final jbf

A Project on the Feasibility analysis of JBF Industries Ltd.At Dalal Mott Mac Donald

(In partial fulfilment of MBA Programme)

Submitted to: N. R. Institute Of Business Management

Submitted By : Parul Gupta (03028) Shikha Jalan (03030)

Year : 2003:2005

Table of contents PAGE

SUMMARY

The Proposed Project 5

Project Highlights 5

Overall Project Prospects 6

1 Introduction 7

1.1 Introduction to JBF Industries Limited 7

1.2 About Dalal Mott MacDonald 8Services 8

1.3 About the Proposed Project 10

1.4 Objective 11

1.5 Scope of work 11

1.6 Approach and Methodology 13

2 Overview of Product and Market 18

2.1 Product Description 18

2.2 Domestic Polyester POY Industry Structure 19

2.3 Demand – Supply Scenario 21

3 Demand Supply Scenario 25

3.1 Polyester Filament Yarn (POY / FDY) 253.1.1 Projected demand 253.1.2 Projected Supply 263.1.3 Projected Demand – Supply Scenario 27

3.2 PET Chips 283.2.1 Projected demand 283.2.2 Projected Supply 293.2.3 Projected Demand – Supply Scenario 30

3.3 Price Projection 31

3.4 Market Prospects for the proposed project 31

4 Marketing Plan 32

4.1 Competition Analysis 32

4.2 JBFIL’s Strengths 33

4.3 Current Marketing Arrangement and JBFIL’s Future Marketing Plan 33

5 Project Progress – Implementation & Approvals 35

Project Implementation Schedule 35

Government Approvals 35

6 Technical Analysis 37

6.1 Raw Material- Sourcing and Availability 386.1.1 Purified Terephthalic Acid (PTA) 386.1.2 Mono Ethylene Glycol (MEG) 42

7 Estimates of Project Cost & Operating Cost 46

7.1 Capital Investment 467.1.1 Land & Site Development Cost 467.1.2 Buildings & Civil Works 477.1.3 Plant & Machinery 47

(i) Imported Components 47(ii) Indigenous Component 48

7.1.4 Furniture, Fixtures & Vehicles 507.1.5 Miscellaneous Fixed Assets 507.1.6 Preliminary & Pre-operative Expenses 507.1.7 Contingency Provision 507.1.8 Margin Money 507.1.9 Total Project Cost 51

7.2 Proposed Means of Finance 51

8 Assessment of Financial Viability 53

8.1 Introduction 53

8.2 Basis and Assumptions 538.2.1 Financing Structure 538.2.2 Operating Days & Shifts 538.2.3 Installed Capacity & Utilisation 538.2.4 PET Chips Selling Price 538.2.5 Exchange Rates 548.2.6 Operating Norms 558.2.7 Financing Terms – Repayment & Interest 558.2.8 Depreciation Rates 558.2.9 Working Capital Norms 578.2.10 Income Tax Rates 57

o Feasibility Analysis -Projections 58

8.3 Measures of Profitability 58

8.4 Sensitivity Analysis (CONCLUSION) 75

ACKNOWLEDGEMENT

On the onset, we would like to take this opportunity to express our gratitude to all those great

minds and hearts that have touched this project in the path of its success.

This project has proved to be a wonderful opportunity to execute some of the skills acquired

during the MBA programme. It was fortunate for us to do this project under the guidance of

Mr. Aldrin (Project Manager) and shall even remain indebted to him for his assistance and

sustained encouragement throughout the training. His practical insight and individual support

from the beginning of the training was extremely encouraging to us.

Summary

The Proposed Project

JBF Industries Limited has proposed to set up a Polyester Chips Plant having capacity of 600

tons per day on a 40-acre land already earmarked for the proposed project near Silvassa.

Polyester chips thus produced would be of grades capable of being consumed by the Textile

Industry and the film producing industry. JBF Industries limited is already engaged in POY

and batch PET polymerisation business at Silvassa but the proposed manufacturing facility

would be a continuous PET polymerisation plant incorporating latest technology and at a

different location than its existing set up.

Project Highlights

The polyester chips produced by this technology are supposed to be of consistent

quality and based on lower cost inputs.

The availability of raw material for producing polyester chips (i.e. PTA/DMT and

MEG) is ensured due to major expansion plans by existing players and some new players

entering the market. JBF is already consuming PTA/DMT and MEG from the large

manufacturers for the existing set up.

JBFIL already has available infrastructure for marketing polyester chips, which can be

leveraged by the proposed project.

The proposed project is expected to have cost advantage as it is near to major end

users and raw material source.

JBFIL has selected a technology, which is flexible. This would enable it to change the

product mix (i.e. Production of Film and Bottle Grade Chips) as per the market

requirements in case of any fall back due to declining demand of textile grade chips.

Proximity to all local extruder based POY units would enable JBFIL to sense the

market movements and this would be certainly a competitive edge over other polyester

chips manufacturers.

Many new POY plants are being installed at Silvassa and they would be the

prospective customers for polyester chips in the near future due to proximity to the

proposed set up.

Overall Project Prospects

The overall prospects for the proposed project appear promising in view of:

The sales volume (i.e. Capacity Utilization levels) envisaged in the projections appear

quite attainable considering following favourable factors:

Positive demand supply gap emerging due to demand growth of POY/PFY and

supply remaining more or less stagnant (due to expansion in downstream by few

existing PET Chips suppliers like Reliance, Century Enka, Indo Rama & Flex and

addition of new capacity by Garden Silk)

Number of POY projects is slated to come in the close vicinity of JBFILs’

proposed plant. Collective demand by these small-medium POY producers would be

tune of 600 TPD. It is expected that JBFIL would garner major share of this demand.


product mix (i.e. Production of Film and Bottle Grade Chips) as per the market

requirements in case of any fall back due to declining demand of textile grade chips.

JBFIL has further plans to expand downstream capacity (after 2-3 years), which would

ensure full utilization of capacity as well as further enhance overall profitability of the

group.

All the projected financials suggest the project to be viable on stand-alone basis and

will be a net contributor to JBFIL.

1 Introduction

1.1 Introduction to JBF Industries Limited

JBF Industries Ltd. (hereafter referred as JBFIL) is a leader in the Indian textile industry with

particular strength in polyester filament yarn and chips. The company’s history dates back to

the 1982 as a private company under the name “JBF Synthetics”. It became a public limited

company in the year 1986, and in the year 1989 the name was changed to JBF Industries

Limited.

JBFIL has established itself as a quality producer of POY and Polyester chips in the polyester

filament yarn industry. The company is one of the top 3 players in polyester partially oriented

yarn (POY). So far the company has preferred the chips (batch polymerisation) route (as

compared to the continuous polymerisation route) of POY production to enable quick product

changes, enhance differentiation and provide flexibility.

JBFIL has shown consistent growth since inception. The company has a record of

uninterrupted dividend payment from beginning till 1999. However, there was some set back

during 1999 to 2002 as the overall polyester filament yarn industry was not doing well, but

company has made impressive turn around during 2002-03.

1.2 About Dalal Mott MacDonald

Dalal Mott MacDonald – incorporating Dalal Consultants and Engineers Limited – is a

leading multi-disciplinary management and engineering consultancy based in India, with

offices nationwide.

As part of the Mott MacDonald Group, DMM is able to draw on world-class technical and

managerial resources comprising over 5000 staff in more than 50 strategic centre world-wide.

DMM is engaged in planning and development touching many aspects of everyday life –

from water, energy, industry, environment and transport to building, healthcare, tourism and

social development. Across these sectors DMM works for national and local governments,

public and private utilities, industrial and commercial companies, investors, developers, banks

and financial institutions, international and bilateral funding agencies and private

entrepreneurs. DMMs’ strengths enable our clients to realize their projects optimally from

concept to commissioning. With 750 professionals we take care of the entire process –

including providing advice on the best procurement route and the optimum approach for

maintaining the project once it enters service.

Services

Management Consultancy

Dalal Mott MacDonald provides business planning and project management for a wide

spectrum of clients in industry, infrastructure and social development, including international

development banks and funding agencies. DMM also help clients such as accountancy

practices, financial institutions and industrial companies in making a realistic appraisal of

their fixed assets, and in preparing for disinvestment, mergers or de-mergers, acquisitions,

take-overs, insurance or liquidation, collaborations and joint ventures.

Social Solutions

DMM has undertaken numerous studies and advisory roles for leading development banks

and funding agencies. Projects range from implementing vital AIDS eradication programmes

and pro-poor initiatives to studies for institutional strengthening, sector reform and impact

evaluation. DMM also offers specialist expertise in assisting with public consultation.

Engineering Services

DMMs’ range of engineering services enables clients to realize optimal implementation of

projects. DMM takes care of every stage – site evaluation, basic and detailed engineering,

contract preparation, project management, procurement, equipment inspection and testing, site

supervision and commissioning.

