million will be required in foreign currency.
                               194-10



                               Table 5.1
LIST OF MACHINERY AND EQUIPMENT FOR GASKET AND WASHER
                                PLANT


    Sr.
                           Description                     Qty.
    No.
          Automatic double stroke solid die cold heading
     1                                                      1
          machine capacity ǿ8-12mm
          Automatic double stroke solid die cold heading
     2                                                      1
          machine capacity ǿ6-8mm
          Automatic bolt head trimming & shank
     3                                                      3
          reducing machine capacity ǿ6-8mm.
          Automatic bolt head trimming & shank
     4                                                      4
          reducing machine capacity ǿ8-12mm.
          Automatic thread rolling machine capacity ǿ6-
     5                                                      1`
          8mm.
          Automatic thread rolling machine capacity ǿ8-
     6                                                      1
          12mm.
          Automatic nut cutting machine capacity ǿ6-
     7                                                      1
          8mm.
          Automatic nut cutting machine capacity ǿ8-
     8                                                      1
          12mm.
          Automatic nut tapping machine capacity ǿ6-
     9                                                      1
          8mm
          Automatic nut tapping machine capacity ǿ8-
    10                                                      1
          12mm
    11    Polishing Barrel                                   3
    12    Inspection Gauges                                1 Set
    13    Standard working tools& handling equipment       1 Set
    14    Center lathe between center distance 1000mm        1
    15    Pillar type drilling machine capacity ǿ20mm        1
    16    Surface grinder                                    1
    17    Mechanical scraper                                 1
    18    Pickling tanks                                   1 Set
    19    Zinc plating plant                               1 Set
                                           194-11



2.       Land, Building and Civil Works


The envisaged plant will require a total land area of 1,500m2. The total land lease value
for 80 years at the rate of Birr 0.4967 per m2 is therefore Birr 59,604. The floor space
required for the building of and other facilities will be about 800m2. The total estimated
cost of building and civil works at the rate of Birr 2,000 per m2 is about Birr 1.60 million.


Therefore, the total cost of land, building and civil works is estimated at Birr 1,659,604.


3.       Proposed Location


Selection of a location for a manufacturing plant depends on the comparative advantages
of a location vis a vis the plant’s requirement. Regarding dairy equipment manufactering,
the major raw material required have to be imported and a manufacturing enterprise that
has to import raw materials required such prefer location which is near to port or that has
easy access to port. Moreover, availability of infrastructures such as power and nearness
or easy accesses to major markets is also additional critical factors. Accordingly, due to
the availability of the following facilities;

      Road net work that connect to major towns within the region and other regions
      Availability of Infrastructure such as power and water
      Communication facilities ( telephone, fax, internet, etc.)
      Relatively large market

Mesekan, Kebena and Aleta woredas are selected as a possible location for the envisaged
plant.

Moreover, after analysing the comparative advantages and disadvantages of the selected
woredas and the requirements of the envisaged project the capital of Kebena woreda i.e.
Wolkite town is selected as the best location.
                                           194-12



  VI.      MANPOWER & TRAINING REQUIREMENT


  A.       MANPOWER REQUIREMENT


  The manpower list and the corresponding monthly and annual salaries are given in Table
  6.1 below.
                                           Table 6.1
           LIST OF MANPOWER REQUIREMENT AND ANNUAL SALARY

                                                                           Salary (Birr)
 Sr. No.                         Description                No.
                                                                   Monthly         Annual
A. ADMINISTRATION
       1       Plant Manager                                 1          2,000          24,000
       2       Head, Finance & Administration Department     1          1,600          19,200
       3       Head, Production and Technical Department     1          1,600          19,200
       4       Secretary                                     1              850        10,200
       5       Accountant                                    1          1,000          12,000
       6       Salesman                                      1              800            9,600
       7       Clerk                                         1              600            7,200
       8       Cashier                                       1              650            7,800
       9       General Service                               3              250            9,000
                         SUB TOTAL                          11                        118,200
B. PRODUCTION
  13        Forman                                           1          1,200          14,400
  14        Machinery Operators                             22              650       171,600
  15        Assistant Operators                             15              450        81,000
  15        Mechanics                                        2              800        19,200
  16        Quality controller                               1              600        14,400
  17        Laborers                                         4              200            9,600
                         SUB TOTAL                          45         -              309,600
 EMPLOYEE'S BENEFIT (25% OF BASIC SALARY)                    -         -              106,950
                           TOTAL                            56         -              534,750
                                         194-13


