Pre-Feasibility Study

Stone Crushing
(SMEDA DOCUMENT) (SMEDA DOCUMENT)

Small and Medium Enterprise Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE Waheed Trade Complex, 1st Floor , 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore Tel: (042) 111-111-456, Fax: (042) 5896619, 5899756 Helpdesk@smeda.org.pk
REGIONAL OFFICE PUNJAB 6th Floor, LDA Plaza, Egerton Road, Lahore Tel: (042) 111-111-456 Fax: (042) 6304926, 6304927 helpdesk@smeda.org.pk REGIONAL OFFICE SINDH 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 Helpdesk-khi@smeda.org.pk REGIONAL OFFICE NWFP Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 9213046-47 Fax: (091) 286908 helpdesk-pew@smeda.org.pk REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 831623, 831702 Fax: (081) 831922 helpdesk-qta@smeda.org.pk

March, 2005

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DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his / her own due diligence and gather any information he/she considers necessary for making an informed decision.

The content of the information memorandum does not bind SMEDA in any legal or other form.

DOCUMENT CONTROL
Document No. Revision Prepared by Approved by Issue Date Issued by PREF-8 8 SMEDA-Sindh Provincial Chief - Sindh March, 2005 Library Officer

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PROJECT PROFILE
1. 1 OPPORTUNITY RATIONALE Over the last few years, the Construction sector has been registering strong growth rates in the range of 7-8%1. Housing and construction is one of the major drivers of growth in more than 40 allied industries including STONE CRUSHING. In addition, for the building of roads, flyovers and bypasses, there is a mass and consistent need of crushed stone across the country. Several projects are in progress and are being commenced shortly which will have high demand of crushed stone all over the country. In order to make up the backlog and meet the projected requirements for the next 20 years, overall housing construction has to raise 500,000 housing units per annum2. This is the extent of the annual housing market in Pakistan which positively predicts a strong growth in construction sector which reinforces the potential in Stone Crushing segment of the industry. The total length of roads in the country is in excess of 250,000 km, including nine National Highways and one Motorway (M-2). The construction work on IslamabadPeshawar Motorway, started in 1998, is in progress. The total length of motorways planned in the country is 2169 k.m. 367 Km Lahore- Islamabad section is completed and 208 Km Islamabad Peshawar Motorway (M1) is under construction3. Karachi Northern Bypass and Makran Coastal Highway are under construction. Total length of Makran Coastal Highway is 248 Km. The construction of Pakistan Motorway connecting the Northern and Southern parts of the country with a link to Gawadar has been initiated. Two additional Motorway projects, Pindi Bhattian Faisalabad (M-3) of 52 Km and Karachi Hyderabad (M-9) have been awarded on Built Operate Transfer (BOT) basis. The main Karakuram Highway (N-35) 735Km long is being improved. The aforementioned statistics provide enough evidences, assuring a steep and continuous growth vis a vis investment opportunity in the STONE CRUSHING business. 1. 2 PROJECT BRIEF The proposed project envisages the setting up a unit for crushing stone. Stone crushing industry is an important industrial sector in the country engaged in producing crushed

Economic Survey of Pakistan 2004

Daily Times Site Edition of Nov. 18, 2004 Quoted by Shaukat Aziz at a two-day conference on the housing finance system of Pakistan. Ministry of Communications

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stone used as raw material for various construction activities i.e. construction of roads, bridges, buildings and canals. For building and construction purposes, generally Hard Lime Stone is used. Though, low quality Granite could also be used, its excavation is difficult and it is comparatively a high cost option. In addition, it is mostly used for decorative construction for its beauty and shaded colors. The stone crushing units could be seen in the vicinity of almost all major cities and towns of Pakistan. The mined stone is transported to the crusher sites by road (if crusher is located on different point) through tractor trolleys, dumpers or pay-loaders. The dumpers unload the mined stones into storage hoppers located at elevated levels of the crusher sites. These stones are crushed in a Primary Crusher and sent to a vibratory screen. The oversize stones from the screen is sent for further size reduction in secondary and tertiary Crushers. From the secondary and/or tertiary Crushers, the crushed stones are sent for screening. In the screen, products of various sizes get separated which are stored in heaps. Movement of stones from crusher to screen to product piles is done through belt conveyors. The product is generally stored in open areas. The schematic of typical stone crusher units is given on page 13 of this document under the heading of process flow. 1. 3 MARKET ENTRY TIMING