Infrastructure

One of the key strengths of DMM lies in large-scale integrated urban infrastructure

development, encompassing water supply, drainage, solid waste, roads, sanitation and

community buildings. Here our services range from planning and advisory assistance to

detailed engineering and construction management.

Industry

DMMs’ skills and experience have earned it a leading reputation – especially in chemicals,

textiles, oil and gas, food processing and life sciences, as well as bulk drugs, pharmaceuticals

and biotechnology. DMM is known particularly for its expertise in process engineering and

licensing for specialty chemical production based on laboratory/pilot plant know-how

developed by R&D centers.

Buildings

DMMs’ business covers all sectors from commercial and leisure to industry, education and

healthcare. DMM provides the full range of architectural, structural, mechanical and electrical

design skills, along with planning and project management expertise. Building services are a

special capability, notably building management systems, vertical transportation,

telecommunications and security.

HVAC

Providing turnkey packages in heating, ventilation, air-conditioning and refrigeration is also

DMMs’ forte – DMMs’ track record includes systems for auditoriums, public buildings,

industrial facilities, hospitals and research laboratories.

1.3 About the Proposed Project

The proposed 600 tons per day polyester chips plant will be set up near Silvassa on a 40-acre

land already earmarked for this project. The acquired land is located within 12 Km. from the

existing JBFIL plant facilities and hence it is envisaged that the proposed project need not

create elaborate infrastructure support.

A number of medium size POY industries are located in and around Silvassa, which again

consolidates the fact that the proximity to end users would make the proposed project more

ideal in terms of technical servicing to the end users and a considerable savings in

transportation cost, etc.

The proposed plant would be a continuous polymerisation plant incorporating latest

technology. The polyester chips produced by this technology would be of consistent quality

and based on lowest cost inputs. The technology has flexibility in terms of grade of chips

produced, which would be consumed both by the textile industry and also the polyester film

industry.

The block diagram shown in figure 1.1 provides details of the proposed project.

Figure 1.1: Proposed Project Details

PET Chips for Sale in the Market to POY Spinners

(Extruder spinning)

Purified Terepthalic Acid (PTA)Mono-Ethylne Glycol (MEG)

Continuous Polymerisation PlantCapacity : 600 TPD (2,16,000 TPA)Number of chippers : 42

1.4 Objective

The broad objective of the assignment is to prepare a bankable project feasibility report to

fulfill following specific requirements of bankers for term loan approval purpose:

Suitability of Technology

Correctness of list of Plant and Machinery

Reasonableness of the cost of project

1.5 Scope of work

Though the broad objectives of this assignment are related to assessment of this project on

technical grounds, we feel that other aspects like market justification and comprehensive

viability should also be looked into. Having this view, we have formulated following scope of

work :

Overview of Product (PET Chips) & Product Market covering:

Product Description & Applications

Domestic & Export Market (current and future outlook)

Prices & pricing trend

Competition Analysis

Trade Practices

Raw Materials –Sourcing Aspects

Various Raw Material Required

Availability of Raw Material

Prices of Raw Material

Assessment of Technology and Plant & Machinery

Salient Features of Technology

Assessment of technology and Plant & Machinery for its appropriateness and

completeness

Incentives and Regulations

Statutory Taxes & Levies

Any other Regulations

Incentives Available

Assessment of Operating Cost

Raw material cost

Utility consumption (power, water, etc.)

Manpower Cost, etc

Maintenance cost, etc.

Assessment of Project Cost

Land & site development

Civil construction

Interiors, furniture, and furnishings

Equipments

Utilities like electrification, plumbing, sanitation, etc.

Preliminary & Pre-operative cost

Contingencies

Implementation Schedule

This will include;

Estimated implementation time for all major tasks of project execution

Estimated implementation schedule and time for project

Financial Analysis

The financial analysis will include the following:

Estimated operating cost

Estimated revenue

Profitability projections

Projected cash flow & balance sheet

Suggested means / options of finance.

Estimates of base indicators for: ROI, ROE, BEP, IRR, etc.

All financial projections will be done with 8-10 years perspective, depending upon the

repayment period of the loan.

Sensitivity Analysis

Sensitivity of the project for major factors such as project cost, selling price, raw

material cost, market share, interest costs, incentives, etc.

Sensitivity analysis will project various scenarios considering the critical variables.

Conclusions & Recommendations

Overall prospects of the project in view of techno-commercial feasibility exercise

Critical Success Factors for the project

1.6 Approach and Methodology

DMM adopted an approach addressing the specific requirements of bankers for term loan

approval, which includes:

Justification of project on market ground

Suitability of technology and appropriateness of plant and machinery required for the

project

Validation of cost of project and overall viability of the project

In short, the project needs to be justified from all possible angles, i.e. Market, Technology and

Financial parameters. The study involved an intensive desk research for obtaining relevant

secondary data. The objectives of desk research are:

Enhanced understanding on the latest market perspective.

Broad assessment of level of competition, i.e. major players and their approach

Collect secondary/published information useful for analysing the project.

Secondary/Desk Research involved collection of information from various sources, like:

Information already available with JBFIL

DMM’s internal database

International trade and industry journals

Internet Search

we did not envisage intensive field research as enough industry-updated data was available

with the consultant due to lots of similar assignments had been carried out in the recent past.

However, a selective verbal enquiry has been conducted among prominent manufacturers of

PET chips, raw material suppliers, POY manufacturers, technology and plant & machinery

suppliers to get crucial information/data not availed through intensive desk research.

Justification of project on market demand has been estimated based on the overall demand

supply scenario and analysis of competition. We validated the following:

The target market size for the client

The flexibility in manufacturing various grades of chips i.e. Textile grade or film

grade

The assessment of suitability of selected technology for the project has been done on

the basis of evaluation against certain pre-determined criteria like:

Analysis of technical parameters to justify compliance to proposed capacity, product

quality and compliance to local environment and safety norms

Assessment of technology levels and its operation/maintenance ease

Economic parameters like capital costs and operating costs

Other general parameters like guarantee/performance figures, delivery/commissioning

schedule and technical service support

Financial feasibility analysis includes estimation of operating and capital cost of the project,

revenue model and sensitivity analysis. Estimation of operating cost involves estimation of

following important cost components:

Utilities and Consumable cost (based on consumption norms provided by technology

suppliers)

Man-power cost (based on the level of automation offered by the technology suppliers

and our own experience as per industry practice)

Repair and maintenance cost, etc. as indicated by technology suppliers

Cost of depreciation, interests, tax provisions, etc. as per the prevailing norms

Revenue estimates based on the following parameters:

Realistic capacity utilisation and sales programme based on client’s capability utilising

existing business to tap contestable market

Realistic price realisation estimated on the basis of current industry best average

Total project cost includes following cost components:

Land and site development

Buildings and civil construction

Plant and machinery

Utilities like power, fuel, water, compressed air, etc.

Preliminary & Pre-operative cost

Contingencies

The project financial feasibility analysis is given in the format desired by banks and includes

following:

Estimated operating cost

Estimated Revenue

Profitability analysis

Projected cash flow and balance sheet

Suggested means of finance

Estimates of base indicators for: ROI, ROE, BEP, IRR, etc.

All financial projections have been done with 10 years perspective, depending upon

repayment of loan.

The approach adopted by DMM as described above is indicated in the figure 1.2 given below

PET Condensation Capacity

Captive PET Chips Demand External Sales

Existing Captive Demand (Extruder Spinning)

Factors ConsideredDemand-Supply scenarioCompetition AnalysisPrice trends

MARKET ASSESSMENT

TECHNICAL ASSESSMENT

Potential Market Economies of Scale

Proposed Plant SizeSelection of Technology

& Plant Supplier

Conversion costInvestment requirementsPerformance Guarantees

Revenue Stream Cost Stream Investments

Financial Feasibility & Sensitivity Analysis

FINANCIAL ANALYSIS

2 Overview of Product and Market

2.1 Product Description

Polyester Chips is the main intermediate raw material to manufacture polyester filament yarn

(PFY) through extruder spinning. PFY includes both Partially Oriented Yarn (POY) and Fully

Drawn Yarn (FDY). Polyester chips are of three types viz., textile grade, film grade and bottle

grade. Polyester chips can be produced either by continuous polymerisation or batch

polymerisation. Figure 2.1 represents the complete value chain in the polyester industry

starting from basic raw material of polyester i.e. DMT or PTA and MEG to fabrics through

intermediate raw material i.e. polyester chips production.

Figure 2.1: Polyester Filament Yarn (PFY) Value Chain

Polymerisation (BatchorContinuous

Polymerisation

DMT or PTA / MEG

Direct SpinningBatch Spinning

PET Chips

POY POYFDY FDY

Yarn Processing

Fabric Weaving

Yarns

Processed Yarns

Fabrics

2.2 Domestic Polyester POY Industry Structure

Polyester filament yarn (PFY) industry comprises of both partially oriented yarn (POY) and

fully drawn yarn (FDY). The domestic POY industry comprises of around 28 active players,

which includes small (4,000-15,000 TPA), medium (15,000 – 30,000 TPA) and large (30,000

TPA and above) units. The production capacity of Polyester Filament Yarn (PFY) stands at

1,321,483 TPA as on 31st March 2003. Capacity details of some of the major domestic

manufacturers of PFY are given in table 2.1.