B.     TRAINING REQUIREMENT

The machine operators, mechanics and quality control worker need at least two weeks
training on the technology, maintenance and quality control. For the rest, on-the-job
training will be sufficient on the start up period by the specialists. Total training cost is
estimated at about 45,000 Birr.


VII.   FINANCIAL ANALYSIS

The financial analysis of the gasket and washer project is based on the data presented in
the previous chapters and the following assumptions:-

Construction period                   1 year
Source of finance                     30 % equity
                                      70 % loan
Tax holidays                          3 years
Bank interest                           8%
Discount cash flow                    8.5%
Accounts receivable                   30 days
Raw material local                    30 days
Raw material, import                  90 days
Work in progress                      2 days
Finished products                     30 days
Cash in hand                          5 days
Accounts payable                      30 days


A.     TOTAL INITIAL INVESTMENT COST


The total investment cost of the project including working capital is estimated at Birr
4.91 million, of which 56 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
                                               194-14


                                               Table 7.1
                                 INITIAL INVESTMENT COST


               Sr.                                                      Total Cost
               No.                   Cost Items                         (‘000 Birr)
              1        Land lease value                                      59.6
              2        Building and Civil Work                           1,600.0
              3        Plant Machinery and Equipment                     1,681.3
              4        Office Furniture and Equipment                       125.0
              5        Vehicle                                              660.0
              6        Pre-production Expenditure*                          422.3
              7        Working Capital                                      364.1
                       Total Investment cost                             4,912.3
                                    Foreign Share                              56




* N.B Pre-production expenditure includes interest during construction ( Birr 272.34 thousand ) training
(Birr 45 thousand ) and Birr 105 thousand costs of registration, licensing and formation of the company
including legal fees, commissioning expenses, etc.




B.      PRODUCTION COST


The annual production cost at full operation capacity is estimated at Birr 2.93
million (see Table 7.2).         The material and utility cost accounts for         68.49    per cent,
while repair and maintenance take 2.38 per cent of the production cost.
                                          194-15


                                          Table 7.2
          ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)


                                  Items                   Cost              %
                      Raw Material and Inputs              1,987.00         67.67
                      Utilities                               24.21          0.82
                      Maintenance and repair                      70         2.38
                      Labour direct                          185.76          6.33
                      Factory overheads                       61.92          2.11
                      Administration Costs                   123.84          4.22
                      Total Operating Costs                2,452.73         83.53
                      Depreciation                           293.61         10.00
                      Cost of Finance                        190.01          6.47
                      Total Production Cost                2,936.35             100


C.        FINANCIAL EVALUATION


1.        Profitability


According to the projected income statement, the project will start generating profit in the
first year of operation. Important ratios such as profit to total sales, net profit to equity
(Return on equity) and net profit plus interest on total investment (return on total
investment) show an increasing trend during the life-time of the project.


The income statement and the other indicators of profitability show that the project is
viable.
                                        194-16


2.     Break-even Analysis


The break-even point of the project including cost of finance when it starts to operate at
full capacity ( year 3) is estimated by using income statement projection.


                               BE =          Fixed Cost       =   21 %
                                      Sales – Variable Cost


3.     Pay Back Period


The investment cost and income statement projection are used to project the pay-back
period. The project’s initial investment will be fully recovered within 5 years.


4.     Internal Rate of Return and Net Present Value


Based on the cash flow statement, the calculated IRR of the project is 23% and the net
present value at 8.5% discount rate is Birr 4.68 million.


D.     ECONOMIC BENEFITS


The project can create employment for 56 persons. In addition to supply of the domestic
needs, the project will generate Birr 2.04 million in terms of tax revenue.           The
establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports.

				
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