Stone Crushing business depends on activity and movement in construction industry. Housing and construction plus government initiated development projects demand mass availability of crushed stone all over the year. Therefore, a crushed stone manufacturing unit could be established at any time of the year. 1. 4 PROPOSED BUSINESS LEGAL STATUS

The legal status of business tends to play an important role in any setup; the proposed Stone Crushing Unit is assumed to operate on Sole Proprietorship basis. 1. 5 PROJECT CAPACITY AND RATIONALE

Production capacity of the plant for the proposed stone crushing unit would be 15,000 Cubic ft per day at the beginning of the project. It is estimated that the construction of a small house of 120 sq. ft need minimum of 500 C. ft. of crushed stone to be used in the construction of columns/pillars, ceiling etc. Estimated countrywide requirement of 500,000 housing units per annum and development works in construction and civil sector by the government, all indicate a persistent high growth and mass demands of crushed stone. 1.5.1 Raw Material Sourcing & Legal Implications

Hard Lime Stone is the basic raw material which is used for the production of quality crushed stone. God has bestowed Pakistan with huge reserves of mineral wealth which are spreading all over the country and especially enormous reserves of Hard Lime Stone

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are generally found around the country in all provinces. All mineral resources of Pakistan are managed under the administration of Provincial Mineral Development Authorities who have the licensing authority for mining and quarrying. For the procurement of raw stone which is the basic raw material, it would be a pre requisite for the entrepreneur to take a quarry license and land lease holding from the concerned provincial licensing authorities for mineral development. In order to obtain quarrying license and lease holding, an entrepreneur first would contact the concerned provincial mineral department and will identify a location where he is interest in setting up the crushing unit along with the size of land and its exact location on the map provided by the department. After geographical identification of the site, entrepreneur submits a lease procurement application. Provincial licensing authority may grant a mining/quarrying lease in accordance with the Provincial Mining & Quarrying Concession Rules, over the land specified by the applicant provided they consider the applicant fit for it. Concerned authority after the scrutiny of the documents and the case, authorize the lease allotment in a group meeting headed by the concerned Director General. This license permits the entrepreneur to setup crushing factory and could excavate raw stone from the land for which he hold the lease license. 1. 6 PROJECT INVESTMENT

A total of Rs. 21.324 million is estimated to be the cost of the project. The working capital requirement is estimated around Rs 0.894 million and Rs. 20.43 million would be the fixed investment. 1. 7 PROPOSED PRODUCT MIX For the purpose of this feasibility, mechanized manufacturing process involved to produce crushed stone, product output would be of the following ratio:
S. No. 1 2 3 4 Product Name 1 inch crush inch crush inch crush Stone Powder Total % age share in Total Production 25% 25% 20% 30% 100% Selling Price/ C.ft. Rs. 8 Rs. 8 Rs. 6 Rs. 2

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1. 8

RECOMMENDED PROJECT PARAMETERS

Human Resource 19 Financial Summary Project Cost Rs. 21.324 million IRR 48% NPV 26,589,958 Payback Period 2 Year 3 Months 15 Days Cost of Capital (WACC) 17.50% Technology/Machinery Local Location Nooriabad, Sindh

Capacity 70% Capacity Utilisation (based on 8 working hrs. daily

1. 9

PROPOSED LOCATION

Proposed location for setting up a stone crushing unit largely depends on the availability of raw stone and its transportation to the factory at low cost; however, factors like availability of manpower, utilities and easy access to the target markets should also be carefully examined. For this pre-feasibility we propose a location around Karachi somewhere in Hub, Superhighway, Manghopir, Jhampir or Nooriabad. The reason being most of the crushing units are already working in these areas. The stone crushing units are being operated countrywide; the reason is the demand which is spread all over the country, though, concentrated around developed cities and towns i.e. Karachi, Lahore, Multan, Faisalabad, Peshawar, Quetta etc. To set up a unit, quarrying sites are generally preferred. As we have proposed to setup the unit somewhere around Karachi to cater to its massive housing construction needs as well as government initiated projects i.e. Lyary Express Way, Makran Coastal Highway and a number of small overhead bridges etc. It is proposed that the unit would be installed at Nooriabad Industrial Estate where all necessities are available and market access and transportation of produce is easy. 1. 10 KEY SUCCESS FACTORS/PRACTICAL TIPS FOR SUCCESS

Crushed Stone business is dependent on the pricing and margins given to builders, suppliers and retail customers. It also depends on efficient supply of crush to the customer and communication facilities provided to the prospective clients, retailers and order bookers. 1. 11 STONE CRUSHING BUSINESS MODEL AND DISTRIBUTION

Generally crushed stone units pile the produce on quarry sites (mostly outside the city) in huge volumes in the open space. Construction contractors, retail customers and builders contact crusher in order to obtain crushed stone.