Table 2.1: Major Indian PFY Manufacturers

ManufacturerYear of

Commissioning

Installed Capacity

(TPA)

Baroda Rayon Corporation Ltd.* 1976 15,20

0

Century Enka Ltd. (incl. Rajshree Polymers) 1977 80,00

0

Central India Polyesters Ltd.** 1989 40,00

0

Filatex India Ltd. 1997 15,20

0

Garden Silk Mills Ltd. 1994 ***32,200

Surat Textile Mills Ltd. 1996 5,000

Indo Rama Synthetic (I) Ltd. 1995 151,21

8

Jindal Polyester Ltd. 1985 32,50

0

JBF Industries Ltd. 1996 60,25

0

Modern Petrofils Ltd. 1996 52,50

0

Microsynth Fabrics (India) Ltd. 1997 19,40

0

Nova Petrochemicals Ltd. 1996 37,00

0

Orkay Industries Ltd.* 1982 30,00

0

Parasrampuria Synthetics Ltd. 1986 23,50

0

Petrofils Co-operative Ltd.* 1977 21,00

0

Prag Bosmi Synthetics Ltd. 1994 25,00

0

Raymonds Synthetics Ltd.** 1991 76,00

0

Reliance Industries Ltd. (Patalganga & Hazira) 1982, 1986 330,00

0

Sanghi Polyesters Ltd. 1992 61,00

0

Welspun Syntex Ltd. 1996 48,00

0

Apollo Fibres Ltd. ** 2001 14400

** Reliance Group *Currently not operational *** from November

2002 onwards

Source: 2002-03Handbook of Statistics on Man Made Synthetic Fibre/Yarn Industry –

Association of Synthetic Fibre Industry

From the above table, it can be observed that Reliance Industries Limited (RIL), Indo Rama

Synthetics, Century Enka, Sanghi Polyester and JBF Industries Ltd. (JBFIL) together account

for about 59% of the total industry capacity. Further, about 50% of the industry capacity is

located in the western region due to the proximity of raw material suppliers and downstream

weaving units at Surat, Bhiwandi.

The installed capacity of the industry has grown from a mere 178,000 TPA in 1990 to about

1,018,150 TPA by 31st March 2002 at a CAGR of 16%. Both the existing players as well as

new entrants have made investments during the last decade. The growth in investments was

more during 1996-99 as can be observed from the figure 2.2. The industry has witnessed

some acquisitions during the last few years with RIL taking over DCL Polyesters Ltd. and

Raymond Synthetics Ltd. The consolidation in the industry could be attributed to non-

economic size at the plant and operational advantage of producers with backward integrated

plants (PTA and MEG) or forward integrated plants (Draw warping, Draw texturising, etc.) as

compared to standalone producers.

Figure 2.2: Capacity Addition Trend of PFY



2.3 Demand – Supply Scenario

PFY production grew from about 195,385 TPA in 1991 to about 954,634 TPA in 2002

indicating a CAGR of 16 %. The y-o-y incremental production along with y-o-y growth rate

is given in figure 2.3 below. The figure indicates that the y-o-y growth and the incremental

growth in production declined during the period 1998-01indicating slowdown in the industry.

The production and capacity utilisation trend for the industry is shown in figure 2.4 below.

From the figure it can be observed that the industry has maintained its capacity utilisation at

over 90% since 1995. The average capacity utilisation between 1995-02 was about 92%.

Table 2.2: Import and Export of Polyester Filament Yarn

(Million kg per annum)

Year Import Export Production

1990-91 26.81 1.29 195.4

1991-92 3.86 3.05 246.4

1992-93 3.20 7.20 273.4

1993-94 20.72 7.79 296.0

1994-95 35.92 14.17 337.7

1995-96 19.72 14.76 472.1

1996-97 14.46 25.56 642.2

1997-98 2.92 50.01 717.2

1998-99 28.66 36.70 786.6

1999-00 75.25 49.18 831.8

2000-01 57.64 92.09 846.8

2001-02 80.96 66.75 954.6

Source: Compendium of International Textile Statistics, 2002

The overall domestic demand – supply scenario is indicated in table 2.3 below. From the table

it can be observed that the industry has met its demand primarily from the domestic

production. The pattern of capacity addition in the PFY industry is in line with growth in

demand, which indicates that the industry is matured and professionally managed.

Table 2.3: PFY Domestic Demand

Year Production Import Exports Demand

1991 195,385 26,810 1,290 220,905

1992 246,350 3,860 3,050 247,160

1993 273,433 3,200 7,200 269,433

1994 295,958 20,720 7,790 308,888

1995 337,743 35,920 14,170 359,493

1996 472,137 19,720 14,760 477,097

67

1997 642,190 14,460 25,560 631,090

1998 717,184 2,920 50,010 670,094

1999 786,616 28,660 36,700 778,576

2000 831,827 75,250 49,180 857,897

2001 846,846 57,640 92,090 812,396

2002 954,634 80,960 66,750 968,844

Source: Industry & CRIS INFAC, Oct 2002

POY constitutes about 85% of the total PFY production, while FDY contributes the

balance production.

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3 Demand Supply Scenario

3.1 Polyester Filament Yarn (POY / FDY)

3.1.1 Projected demand

The PFY industry has grown at a rate of about 16% p.a. during 1991-02. Industry analysis

indicates that the growth rate is declining. However, it is estimated that the industry would

sustain a growth of about 8% p.a. during 2003-2012 based on the following factors –

Globally polyester has 50% shares in fabrics. Whereas in India, polyester has a share

of just 17% indicating the growth potential.

Low per capita consumption (China – 5 kg; Indonesia – 5 kg; Pakistan – 3 kg, India -

1.4 kg)

Growing non-apparel applications (23% global demand but negligible in India)

Polyester making inroads as Fashion Fabric – Polyester Denim

PSF – emerging deficit over next 3-4 years

WTO-End of quota regime and MFA phase out in Jan, 2005 will benefit India

The Planning Commission projects a growth of 8% for PFY industry during the tenth

plan (2001-07).

Capacity addition by major PTA manufacturers like RIL, Indian Oil Corporation and

Mitsubishi, indicate growth envisaged in the downstream PFY industry.

The major demand drivers for Indian PFY industry during the next decade would include –

Growth in automobile sector would lead to an increase in demand for automotive

textiles like floor mats, carpets, steering wheel covers, headliners, seat covers, seat belts,

air bags etc.

67

Growth in housing sector would lead to an increase in demand from upholstery

segment for home furnishings.

Increase in disposable income will propel growth in textile apparels

Demand for industrial stitching threads, fire retardant yarns, non-woven fabrics and

other technical yarns.

Historically, the yarn export from India has been insignificant. The large domestic base is one

of the prime reasons for the low export base. In future, it is anticipated that the local yarn

manufacturers would continue to focus on the growing domestic market and thus, exports

would continue to be insignificant.

The projected demand for PFY (POY + FDY) during the project plan period i.e. 2005-2012 is

given in Figure 3.1 below.

Figure 3.1: Projected Demand – POY & FDY

Source: DMM Analysis

3.1.2 Projected Supply

The installed capacity of PFY industry as on March 2002 is about 1,018,150 TPA with an

average capacity utilisation at 92%. Imports of PFY have been limited during the last decade

due to preference given to local yarn manufacturers by local weavers and yarn processing

units. The major reasons for giving preference includes -

The quality of yarn manufactured by local players is close to international standards

67

The price at which the local yarn manufacturers are able to sell their products is at par

with landed cost of imports. Further freight and packaging cost would add to the cost of

imports making it less competitive.

The local manufacturers are able to provide better reliability than imported yarns

Procurement from local manufacturer decreases the inventory requirements

Imports, in future would continue to be lower as long as the domestic yarn producers are able

to serve the demand. Thus, imports would only be used to bridge the demand-supply gap in

domestic market if any.

The availability of PFY in the domestic market considering 95% capacity utilisation of the

existing plants (installed capacity as on March 2002) during the project plan period i.e. 2005-

2012 is about 968,000 TPA.

3.1.3 Projected Demand – Supply Scenario

The projected demand – supply scenario in the PFY industry during 2005-2012 is given in

figure 3.2 below. From the figure it can be observed that the industry would face a marginal

shortfall in supply from the year 2005 onwards. This demand – supply gap can either be met

by imports or by fresh investments in domestic PFY capacity. Looking at the overall industry

behaviour during the last decade and the preference shown towards local manufacturers, it is

eminent that fresh investments in domestic PFY capacity would come up soon.