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1.11.1 Conventional Order Booking Arrangements As we have discussed earlier, stone crushing is one of the allied sector of construction industry. Therefore, all raw material suppliers to the construction industry are considered to be the part of the distribution network for the crushed stone. A stone crusher when setting up a crushing unit, initiate and institute contacts with the construction material suppliers, retailers and signup a contract in order to appoint them as order booking agents. Generally, construction and building material supplier, who is the part of the whole chain, links up customer and operator [of stone crushing unit]. Sometimes he has his own delivery vehicles and in most of the cases, keeps arrangement with the commercial vehicle operators, material manufacturers, and buyer, thereby assuming a significant role in the value chain. 1.11.2 Ordering and Delivery Procedure: Crusher appoints order booking agents (building material suppliers) with in the city who entertain the customer. Customers usually send someone or personally go to the booking office and place the order which includes details indicating quantity, quality, size and time of delivery etc. Booking agent gets the payment in cash (mostly) and issues an order / delivery slip to the customer, showing order details. Buyer hires a truck or loading vehicle and goes to the crush storage site, where he produces the order slip (in local term called perchi) to the person responsible for the physical delivery of the crush. That person renders the order as given on the slip. After loading the vehicle, he hands over it to the buyer /order booker and here ends the role of the crusher. Crushed stone producers also book direct orders at crushing site office for the construction contractors, retail customers and builders on phone and supply directly to the identified delivery points. However, these types of facilities are only provided for bulk orders with using their own delivery vehicles. Bulk deliveries constitute around 30% of total annual sales. In the Stone Crushing industry, middle man role is being played by building material suppliers at a nominal margin of 1% to 2% of the order booked. 1. 12 PRODUCT MARKETING

In the manufacturing industry, marketing is considered to be of significant importance. In the Stone Crushing industry, marketing parameters are very limited and usually in some

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degree associated with the construction sector. Some of the marketing promotion activities which should duly be rendered are given below: Connection development with the building material suppliers, well known builders and contractors. Update information on civil and construction works initiated by local, provincial and central government. Draw linkages with material suppliers to the housing industry at town level. Emphasis on image development and acquaintance across individual contractors who are serving private sector. Establish contacts with local civil engineering firms, individuals and professionals.

2.
2. 1

SECTOR & INDUSTRY ANALYSIS

SECTOR CHARACTERISTICS AND OVERVIEW

Pakistan has enormous wealth of Non-metallic mineral deposits round the country. It mainly consists of building stones, marble, onyx, gemstone etc. In the following table we have provided a brief account of the non-metallic mineral products4 of Pakistan:
MINERAL/COMMODITY Cement Raw Material Marble/Aragonite Rock Salt Building Stones Limestone Dolomite RESERVES (IN TONNES) Very Large Deposits Very Large Deposits LOCATION All provinces of Pakistan Chagai Balochistan Noushehra - NWFP Very Large Deposits Very Large Deposits Salt Range - Punjab Many districst of Balochistan NWFP - Sindh Very Large Deposits Very Large Deposits Very Large Deposits Silica Sand All provinces and AJK Jhimpir - Sindh Surghar Range Punjab Thano Bulla Khan Sindh Fairly Large Deposits Khairpur, Dadu - Sindh Good Good Medium Medium V. Good Good QUALITY V. Good V. Good

Fuller's Earth

Sector Profile, Board of Investment, Pakistan 02-03

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MINERAL/COMMODITY

RESERVES (IN TONNES) 5-6 billion Tonnes

LOCATION Salt Range, D.G.Khan Punjab Spintangi - Balochistan, Dadu - Sindh

QUALITY Good

Gypsum and Anhydrite

Fire Clay Clays (including China Clay)

100,000,000

Kala Chitta and Salt Range - Punjab Meting Jhimpir - Sindh

Good

34,000,000

NWFP - Punjab - Sindh Lasbela, Khuzdar Balochistan Hazara - NWFP

Good Mostly drilling mud type

Barite

30,000,000

Phosphate

22,000,000 12,000,000

Kakul - NWFP Abbottabad NWFP Muslimbagh, Wad Balochistan

Medium to low grade Medium

Magnesite

Sulphur Soap Stone

800,000 600,000 185,173 Million Tonnes

Koh-i-Sultan Balochistan Parachinar - NWFP Sindh, Balochistan, Sindh, N.W.F.P. Mianwali, Attock Punjab

Medium to low grade Good Lignite A to Bituminous A

Coal

Fluorite Gemstone

100,000 Not Estimated

Kalat Northern Areas

Good Good

Geographical studies give evidence on availability of enormous reserves of decorative and building stones such as granites, diorite, dunite, tonalite, pyroxenite, syenites, serpenites, gabbro, onyx, marble of different shades, recrystallized limestone, fossiliferrous limestones, sand stone and magnesium sandstones, etc. According to Geographical Survey of Pakistan, Balochistan has large deposits of building stones with an estimated annual production of 13,000 metric tones for the year 2002-03. Production estimates of 2002-03 for various types of building stones in Pakistan are given in the following table:

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S. No. 1 2 3 4 5 6 7 8 9 10 11 12 13

Stone Type Aragonite/Marble Basalt Building stone Conglomerate Ebry stone Granite Gravel Onyx marble Ordinary stone Sand / Bajri Sandstone Serpentine Slate stone

Deposits Large Large Large Large Medium Large Large Large Large Large Large Large Large

Production (000 tonnes) 497,317 217 16,011 276 209 5,676 19,684 28,780 1,887 92,670 2,255 4,204 108,182

Source: Sector Profile, Board of Investment, Pakistan 2002-03

2. 2 2.2.1

SUB SECTOR INFORMATION Hard Lime Stone and Granite5

For crushed stone manufacturing purpose, majority of the crushing units use Hard Lime Stone, the reason lies in its extreme hardness and it also gives maximum strength to the building structure. Another reason is that it is easily available across the country in large quantities; however, granite could also be used for this purpose, as it is used by many other countries, though its excavation is comparatively difficult. Hard Lime Stone is found almost in every part of the country; however, in case of Granite, so far known sources of workable granites in the country which could be used for crushing purposes are only found in Nagarparkar, South East (Sindh) and Manshera in the North (NWFP). Gilgit Region (Northern Areas) does indicate great potential of variety, quality and quantity of granites that according to geological evidences have superiority over other granites in Pakistan.6

Sector Profile by Board of Investment, Pakistan 2002-03 Expert Advisory Cell Digest of Industrial Sectors 2003

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The reserves of Hard Lime Stone in Pakistan have not been specifically estimated, yet broad figure of tens of billions of tonnes is generally quoted. 2.2.2 Stone Crushing Units in Pakistan

Cumulative figures on province wise distribution of stone crushing units and their production are not available from formal sources; however, in Balochistan, there are 7580 stone crushers working only in the Dhadar and Mach sub-divisions run by the private sector, except for one which is run by the National Logistics Cell (NLC). Based on our discussions with the industry experts and entrepreneurs, it is estimated that in Sindh, more than 30 stone crushing units are working. In case of Punjab, the working units are estimated at more than double to that of the units working in Sindh, whereas in NWFP, around 15 units are reportedly operational. 2. 3 LEASE RENTAL AND TAX STRUCTURE

Other than the sales tax which is 15%, there will be a fixed amount of Rs. 10,000, payable at the time of submission of quarry land lease application (This amount has been built in preliminary expenses). Besides, there is another sum of around Rs. 70,000 to 100,000 on account of annual lease rental, payable at the beginning of the year. Aforementioned figures are based on the assumption that the size of leased land would be of around 200-250 acre. 2. 4 ENVIRONMENTAL & PROTECTION ASPECTS

Persistent exposure to asbestos which is a natural fiber found in the dust particles of crushed stone, are produced in stone-crushing factories during the crushing process. To avoid its harmful effect on human health, it is suggested to follow complete instructions and procedures provided by the provincial agency of environment protection. The major environmental aspects for stone crushing units are discussed in the following lines. Location of plant has to be such that ingress of heavy vehicles does not block the traffic. Evening and late night operation is to be avoided if passage is through residential areas. Payload area is covered by tarpaulins when transporting crush to prevent fall out of fines and emissions of dust. Dust containment enclosures are required for the purpose of containing the emissions within an enclosure and to prevent wind currents, which can spread the dust to larger areas.