67

Figure 3.2: Projected Demand Supply - PFY


3.2 PET Chips

3.2.1 Projected demand

PET chips are procured by batch process units and are later spun into PFY. These batch units

largely do not have the advantage of economies of scale and have higher operating costs (as

the number of stages in conversion is more). However, there is no direct competition with

large direct spinning processors as they cater to requirements of niche markets. These batch-

process units account for almost 20% of the total PFY production in India. It is expected that

the batch process units would maintain their share in overall PFY production. Thus, the

demand for PET chips would be driven by the increase in demand for PFY and consequent

fresh investments in PFY units. The projected demand for PET chips during the project plan

i.e. 2005-2012 is given in Figure 3.3 below.

67

Figure 3.3: Projected Demand – PET Chips


3.2.2 Projected Supply

PET chips available in open market from the major domestic suppliers are about 208,800

TPA as on 2002. It is observed that the batch process units give preference to the local

suppliers of chips due to the following reasons –

High quality standards observed by local PET manufacturers

Local PET chips prices comparable to landed import costs.

Higher reliability of local suppliers

Improvement in inventory management

The projected availability of PET chips in domestic market during the project evaluation

period i.e. 2005-2012 is expected to be as per the estimates given below:

2005 2006 2007 2008 2009 2010 2011 2012

PET Chips

Supply208800 161700 161700 161700 161700 161700 161700 161700

Current Capacity 208800 208800 208800 208800 208800 208800 208800 208800

Capacity likely

to be consumed

captively@

108000 108000 108000 108000 108000 108000 108000 108000

New Capacity 0 60900 60900 60900 60900 60900 60900 60900

67

Addition#

PET Chips

Supply208800 161700 161700 161700 161700 161700 161700 161700

@ Capacity to be consumed captively : RIL – 2000 TPM, Century – 3500 TPM, Indo Rama –

2000 TPM, Flex – 1500 TPM

# Garden Silk Mills – 60,900 TPA in April 2005

3.2.3 Projected Demand – Supply Scenario

The projected demand – supply scenario for PET chips during 2005-2012 is given in figure

3.4 below. From the figure it can be observed that the industry would face a shortfall in

supply from the year 2005 onwards. This demand – supply gap can either be met by imports

or by fresh investments in Polycondensation capacity.

Figure 3.4: Projected Demand Supply – PET Chips


67

3.3 Price Projection

The prices of PET chips is expected to remain stable in long run due to the following reasons

–

The PTA prices are expected to remain stable on account of new capacity addition by

major domestic players in near future.

Free imports of PTA, PET chips and PFY and corresponding reduction in customs

duty have ensured that the end users get raw material at internationally competitive prices.

Thus, the prices of PTA, and PET chips are expected to remain stable in line with

international prices.

The lowering of customs duty for imported equipments and lower interest rates have

resulted in lower investment costs. This would ensure that new capacities are able to

manufacture PET chips at internationally competitive costs.

3.4 Market Prospects for the proposed project

It can be positively concluded that the proposed project has excellent market prospects for the

following reasons:

Positive demand supply gap emerging due to demand growth of POY/PFY and supply

remaining more or less stagnant (due to expansion in downstream by few existing PET

Chips suppliers like Reliance, Century Enka, Indo Rama & Flex and addition of new

capacity by Garden Silk)

Number of POY projects is slated to come in the close vicinity of JBFILs’ proposed

plant. Collective demand by these small-medium POY producers would be tune of 600

TPD. It is expected that JBFIL would garner major share of this demand. These units

would have economic as well as other benefits in sourcing PET chips from JBFIL, like:

Savings in transportation cost

Low inventory levels for PET Chips

Quick Technical Assistance in the event of technical problem

67

4 Marketing Plan

4.1 Competition Analysis

Organized players dominate the PFY industry. Further, vertically integrated units with

significant presence in PET chips and yarn business (including processing) have a better

chance to compete in global markets and manage with the price fluctuations. Reliance

Industries Limited and Indo Rama Synthetic (I) Ltd. are having major dominance in domestic

market. Analysis of these players is given in the table 4.1 below.

Table 4.1: Major Competitors

Name of the Company Current Supply Level & Present Status

Reliance Industries Limited

Current supply level is 2200 MT per month. Shifting

POY machines from Orissa plant to Nagpur plant so

will cut down PET chips by 2000 MT. Focus more

towards infrastructure sectors like Oil & Gas,

Telecom and Power.

Indo Rama Synthetic (I) Ltd. Current supply level is 2000 MT per month. Planning

expansion in PTA and PSF (Staple Fibre).

Century Enka

Current supply level is 3500 MT per month.

Expanding POY capacity and hence will be out of

chips market by end of 2004.

Flex

Current supply level is 2000 MT per month.

Increasing film capacity by 1500 MT per month. Will

be left with surplus 500 MT per month only

67

4.2 JBFIL’s Strengths

JBFIL is one of the leading players in the domestic textile market and their strengths are:

JBFIL’s proposed project is to be located near Silvassa. This would ensure that the

plant is close to the end users (10 km from the polyester extruder spinners) and also close

to raw material source i.e. PTA and MEG from RIL. This would give it a cost advantage

of about Rs. 2 per kg for the yarn processors ensuring easy acceptability of JBFIL’s

products.

About 67% of the PET production would be consumed in-house for yarn

manufacturing.


product mix (modified, bright and regular chips) and also film grade chips as per the

market requirements.

JBFIL’s strong performance would ensure that they borrow money at competitive

rates. Further, reduction in customs duty on imported equipments would enable JBFIL to

build a state-of-art plant with relatively lower capital investment. Thus, they would have

lower fixed costs and would be in a better position to price their products.

4.3 Current Marketing Arrangement and JBFIL’s Future Marketing Plan

Polyester chips account for the single largest intermediate raw material comprising nearly 60-

70% of the finished product cost. Generally owners/directors of POY spinners directly handle

the purchase of polyester chips on the basis of strong liaison with the chips suppliers.

Consequently, the marketing of chips is normally done on the basis of interaction with top

executives of the supplier and end user and no intermediary such as brokers or commission

agents play a role except in few cases.

The pricing terms are generally based by bench marking the landed price as based on

international prices of polyester chips. The payments are normally on advance payments basis

with cheques being deposited on the day the consumer gets polyester chips.

67

Polyester chips consuming companies tie up quantities on a monthly basis and a day-wise

schedule is given, according to which chips are dispatched. A strong customer technical

service team, who would give certain guidelines to the customers, will back the supply of the

chips. A constant co-ordination would be maintained between the technical service team and

the buyer so as to ensure that the quality of chips being produced is acceptable and also to

find ways and means of further improvement in quality and other matters with reference to

logistics. It is expected that a number of polyester chips customers would be located at

Silvassa, Surat and Ahmedabad regions JBFIL’s strength coupled with shift in focus of major

players and overall demand-supply scenario in Polyester chips industry it is likely that JBFIL

would sell its products in the market.

67

5 Project Progress – Implementation & Approvals

Project Implementation Schedule

The following tentative schedule has been decided for the project so as to start the production by end

of first quarter of 2005:

Schedule Expected by

Procurement of Land Done

Completion of plant design, lay out etc. Done

Selection of machinery and negotiation with the suppliers Done

Placement of orders for all the machinery selected as above May/June 2004

Arrival of all the equipments December 2004

Erection of various equipments January / February 2005

Start up of trial runs March 2005

Commercial Production March / April 2005

Government Approvals

The following Government Approvals will be taken in due course of time:

Approvals Expected by

Acquisition and registration of land Done / In-process

Construction Permission from Collector June 2004

Pollution Control Board June 2004

Dept. of Industries June 2004

Factories Act July 2004

Electricity Act July 2004

Industrial Boiler Act No Required

Indian Explosive Act Not Required

Excise Act July 2004

Sales Tax Act July 2004

67

Provident Fund Act July 2004

Contract Labour Regulations July 2004

Solvent Storage Licence Sept. 2004

67

6 Technical Analysis

JBFIL has decided to source technology and plant from China Textile Industrial

Engineering Institute (CTIEI). CTIEI was founded in 1952, and is one of the largest design

and investigation unit to China National Textile Council (CNTC, formerly known as Ministry

of Textile Industry). It is also a member of China National Technical Import and Export

Corporation. It is the partner of China Foreign Construction Corporation.

CTIEI is able to supply process technology, engineering design and complete equipment, and

performance test in accordance with international practice. CTIEI is an ISO 9001 certified

company. It has also achieved Class A certificate for the design of textile, finishing, chemical

fibre, petrochemical and civil and also other project engineering related certificates.

The factors favouring CTIEI Technology includes:

Proven track record of CTIEI (CTIEI has supplied Continuous Polymerisation

technology and plant to more than 40 units in China, some of which are large and

important players in PFY market.

The process for reduction of Polyethylene Terephthalate (PET) with PTA/DMT and

MEG as developed by CTIEI is characterised with up to date technology having more

operation flexibility, high automation and less waste emissions.

Because of adoption of process column with high efficiency, anti-blockage, more

operation flexibility and effective waste emissions treatment, the quality of the products is

excellent and all technical indexes are superior to or not lower than stipulation of polyester

company in the world.