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The enclosures should be, complete from all four sides and roof. There should not be open windows/ openings etc. The gaps should be sealed using gaskets or wool type packing etc. The Dust Suppression System should comprise of a covered water storage tank, a pump, an online water filter, connecting GI pipes, spray nozzles each fitted with flow regulating valves. Volume and strength reduction of the effluent is to be achieved by preventing mixing of waters from washing activities and processing activities Liquid effluent is to be treated by sedimentation process meaning subjecting the effluent to flow through settling tanks Effluent is to be treated by coagulation, i.e. adding any coagulant to the settling tanks. Though this treatment is expensive as compared to the sedimentation process, it is reportedly more efficient.

3.
3. 1

MARKET INFORMATION
MARKET POTENTIAL

Stone Crushing units across the country are working mostly as unorganized sector and no reliable data is available for the installed capacity and the number of operational units. However, since it is an allied industry of the construction sector, growth in construction sector may be considered as proxy for the growth in stone crushing sector, i.e. around 78%. 3. 2 EXPORTS AND IMPORTS OF CRUSHED STONE7

Crushed stone has a very minor share among the exports of non-metallic mineral products of Pakistan. It is observed that during the year 2000-03, total export volume of the crushed stone has been US $ 8,222, whereas, Marble with the highest share of US $ 5,968,232 remained at the top. The market scope for crushed stone is found to be encouraging in local market with the increased demand from building industry & construction fields. There is also a sufficient demand from Govt. Contractors for lying of roads and construction of industries etc.

Source: Federal Bureau of Statistics

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3. 3

PROBLEM/THREATS TO THE STONE CRUSHING SECTOR8 Local customs and traditions, non-availability of infrastructure facilities like roads and electricity are the major hurdles in the development of the sector. Poor law and order situation particularly in geologically promising areas. Non-availability of modern machinery in local market at cheaper rates. Lack of reliable and comprehensive geological data base/ mapping. Non-availability of latest and modern exploration techniques/ machinery. Non development oriented Mineral Concession Rules Lack of investment friendly environment created by the relevant government agencies. Lack of coordination among various mineral sector agencies.

4.
4. 1

PRODUCTION PROCESS
STONE CRUSHING - PRODUCTION PROCESS FLOW

The main machinery involved in the stone crushing industry is Hammer Crusher, Screen, Conveyers etc. The process involved is to feed the stone in to the Hammer Crushers to make it further smaller in size as required by the customer. In the hammer crusher, the stone is crushed. The crushed stone is screened to separate the produce in different sizes by the separator. The crushed stone is conveyed by the conveyors to trucks for transport to the market place or storage area. Process flowchart of a stone crushing unit has been given on the following page.

Digest of Industrial Investment in Pakistan, Expert Advisory Cell

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Stone Crushing Process Flow

Mined Stone

Raw Material Hopper

Primary Crusher

Primary Vibratory Screen

Tertiary Crusher

Secondary Crusher

Product to Stockpile

Secondary Vibratory Screen

Product to Stockpile

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4. 2

RAW MATERIAL REQUIREMENT

Hard Lime Stone will be used as raw material for manufacturing crushed stone. Raw stone could be purchased directly from the excavator (quarry lease holder) or crusher may hold his own quarry lease to produce raw stone. For the purpose of this prefeasibility, it is proposed to obtain a quarry lease holding to avoid any possible threat in procuring raw stone as well as to keep the project economically stable. For the proposed project, a total of 15,000 C.ft. of Hard Lime Stone would be the daily requirement. This requirement could sufficiently be fulfilled from the obtained quarry site over a period of years.

4. 3

MACHINERY REQUIREMENT

Machinery required for the crushing / processing of stone is available from both local and imported sources. Local machinery reportedly gives good quality output. Following machinery will be required for setting up a Stone Crushing Unit:
S. No 1 2 3 4 5 6 7 Name of the Machine Hammer Crusher Feed Conveyers Vibrating Screen Delivery Conveyers (4)* Pumps and motors Erection Support structure Total
*There will be 4 conveyers to convey 4 sizes of crushed stones

Specification 110 hp

No 1 1

Total Cost in Rs. 1,200,000 240,000 200,000 880,000 680,000 200,000 600,000 4,000,000

25 hp

1 1

Above machinery will give the sufficient production with a rated capacity of 2500 cubic feet of crushed stone per hour. There are many local suppliers of stone crushing machinery working in Karachi and other cities who could be contacted for obtaining machinery; however, during the course of study for this pre-feasibility we have contacted the following local manufacturer and fabricator of crushing machinery:
Pak Engineering & Construction 37, 15th Street, Khayaban-e-Mujahid Phase V, DHA, Karachi

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4. 4

VEHICLES FOR QUARRY/EXCAVATION AND TRANSPORTATION

The proposed setup would require three to four vehicles (new machinery has been considered for the proposed project) to carryout excavation/quarry operations and shifting of mined stone to the crushing site. Besides, dumping and loading vehicles for the transportation of finished product to the piling points as well as for delivery to the prospective customer (only for bulk supplies) would be a pre-requisite. Details of required vehicles have been provided in the following table:
S. No. 1 2 3 4 Name of Vehicle/Machine Bulldozer Shovel Loads Dumper Purpose of the Machine Excavation Stone Loading Material Transportation No. of Units Required/Proposed 1 1 1 (Preferably 2) Total Cost (Rs.) 6,000,000 4,000,000 4,000,000 40,000 14,040,000

Other Tools & Equipment Total

*Machinery costs depend on model and may vary

During the discussions with the market experts and entrepreneurs, it was observed that, though the above machinery/vehicle could also be hired on rent, yet, the incremental cost difference between rented and purchased machinery would be very close over a long period of time. Therefore it would be preferred to acquire own machinery rather than obtaining rented.

4. 5

PLANT AND MACHINERY MAINTENANCE

Machinery is expected to be serviced on an annual basis. During the projection period, maintenance expenses are estimated to be around 3% of the total cost of machine. Though, there would be no major overhauling required in presence of annual maintenance, yet, 3% provision for maintenance (which is around Rs. 550,000) is assumed to be sufficient to cover overhauling as well.

5.
5. 1

LAND & BUILDING REQUIREMENT

SITE DEVELOPMENT (CONSIDERED ON LEASE)

The Stone Crushing project is estimated to require a total area of 200-250 acre. This area will be used for quarrying purpose as well as a total of 4 acre of the land would be used

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for setting up the crushing unit. Heavy machinery and vehicles i.e. dumper, bulldozer, shovel loads etc. would be used which require open space for the movement as well as there will be frequent movement of heavy transportation and delivery vehicles. Moreover, the space would also be used for machinery installation, storage and vehicle parking and different services necessary for the project. 5. 2 LAND & BUILDING REQUIREMENTS FOR CRUSHING FACTORY

Land and building requirements for the crushing factory would be as follows:
Details Factory / Covered Area Stone Crushing Hall Factory Office Factory / Open Space Storage Area (Crushed Stone) 1 inch crush inch crush inch crush Stone Powder Storage Area (Raw Stone) Other Services (water plant, tool shop etc.) Total Covered Area Size/Area (Sq. Ft.) 5,000 50 Civil Works /Construction Cost/Sq. Ft. 300 300 300 Total Construction Cost 1,500,000 15,000 15,000 1,530,000

Not limited Not limited Not limited Not limited * Not limited 50 5100

Factory construction, land costs and the rental values are subjected to the site location, therefore could vary as the location would change Source for Quarry Land Lease: Based on discussions with industry experts and entrepreneurs * Stone Powder will be piled in open space and be kept covered with tarpaulin to avoid any possibility of dust emission and health hazard.

The factory would be located at Nooriabad, Sindh. The reason for the selection is that utilities, water, electricity and skilled manpower are conveniently available. Likewise, its proximity to the target market, good transport and communication facilities, and being a business center of the region also account for its selection.

6.

HUMAN RESOURCE REQUIREMENT

Construction and allied industry is a labor intensive industry; therefore, a total 19 persons will be required to handle the production operations of a stone crushing unit. The business unit will work on one shift basis (8 hours daily). Technical staff with relevant experience will be required for operating production plant. The staff will be provided training by the plant & machinery supplier.

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Total approximate manpower required for the business operations along with the respective salaries are given in the table below:
(Pak. Rs.)

Staff Title 1. Business Unit Manager/Owner Production Staff (Quarry/Excavation Site) 2. Bulldozer Operator 3. Shovel Load Operator 4. Dumper Driver 5. Helper/Laborer Production Staff (Crushing Factory) 6. Crushing Incharge /Plant Operator 7. Assistant Crushing Plant Operator 8. Factory Workers Total Production Staff General Administration/ Selling Staff 9. Office Assistant 10. Driver Total G A /S Staff TOTAL

No of Persons

Monthly Salary

Annual Salary

1 1 2 3

10,000 10,000 16,000 15,000

120,000 120,000 192,000 180,000

1 1 8 17

8,000 5,000 40,000 104,000

96,000 60,000 480,000 1,248,000

1 1 2 19

5,000 5,000 10,000 114,000

60,000 60,000 120,000 1,368,000

6.1

Experience Requirement for the Staff

Machinery and vehicle operations involved at a quarry and crushing site are of technical nature; therefore it is proposed that Bulldozer Operator, Shovel Loads Operator and Drivers should have a minimum of one year experience of the same type of operations. For quarrying staff, it would also be necessary to have sufficient experience of chemical based rock/stone breaking operations. One to two year of crushing experience on mechanized crushing machinery would be necessary for the person who will operate the stone crushing plant. It is also suggested

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that preference should be given to literate persons so that they could understand the significance of undertaking health and safety measures.