Various consumption indexes of raw materials and utilities are comparable to the

stipulation of other leading polyester companies in the world and the design can be

suitably tailor-made to suit the requirement of the customers.

The overall cost economics (i.e. Capital and Operating Cost) based on CTIEI

technology is very favourable.67

6.1 Raw Material- Sourcing and Availability

Raw materials required for the proposed project are PTA and MEG. About 0.34 tonnes of

MEG and about 0.86 tonnes of PTA are required for producing 1 tonnes of PET resin; which

is converted into yarn. A detailed analysis of PTA and MEG for future availability and prices

is covered in the subsequent section.

6.1.1 Purified Terephthalic Acid (PTA)

PTA is used in the production of polyesters both staple fibre and filament yarn. The major

raw material for the production of PTA is paraxylene. In India, Reliance Industries and

Mitsubishi Chemicals are two major producers of PTA. The production capacity of PTA

stands at about 1.8 million TPA as on 2002-03. Some of the major manufacturers are given in

table 5.1.

Table 6.1: Indian PTA Manufacturers

Sr Company

Year of

Commencing

Production

Production

Capacity

(Tonnes /

annum)

1

Reliance Industries Ltd. (Patalganga &

Hazira) 1988 12,80,000

2 SVC Superchem Ltd. * 1998 1,20,000

3 MCC PTA (I) Corporation Ltd. 2000 4,25,000

Total 18,25,000

*Currently not operational



The installed capacity of the PTA industry grew from about 1.28 million TPA in 1996 to

about 1.8 million TPA by 2002. This growth was inline with the increase in demand of

67

polyester industry (both staple fibre and filament yarn). Year-wise capacity trend is given in

figure 5.1

Figure 6.1: Capacity Trend of PTA



The PTA production grew from about 0.2 million TPA in the year 1988-1989 to about

1.7million TPA in the year 2002-2003, indicating a CAGR of 31 %. Year wise production, y-

o-y growth in production and capacity utilisation is given in figure 5.2 & figure 5.3

respectively. From the figures 5.2 and 5.3 it can be observed that the domestic industry is

operating at high utilization levels and would require an expansion to meet future needs of

downstream players

To meet the future demand from the downstream polyester industry the domestic PTA

industry would require fresh investments. As per published information, by 2005 additional

capacity of about 1.3 million TPA would be commissioned indicating an increase of 70%

over the existing capacities. Further Indo Rama Group is setting up a green field project at

Thailand and would source its requirements (about 200,000 TPA) from the captive facility.

This would create a surplus capacity of about 200,000 TPA in the domestic market. The

67

details of the proposed investments in PTA industry are given in table 5.3. From the table it

can be observed that the share of RIL in PTA market would come down from over 70% in

2002 to about 50% by 2005. Taking into consideration the large expansion in PTA capacity;

sourcing of PTA in domestic market would not be difficult for the downstream manufacturers.

Table 6.2: Proposed Investments – PTA Industry

Sr. CompanyProposed Capacity

AdditionYear

1 M/s Indo Rama (in Thailand) 6,00,000 2003

2 M/s MCC PTA (I) Corporation Ltd. 4,25,000 N.A

3 Panipat Refinery, IOCL 5,25,000 2004-2005

4 Reliance Industries Ltd. 3,50,000 2003-2004

Source: Industry & DMM Analysis

The prices of PTA in domestic market is finalised based on the landed cost of imports,

thereby ensuring that the prices are globally competitive. It is expected that PTA

manufacturers would continue to use the market driven approach to fix domestic PTA prices.

Analysis indicates that the PTA prices depends on the following factors –

International freight & insurance charges

Crude prices

Customs duty

Availability of PTA

In India, the customs duty on PTA decreased from a high of 60% in 1994-95 to a low of 20%

from 2001 onwards. This has assisted in decreasing the domestic prices of PTA. However,

further decrease in customs duty during near future is not anticipated and thus customs duty is

not expected to play a major role in dictating domestic prices.

67

With fresh investments in the PTA industry the availability of PTA will not be a major factor

for the downstream players. Further, since imports are free, the downstream players can

always resort to imports. JBFIL has an advantage of being located near two major ports.

While international freight charges depend on the crude oil prices, the insurance charges

largely depend on international peace. Both these factors are difficult to predict and would

continue to play major role in determining PTA prices.

The raw material prices of PTA are dependent on crude prices. Crude prices are difficult to

predict and would continue to play major role in determining PTA prices.

However, looking at the international scenario, demand-supply situation, it is predicted that

the PTA prices would remain stable during 2005-12.

67

6.1.2 Mono Ethylene Glycol (MEG)

Mono ethylene glycol (MEG) is used as an input in the production of polyesters (staple fibres,

films and filament yarns), explosives, cosmetics, printing inks, anti-freeze and as coolant in

automobiles. In India the turnover of the MEG market was at over Rs. 18 billion in 2000-

2001.

The domestic MEG industry comprises of 5 players with total production capacity of 638,900

TPA. Around 88% of the MEG capacity is based on the petrochemical route, while the

balance capacity is based on alcohol route. The table 5.4 provides details of major players in

domestic MEG industry. From the table it can be observed that Reliance Industries Limited

(RIL) is the market leader with about 85% share.

Table 6.3: Indian MEG Manufacturers

Sr. Name of the Unit

Year of

Commencing

Production

Production

Capacity

Tonnes/

Annum

Percentage

1 India Glycols Ltd. 1989 25,000 3.91 %

2

Indian Petrochemicals

Corporation Ltd.** (Baroda,

Nagothane & Gandhar)

1973 183,900 28.78 %

3 National Organic Chemicals Ltd. 1976 10,000 1.57 %

4 Reliance Industries Ltd. 1992 360,000 56.35 %

5 S.M. Dyechem Ltd. * 1993 60,000 9.39 %

67

Total 638,900

* Not in Operation from 2000-2001 ** Reliance Group

Source: 2002-03 Handbook of Statistics on Man Made Synthetic Fibre/Yarn Industry –


Domestic MEG capacities increased between 1991-94, with IPCL, RIL and SM Dyechem

putting up new plants. Further, it is observed that the MEG capacities are concentrated in the

western region. Since, freight charges are significant, those downstream units located near the

raw materials have a cost advantage. The figure 5.4 below provides details of capacity

addition in the MEG industry.

Figure 6.2: Capacity Trend of MEG



MEG production grew at an annual rate of 34% between 1991-03. The overall production as

on 2002-03 stands at about 611233 tonnes. The demand from polyester industry during 1991-

03 contributed significantly towards growth in MEG. Year wise production, y-o-y growth and

capacity utilisation of the industry is shown in figure 5.5 and 5.6. From the figures it can be

observed that the industry is operating at almost 100% capacity utilization and thus is

observing low growth during the last four years.

67

Figure 6.3: Imports - MEG



Fresh investments in MEG industry would be required to meet the future demand from the

downstream polyester industry. RIL has already indicated that they would be expanding MEG

capacity by 240,000 TPA. This would result in an increase in industry capacity by about 38%

thereby improving availability of MEG in domestic market.

The prices of MEG in domestic market is finalised based on the landed cost of imports,

thereby ensuring that the prices are globally competitive. It is expected that MEG

manufacturers would continue to use the market driven approach to fix domestic MEG prices.

Analysis indicates that the MEG prices depend on factors similar to PTA.

Reduction in customs duty from a high of 60% in 1994-95 to a low of 20% from 2001

onwards has assisted in decreasing the domestic prices of MEG. However, further decrease in

customs duty during near future is not anticipated and thus customs duty is not expected to

play a major role in dictating domestic prices.

67

Availability of MEG in domestic market will not be a major problem as the industry leader is

adding capacities to meet the domestic demand. JBFIL would have location advantage of

having the project near RIL’s manufacturing facility.

International crude prices would be key determinant of MEG prices as majority manufacturers

use the petrochemical route. Further crude prices also determine the international freight

charges. Thus, crude prices would hold key to fluctuation in MEG prices.

However, looking at the international scenario, demand-supply situation, it is predicted that

the MEG prices would remain stable during long term.

67

7 Estimates of Project Cost & Operating Cost

7.1 Capital Investment The estimation of capital investments have been done based on information collected from the

following sources –

Imported Plant and Machineries as per the data provided by the client.

Cost of Indigenous component of the project has been made on the basis of :

Cross-checking the cost with cost considered in similar projects

Data obtained from JBFIL on recent expansion works undertaken

Quick cross-checking with equipment suppliers

Cost information available with DMMs’ database

7.1.1 Land & Site Development CostThe total available land area earmarked for the project is about 125,000 Sq.Mtr. The estimates of Land

and Land Development cost is given in the table below:

Table 7.1: Land & Site Development Cost

Sr. Particulars Amount(Rs. Lakhs)

A. Land Cost (Area 1.25 Lac sq.mt. @ Rs. 480/- / sq.mtr.) 600.00B. Land & Site Development Cost

1.Compound wall (10ft height)(Stone masonary + Brick masonary + cooping beam +wire fencing with steel polls)

60.00

2. Fencing along survey boundary ; 6’ ft height(RCC pole & chain link fencing) 30.00

3.RCC roads & approach roads150th RCC + 230 MM TH WBM + moorumfilling / cutting + RCC pipe laying etc.