7.

FINANCIAL ANALYSIS & KEY ASSUMPTIONS

The project cost estimates for the proposed Stone Crushing Business have been formulated on the basis of discussions with industry stakeholders and experts. The projections cover the cost of land, machinery and equipment including office equipment, fixtures etc. Assumptions regarding machinery have been provided, however, the specific assumptions relating to individual cost components are given as under. 7. 1 LAND & BUILDING

Land for setting up the proposed stone crushing unit would be acquired on lease for a period of 30 years. Lease concession would be granted by the Mineral Development Authority of the concerned province. One time payment of Rs. 10,000 as initial charges will be payable with lease application (this amount has been included in preliminary expenses). In addition, a recurring amount of around Rs. 100,000 would also be payable on account of annual lease charges. Construction and renovation of crushing site will cost around Rs. 800,000/- which has been assumed to depreciate at 10% per annum using diminishing balance method. Total initial outflow for acquisition of land on lease would be as follows: Description Lease Holding Period Total Size of Land Annual Lease Charges of Land Total 7. 2 OVERALL FACTORY & OFFICE RENOVATION Cost 30 Years 200-250 Acre 100,000 100,000

To renovate the factory / office premises in Year 5 and Year 10, a cost would incur for which an amount equivalent to 5% of the total factory/office construction cost is estimated. 7. 3 FACTORY / OFFICE FURNITURE

A lump sum provision of Rs. 60,000 for procurement of office/factory furniture is assumed. This would include table, desk, chairs, and office stationery. The breakup of Factory Office Furniture & Fixtures is as follows:

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Item Table & Chair for Owner Tables & Chairs for Admin. Staff Waiting Chairs Curtains & Interior Decoration for office Chairs for Workers/Labor Electrical Fittings & Lights Others Total 7. 4 DEPRECIATION TREATMENT

Number Total Cost 1 1 4 6 5,000 3,000 6,000 5,000 5,000 30,000 6,000 60,000

The treatment of depreciation would be on a diminishing balance method at the rate of 10% per annum on the following. The method is also expected to provide accurate tax treatment. 1. 2. 3. 4. 7. 5 Plant & machinery Land & Building Construction and Renovation Vehicles Furniture and Fixtures etc. UTILITIES & FUEL FOR HEAVY VEHICLE OPERATIONS

Stone crushing plant will be operated using electricity for production purposes; this would draw considerable amount of electricity. Heavy vehicles i.e. bulldozer, dumper, Shovel Loads, etc. would require huge quantity of fuel for which diesel will be used. The cost of the utilities including electricity, diesel/fuel (for heavy vehicle operations), telephone, and water is estimated to be around Rs. 6,500,000/- per annum approximate cost of utilities has been given below:
Utility 1. 2. 3. 4. 5. Electricity Gas or Furnace Oil, Lubricants etc. Diesel for Vehicles and Machinery Water Telephone Total Total Monthly Cost (Rs.) 26,000 5,000 500,000 5,500 5,000 541,500 Total Annual Cost (Rs.) 310,000 60,000 6,000,000 67,000 60,000 6,497,000 Annual %age Increase 5% 3% 5% 5% 5%

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7. 6

WORKING CAPITAL REQUIREMENTS

It is estimated that an additional amount of one million rupees (approximately) will be required as cash in hand to meet the working capital requirements. These provisions have been estimated based on the following assumptions for the proposed business.
Description First Three Months Salaries (Production staff) First Three Months Utilities Charges (Other then fuel/diesel) Fuel Inventories (Diesel) - 15 Operational Days First Three Months Misc. Expenses Annual Quarry Lease Charges for first year Total Amount in Rs. 312,000 124,500 343,000 15,000 100,000 894,500

7. 7

PLANT & MACHINERY INSTALLATION

Plant and machinery installation and trial run expenses has been assumed to be around Rs. 100,000/-. It has been included in the plant and machinery cost. 7. 8 VEHICLE FOR SUPPORT AND MAINTENANCE SERVICES