80.00

4. Rain water drains PCC + B/walls + waterproof plastering 30.00

5. Sub Total (B) 200.00

67

Total Land & Development 800.00

7.1.2 Buildings & Civil Works The details of various building and civil works requirements of the proposed project alongwith their

cost estimates have been given in the table below:

Table 7.2: Buildings & Civil Works Details

Sr Buildings / Civil Works Cost (Rs.Lakhs)

1. Godown for raw materials & finished goods 186.00

2. Main Process Plant 546.00

3. Chip Packing & Dispatch Godown Area : 60 x 50 m (Rs. 3000 per sq.mtr) 90.0

4. Utilities 143.00

5. Others 100.00

6. Architect’s Fees @ 4% 35.00 Total Building & Civil Works (rounded off) 1100.00

7.1.3 Plant & Machinery

(i) Imported ComponentsThe details of imported component of plant and machinery have been provided by JBFIL based on

their discussions with the technology and plant supplier. The landed cost of imported component of

plant and machinery (including know-how, erection & Installation and duties) have been estimated at

Rs. 5270 Lakhs (i.e. US$ 9.45 Million + Customs Duties and Clearance Charges). The cost considered

here appears reasonable considering:

Its country of origin (i.e. China which is known for its cost competitiveness)

Large part to be sourced indigenously

67

(ii) Indigenous ComponentThe list of Indigenous equipments alongwith their cost estimates is given in the table below.

Table 7.4: Indigenous Machinery List

Sr Main Specification &Content Material Qty Cost Supplier

A. Main Process Equipment

A1. PTA Conveying System 450Praj Inds. Ltd/.Phils Engineers/Standard Engg

A2. Paste Preparation 285

A3. Esterification-II & Proc. Column 335

Praj Inds. Ltd/.Phils Engineers/Standard Engg

A4. Pre-Polycondesation 325Praj Inds. Ltd/.Phils Engineers/Standard Engg

A5. Final Polycondensation 375Praj Inds. Ltd/.Phils Engineers/Standard Engg

A6. Polymer Filtration &Distribution 150

A7. Chip Production 205Praj Inds. Ltd.Phils EngineersStandard Engg

A8. Chip Conveying & Bagging System 175

A9. CATALYST PREPARATION 175Praj Inds. Ltd/.Phils Engineers/Standard Engg

A10. Delusterant Preparation 100

A11. HTM Drain & Vent System 125

A12. Off-gas cleaning system 100

A13. Filter cleaning 100 Multitex Filters Ltd.

A14. HTM Station 150 Thermax

67

Sr Main Specification &Content Material Qty Cost Supplier

A15. Tank Farm 300

A16. Analysis and Test 150

B. INSTRUMENT & AUTO CONTROL 85 M/s. Redix Sensor /

Framros Marketing C. ELECTRICAL 150

Voltemp TransformersSUBSTATION

D. POWER 200 M/s. Polycab / CableCorporation

E. Lighting 50 M/s. Redicon Engg

F. OTHERS 50Instalalaram InstrumentsPvt.Ltd.

G. OTHER EQUIPMENT AND MATERIALS

G1. HVAC IN POLY-BUILDING 25

G2. PIPING, FITTINGS AND ETC. ISBL 200

Reliable Steel Distributors/ Flow Line Eng

G3. ERECTION MATERIAL ISBL 100 M/s. S S Engineers /M/s. KPA Engineers

G4. SPARE PARTS 200G5. Special Tools 15

G6. Insulation Work 200 M/s. Punj Lloyd /Excel Insultech

G7 N2 Plant 150 M/s. Airox Nigen

G8. Air Compressor 75 Elgi Equipments / Atlas Copco

Total Indigenous Equipments 5000Apart from above, JBFIL intends to set up 3.5 MVA captive power plant (HFO based DG Set), cost of

which has been estimated at Rs.1000.00 Lakhs.

67

7.1.4 Furniture, Fixtures & Vehicles The total cost for Furniture and Fixtures have been estimated at Rs. 60 Lacs

7.1.5 Miscellaneous Fixed Assets

Miscellaneous Fixed Assets have been estimated at Rs.50 Lakhs.

7.1.6 Preliminary & Pre-operative ExpensesPreliminary & Preoperative Costs include all preliminary and pre-operative costs before

commencement of production. This includes costs towards establishment, travel and communication,

interest during construction, detailed engineering fees, training and trial run cost, etc.

Table 7.5: Cost Estimates - Pre-Production Cost

Particulars Amount (Rs.Lacs)

Interest During Construction 290Documentation Expenses 30Upfront Fee 100Arrangers Fee 110Detailed Engineering, Project Management Fees 175Expenditure During Construction (Travel, Communication etc) 30Others 90Total 825

7.1.7 Contingency Provision

The contingency provision at roughly 5% works out to Rs.700 Lakhs.

7.1.8 Margin MoneyEstimates of working capital requirements have been worked out on the basis of expenditure involving

cash liabilities and other recurring requirements considering the norms mentioned below:

Table 7.6: Inventory Norms

Particulars Inventory NormsRaw Materials 0.23 MonthPacking Material 0.50 Month

67

Stores / Spares / Consumables 0.50 MonthWork in Progress 0.06 MonthFinished Goods 0.10 MonthReceivables ( Debtors) 0.33 MonthSundry Creditors 0.23 Month

The available bank finance for working capital has been considered as 80% of working capital

requirement and based on this, the requirement of margin money for working capital works out to

Rs.2188 Lakhs

7.1.9 Total Project Cost

The total project cost for this project in Oman has been estimated as given below:

Table 7.7: Total Project Cost

Particulars Rs. LakhsLand & Site Development 800Factory Building 1100Plant and Machineries Imported Machineries 5270Indigenous Machineries 5000Power Plant 1000Miscellaneous Fixed Assets 60Furniture & Fixtures 50Preliminary & Pre-Operative Exp. 825Provision for Contingencies 700Total Capital Cost of Project 14805Margin Money for Working Capital 2188Total Cost of Project 16993

7.2 Proposed Means of Finance Considering Debt Equity Ratio of 1.5:1, the means of finance for the project has been proposed as

shown in the table below:

Table 7.8: Proposed Means of Finance

Particulars TotalEquity 6993Total Long Term Borrowings 10000Total Means of Finance 16993

67

8 Assessment of Financial Viability

8.1 IntroductionThis chapter deals with the economic viability of the proposed PET Chips project.

A spreadsheet model has been developed for financial analysis with a view to assess impact of

changes in project parameters like project cost, capacity utilisation levels, input costs and other

parameters like to see changes in the course of operation.

8.2 Basis and Assumptions

The important basis & assumptions, which are considered for the analysis are enlisted below:

8.2.1 Financing Structure

Debt Equity Ratio : 1.4

8.2.2 Operating Days & Shifts

No. of Working Days : 360 Days

Shift of Operation : Three Shifts

8.2.3 Installed Capacity & Utilisation

Installed Capacity : 600 MTPD

Capacity Utilisation Levels :

Year 2006 2007 2008 2009

Capacity Utilization 85% 90% 95% 100%

Production (TPA) 183600 194400 205200 216000

8.2.4 PET Chips Selling Price

Rs. 48 /Kg + Excise @ 16%

67

8.2.5 Exchange Rates

I US $ : Rs. 45

67

8.2.6 Operating NormsOperating Norms outlined below have been arrived at after analysis of guaranteed norms provided by

CIETI and actual norms collected from similar PET Chips producers:

Raw Materials Consumption : PTA – 0.855 Tonne; MEG – 0.345 Tonne

Stores / Spares & Consumables : Rs.300 / Tonne

Power & Fuel : Rs.1100 / Tonne

Packing Material : Rs.100 / Tonne

Salaries & Wages : Rs.100 / Tonne

Other Manufacturing Overheads : Rs.200 / Tonne

Administrative Expenses : Rs. 50 / Tonne

Selling Expenses : Rs.200 / Tonne

Repairs & Maintenance : 2.5% of Fixed Assets

8.2.7 Financing Terms – Repayment & Interest

Interest on Term Loan : 7.10% per annum.

Repayment Terms :

Year 2006 2007 2008 2009 2010

Repayment 10% 20% 28% 28% 14%

Interest on Working Capital Loan : 11 % per annum.

Bank Finance Available : 80 % of Working Capital

8.2.8 Depreciation Rates

SLM WDV

Land and Site Development : 0% 0%

Building and Civil Works : 3.34% 10%

Main Plant and Equipment : 5.28% 15.33%

Furniture & Fixture : 6.33% 18.10%

Misc. Fixed Assets : 4.75% 25.00%

67

8.2.9 Working Capital Norms

Raw Materials : 0.23 month

Packing Material : 0.50 month

Stores / Spares & Consumables : 0.50 month

Work in Progress : 0.06 month

Finished Goods : 0.10 month

Receivables (debtors) : 0.33 month

Sundry Creditors : 0.23 month

8.2.10 Income Tax Rates

The rate of tax has been computed on following basis:

Corporate Tax : 35.9%

MAT : 7.35%

67

o Feasibility Analysis -Projections

Feasibility analysis for 10 years operation has been worked out considering basis mentioned above and

results are presented in the form of following exhibits (Exhibits enclosed at the end of this chapter):

Exhibit Description8.1 Project Cost & Means of Finance8.2 Working Capital8.3 Term Loan Repayment & Interest8.4 Fixed Cost Allocation8.5 SLM Depreciation 8.6 WDV Depreciation8.7 Income Tax Calculation8.8 Profitability Statement8.9 Projected Cashflow Statement

8.10 Projected Balance Sheet

8.3 Measures of Profitability The various measures for project profitability derived from the feasibility analysis are presented in the

form of following exhibits (Exhibits enclosed at the end of this chapter).

Exhibit Description8.11 Debt Service Coverage Ratio8.12 Pay back Period and IRR

67

EXHIBIT-8.1JBF Industries LimitedProject Cost & Means of Finance

(Rs.Lacs)Particulars TotalLand Land & Site Development Total Land & Site Development 800Factory Building 1100Plant and Machineries Imported Machineries 5270Indigenous Machineries 5000Power Plant 1000Miscellaneous Fixed Assets 60Furniture & Fixtures 50Preliminary & Pre-Operative Exp. 825Provision for Contingencies 700Total Capital Cost of Project 14805Margin Money for Working Capital 2188Total Cost of Project 16993

Means of Finance (Rs.Lacs)Particulars TotalEquity 6993Total Long Term Borrowings 10000Deposits 0Total Means of Finance 16993

67

EXHIBIT-8.2

JBF Industries LimitedWorking Capital Statement

No. Particulars

Years of Operation

2006 2007 2008 2009 2010 2011 2012 2013A Working Capital

1 Raw Material 1479.961567.0

21654.0

71741.1

31741.1

31741.1

31741.1

31741.1

2 Consumables & Stores 22.95 24.30 25.65 27.00 27.00 27.00 27.00 27.003 Packing Material 7.65 8.10 8.55 9.00 9.00 9.00 9.00 9.004 Work in Progress 407.70 431.38 455.07 478.75 478.75 478.75 478.75 478.755 Finished Goods 679.50 718.97 758.44 797.92 797.92 797.92 797.92 797.92

6 Receivables ( Debtors) 2423.522566.0

82708.6

42851.2

02851.2

02851.2

02851.2

02851.2

Total Working Capital 5021.285315.

855610.

425904.

995904.

995904.

995904.

995904.

Less: Sundry Creditors 1479.961567.0

21654.0

71741.1

31741.1

31741.1

31741.1

31741.1

Net Working Capital 3541.333748.

843956.

354163.

864163.

864163.

864163.

864163.

B Available Bank Finance 2833.062999.

073165.

083331.

093331.

093331.

093331.

093331.

C Margin Money 2188.222316.7

82445.3

42573.9

02573.9

02573.9

02573.9

02573.9

DWC Loan Interest @ 11 % PA 311.64

329.90

348.16

366.42

366.42

366.42

366.42

366.4

67

EXHIBIT-8.3JBF Industries LimitedLong Term Loan - Repayment & InterestTerm Loan Amount 10000.00Interest rate

7.10%

(Rs.Lacs)Yea

rQuart

erRepayme

ntOutstanding

Loan Quarterl

y Interest

Yearly Interes

t

Yearly Repaymen

tStart of quarter

End of quarter

2006

I 250 10000 9750 178 II 250 9750 9500 173 III 250 9500 9250 169 IV 250 9250 9000 164 683 1000

2007

I 500 9000 8500 160 II 500 8500 8000 151 III 500 8000 7500 142 IV 500 7500 7000 133 586 2000

2008

I 700 7000 6300 124 II 700 6300 5600 112 III 700 5600 4900 99 IV 700 4900 4200 87 422 2800

2009

I 700 4200 3500 75 II 700 3500 2800 62 III 700 2800 2100 50 IV 700 2100 1400 37 224 2800

2010

I 350 1400 1050 25 II 350 1050 700 19 III 350 700 350 12 IV 350 350 0 6 62 1400

2011

I 0 0 0 0 II 0 0 0 0 III 0 0 0 0 IV 0 0 0 0 0 0

2012

I 0 0 0 0 II 0 0 0 0 III 0 0 0 0 IV 0 0 0 0 0 0

2013

I 0 0 0 0 II 0 0 0 0 III 0 0 0 0 IV 0 0 0 0 0 0

2014

I 0 0 0 0 II 0 0 0 0 III 0 0 0 0 IV 0 0 0 0 0 0

2015

I 0 0 0 0 II 0 0 0 0 III 0 0 0 0 IV 0 0 0 0 0 0

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EXHIBIT-8.4

JBF Industries Limited

Fixed Assets with Allocation of Contingency & POP Cost(Rs.Lacs)

No. Item Cost Cost with

Contingency

Cost with pre-

operative allocation

1 Land & Site Development 800 840 892

2 Buildings & Civil Works 1100 1155 1226

3 Plant & Machinery -Imported 5270 5532 5875

- Indigenous 6000 6298 6689

Total Plant & machinery 11270 11829 12564

4 Furniture & Fixtures 50 52 56

5 Miscellaneous Fixed Assets 60 63 67

6Preliminary & Pre-Operative Expenses 825 866

Total Allocated Cost 14105 14805 14805

67

EXHIBIT-8.5

JBF Industries LimitedSLM Depreciation

(Rs.Lacs)

No. Item 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

1 Land & Site Development 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2 Buildings & Civil Works 40.96 40.96 40.96 40.96 40.96 40.96 40.96 40.96 40.96 40.96

3 Plant & Machinery

-Imported 310.21310.2

1310.2

1310.2

1310.2

1310.2

1310.2

1310.2

1310.2

1 310.21

- Indigenous 353.18353.1

8353.1

8353.1

8353.1

8353.1

8353.1

8353.1

8353.1

8 353.18

Total Plant & machinery663.3

9663.3

9663.3

9663.3

9663.3

9663.3

9663.3

9663.3

9663.3

9 663.39

4 Furniture & Fixtures 3.53 3.53 3.53 3.53 3.53 3.53 3.53 3.53 3.53 3.53

5 Miscellaneous Fixed Assets 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18 3.18

Total711.0

5711.0

5711.0

5711.0

5711.0

5711.0

5711.0

5711.0

5711.0

5 711.05

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EXHIBIT-8.6JBF Industries LimitedWDV Depreciation

(Rs.Lacs)

No. Item 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

1 Site Development 0 0 0 0 0 0 0 0 0 0

2 Buildings & Civil Works 123 110 99 89 80 72 65 59 53 48

3 Plant & Machinery

-Imported 901 763 646 547 463 392 332 281 238 201

- Indigenous 1211 1025 735 622 527 446 378 320 271 229

Total Plant & Machinery 2111 1788 1381 1169 990 838 710 601 509 431

4 Furniture & Fixtures 10 8 7 6 5 4 3 2 2 2

5 Miscellaneous Fixed Assets 17 13 9 7 5 4 3 2 2 1

TOTAL 2261 1919 1496 1271 1080 918 781 664 565 481

NET BLOCK 125441062

5 9129 7858 6777 5859 5078 4414 3849 3368

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EXHIBIT-8.7JBF Industries LimitedIncome-Tax Statement

(Rs.Lacs)

No. Particulars Years of Operation

2006 2007 2008 2009 2010 2011 2012 2013 2014 20151 Profit Before Tax 5134 5633 6199 6800 6962 7024 7024 7024 7024 70242 Add : SLM Depreciation 711 711 711 711 711 711 711 711 711 7113 Less : WDV Depreciation 2261 1919 1496 1271 1080 918 781 664 565 4814 Income / Loss 3584 4425 5414 6240 6593 6817 6954 7071 7170 72545 Unabsorbed Depreciation / Losses 0 0 0 0 0 0 0 6 Gross Taxable Income 3584 4425 5414 6240 6593 6817 6954 7071 7170 72547 Deduction Under Section : 80 - IA 0 0 0 0 0 0 0 0 0 08 Net Taxable Income 3584 4425 5414 6240 6593 6817 6954 7071 7170 72549 Income Tax 1286 1588 1942 2239 2365 2446 2495 2537 2572 2603

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EXHIBIT-8.8JBF Industries LimitedProfitability Statement

(Rs. In lakhs)Particulars Year

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Production/Sales Installed Capacity (TPA) 216000 216000 216000 216000 216000 216000 216000 216000 216000 216000Capacity Utilization (%) 85% 90% 95% 100% 100% 100% 100% 100% 100% 100%Estimated Production / Sales 183600 194400 205200 216000 216000 216000 216000 216000 216000 216000Gross Sale 102228 108242 114255 120269 120269 120269 120269 120269 120269 120269Excise Duty 14100 14930 15759 16589 16589 16589 16589 16589 16589 16589Net Sales 88128 93312 98496 103680 103680 103680 103680 103680 103680 103680 Expenses Raw Material Consumption 77215 81757 86299 90842 90842 90842 90842 90842 90842 90842Consumables,Stores,etc 551 583 616 648 648 648 648 648 648 648Power & Fuel 2020 2138 2257 2376 2376 2376 2376 2376 2376 2376Packing Expenses 184 194 205 216 216 216 216 216 216 216Employees Expenses 184 194 205 216 216 216 216 216 216 216Depreciation 711 711 711 711 711 711 711 711 711 711Repairs & Maintenance Exp. 309 309 309 309 309 309 309 309 309 309Other Mfg. Expenses 367 389 410 432 432 432 432 432 432 432Total Cost of Manufacture 81540 86277 91013 95750 95750 95750 95750 95750 95750 95750 Gross Profit 6588 7035 7483 7930 7930 7930 7930 7930 7930 7930Gross Profit Margin(%) 7.5% 7.5% 7.6% 7.6% 7.6% 7.6% 7.6% 7.6% 7.6% 7.6%Administration Expenses 91.80 97.20 102.60 108.00 108.00 108.00 108.00 108.00 108.00 108.00Selling Expenses 367.20 388.80 410.40 432.00 432.00 432.00 432.00 432.00 432.00 432.00

67

(Rs. In lakhs)Particulars Year

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Financial Charges Long Term Borrowings 683.38 585.75 422.45 223.65 62.13 Working Capital Interest 311.64 329.90 348.16 366.42 366.42 366.42 366.42 366.42 366.42 366.42Total Financial Charges 995 916 771 590 429 366 366 366 366 366 Total Cost of Sales 82994 87679 92297 96880 96718 96656 96656 96656 96656 96656 Net Profit Before Taxes 5134 5633 6199 6800 6962 7024 7024 7024 7024 7024Tax on Profit 1286 1588 1942 2239 2365 2446 2495 2537 2572 2603Net Profit After Taxes 3848 4046 4257 4561 4596 4578 4529 4487 4451 4421Net Profit Margin (%) 4.37% 4.34% 4.32% 4.40% 4.43% 4.42% 4.37% 4.33% 4.29% 4.26%

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EXHIBIT-8.9JBF Industries LimitedCashflow Statement

(Rs.Lacs)

No. Particulars Years of Operation

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Sources of Funds : 1 Promoter's Contribution 6993 2 Deposits 0 3 Increase in Long Term Loan 10000 4 Increase in Working Capital Borrowing 2833 166 166 166 0 0 0 0 0 05 Depreciation 711 711 711 711 711 711 711 711 711 7116 Net Profit Before Tax & Interest 6129 6549 6970 7390 7390 7390 7390 7390 7390 7390 Sub- Total (A) 16993 9673 7426 7847 8267 8101 8101 8101 8101 8101 8101 Disposition of Funds : 1 Capital Expenditure 14805 2 Increase in Current Assets 3541 208 208 208 0 0 0 0 0 03 Interest on Term Loan 683 586 422 224 62 0 0 0 0 04 Repayment of Long Term Loan 1000 2000 2800 2800 1400 0 0 0 0 05 Interest on Deposits 0 0 0 0 0 0 0 0 0 06 Repayment of Deposits 0 0 0 0 0 0 0 0 0 07 Interest on Working Capital 312 330 348 366 366 366 366 366 366 3668 Income-Tax 1286 1588 1942 2239 2365 2446 2495 2537 2572 26039 Dividend

Sub-Total (B) 14805 6822 4711 5721 5837 4194 2812 2862 2903 2939 2969 A-B 2188 2851 2715 2126 2431 3907 5289 5240 5198 5162 5132 Opening Cash Balance 2188 5039 7754 9880 12311 16218 21507 26747 31945 37107

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EXHIBIT-8.10JBF Industries LimitedProjected Balance Sheet

(Rs. Lacs)

Particulars Year of Operation2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Liabilities : Share Capital 6993 6993 6993 6993 6993 6993 6993 6993 6993 6993Reserves 3848 7893 12150 16711 21307 25885 30414 34901 39352 43774Long Term Loan 9000 7000 4200 1400 0 0 0 0 0 0Deposits 0 0 0 0 0 0 0 Short Term Loan 2833 2999 3165 3331 3331 3331 3331 3331 3331 3331Total Liabilities 22674 24886 26508 28436 31632 36210 40738 45225 49677 54098 Assets : Gross Fixed Assets 14805 14094 13383 12672 11961 11250 10539 9828 9117 8406Less : Depreciation 711 711 711 711 711 711 711 711 711 711Net Fixed Assets 14094 13383 12672 11961 11250 10539 9828 9117 8406 7694Stocks Debtors & Other Current Assets 3541 3749 3956 4164 4164 4164 4164 4164 4164 4164Cash & Bank Balance 5039 7754 9880 12311 16218 21507 26747 31945 37107 42239Profit & Loss Account Total Assets 22,674 24,886 26,508 28,436 31,632 36,210 40,738 45,225 49,677 54,098

67

EXHIBIT-8.11JBF Industries Limited Debt-Service Coverage Ratio

(Rs.Lacs)

Particulars Year of Operation2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Revenue 88128 93312 98496 103680 103680 103680 103680 103680 103680 103680Profit Before Tax 5133.61 5633.50 6199.06 6800.13 6961.65 7023.78 7023.78 7023.78 7023.78 7023.78Profit After Tax 3847.73 4045.68 4256.59 4561.20 4596.26 4577.99 4528.69 4486.85 4451.34 4421.18LT Interest 683.38 585.75 422.45 223.65 62.13 0.00 0.00 0.00 0.00 0.00Interest on Deposits 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Depreciation 711.05 711.05 711.05 711.05 711.05 711.05 711.05 711.05 711.05 711.05LT Loan Repayment 1000.00 2000.00 2800.00 2800.00 1400.00 0.00 0.00 0.00 0.00 0.00Deposit Repayment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Return on Investment (%) 38% 41% 43% 46% 46% 46% 46% 46% 46% 46%Debt-Service Coverage Ratio - Debt Service 1683.38 2585.75 3222.45 3023.65 1462.13 0.00 0.00 0.00 0.00 0.00- Coverage 5242.15 5342.48 5390.10 5495.90 5369.44 5289.04 5239.74 5197.91 5162.39 5132.23DSCR 3.11 2.07 1.67 1.82 3.67 Average DSCR 2.241

67

EXHIBIT-8.12JBF Industries Limited Pay Back Period & Internal Rate of Return

(Rs.Lacs)

Particulars Year of Operation2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Cash Outflow 16993 0 0 88 0 0 0 0 Cash Inflow 0 5242 5342 5390 5496 5369 5289 5240 5198 5162 5132Net Cashflow -16993 5242 5342 5302 5496 5369 5289 5240 5198 5162 5132Cumulative Cashflow -16993 -11751 -6409 -1106 4389 9759 15048 20288 Payback Period 4.20 Years Internal Rate of Return 29%

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8.4 Sensitivity Analysis (CONCLUSION)Various estimates of cost and revenue made in this report are on realistic side. Even though, a

contingency provision of 5% is made in the project cost. However, in every project there are certain

key factors and variables, which may affect the operating results. Sensitivity analysis identifies such

elements and their impact on the project.

Among several factors which have bearing on the proposed project viability, following factors have

the maximum uncertainty:

PET Chips price

Raw Material Price (PTA & MEG)

Capacity Utilization Levels

Project cost

Capacity utilisation

With respect to above factors following adverse scenarios have been considered for evaluation:

Case 1 : 5 % Reduction in Selling Price

Case 2 : 5% Increase in Raw Material Cost

Case 3 : 10% Decrease in Capacity Utilization

Case 4 : 10% Increase in Project Cost

Results of sensitivity analysis are presented below:

Key Indicators Base Case5%

Reduction in Selling

Price

5% Increase in RM Price

10% Increase in

Project Cost

10% Reduction

in Utilization

Gross Profit Margin 7.65% 3.03% 3.27% 7.58% 7.54%Net Profit Margin 4.43% 1.46% 1.62% 4.40% 4.37%Return on Investment (ROI) 31.60% 13.03% 14.37% 29.28% 29.00%Pay Back Period 4.2 8.11 7.51 4.43 4.48IRR 28.72% 5.40% 7.48% 26.17% 25.71%DSCR 2.24 1.00 1.10 2.26 2.03

From the sensitivity analysis, it is quite evident that the project is most sensitive to changes in PET

Selling, followed by changes in Raw Material Price, Capacity Utilisation and Project Cost.

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