An additional light loading vehicle would be required for providing services for the maintenance, communication of machinery spare parts, labor etc. For this purpose a transportation vehicle has been proposed and an amount of Rs. 400,000 is assumed to be required to purchase the vehicle. 7. 9 PRELIMINARY EXPENSES AND CONTINGENCY PROVISION

A lump sum provision of Rs. 300,000 (including lease application & processing charges) is assumed to cover all preliminary expenses like registration, documentation charges, etc. which will be amortized over the 5 year period. 7. 10 SELLING & DISTRIBUTION EXPENSES (ORDER BOOKING AGENTS)

For the purpose of this pre-feasibility, it has been assumed that the crusher would work in association with building material suppliers and will appoint 5 to 6 of them as booking

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agents. These arrangements would entail some cost to the business for which an amount equivalent to 2% of the annual sales has been assumed which also covers the distribution cost of bulk supplies, entertained directly by the crusher. 7. 11 MISCELLANEOUS EXPENSES

Miscellaneous expenses of running the business are assumed to be Rs. 5,000 per month. These expenses include various items like office stationery, daily consumables, traveling allowances etc. and are assumed to increase at a nominal rate of 10% per annum. 7. 12 FUEL INVENTORY - DIESEL

Diesel is the major cost factor of the stone crushing process and production cycle can not be completed without generous availability of diesel. It has been assumed that fuel inventory would be maintained for 15 days operations. Increase in diesel prices has been assumed 5% per annum. 7. 13 FINISHED GOODS INVENTORY

The proposed setup is assumed to maintain a Finished Goods Inventory of 15 days of the total annual production. 7. 14 REVENUE PROJECTIONS

For the revenue projections, crushed stone is assumed to be produced with one, half and inch sizes. Initial price of the stone with one inch and inch is assumed to be Rs. 8 per cubic feet. Whereas, stone crushed in half inch size would be sold at Rs. 6 per cubic feet. Sales price for Stone powder is assumed to be Rs. 2/C.ft. Prices of all products will increase by 2% annually. Percentage distribution of the total production has been assumed as follows:
Product Name 1 inch crushes inch crushes inch crushes Stone Powder % age share in Total Production 25% 25% 20% 30%

Working with the proposed plant and machinery, the project will be capable of producing 30,000 C.ft. of crushed stone at 100% capacity utilization with single shift of 8 to 12 hours a day. It has been assumed that it will take some time for the business to reach the optimal capacity utilization point for the projected period. Therefore, the first year

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production of crushed stone has been estimated with 70% capacity utilization. Annual increase of 3% in capacity utilization is assumed over the projection period. All projections are based on 8 working hrs a day with 22 days a month. Based on our discussions with the industry experts and entrepreneurs it is assumed that the sales price will increase with a nominal rate of 5% on all product categories during the projected period. 7. 15 ACCOUNTS RECEIVABLES

Considering the industry norm, particular to the construction sector and all of its allied industries, it has been assumed that 70% of the sales will be on cash. Whereas, remaining 30% sales will be on credit to the builders and construction contractors. A collection period of 60 days is assumed for credit sales. These assumptions are based on our findings during the discussions with the industry experts and stakeholders. A provision for bad debts has been assumed equivalent to 2% of the annual credit sales. 7. 16 FINANCIAL CHARGES

It is assumed that long-term financing for 5 years will be obtained in order to finance the project investment cost. This leasing facility would be required at a rate of 15% (including 1% insurance premium) per annum with 60 monthly installments over a period of five years. The installments are assumed to be paid at the end of every month. 7. 17 TAXATION

The business is assumed to be run as a sole proprietorship; therefore, tax rates applicable on the income of an individual tax payer are used for income tax calculation of the business. 7. 18 COST OF CAPITAL

The cost of capital is explained in the following table:

Particulars Required return on equity Cost of finance Weighted Average Cost of Capital Rate 20% 15% 17.5%

The weighted average cost of capital is based on the debt/equity ratio of 50:50.

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7. 19

OWNERS WITHDRAWAL

It is assumed that the owner will draw funds from the business once the desired profitability is reached from the start of operations. The amount would depend on business sustainability and availability of funds for future growth. 7. 20 7. 20.1 7. 20.2 7. 20.3 ANNEXURES Projected Income Statement Projected Balance Sheet Projected Cash Flow Statement

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PROJECT INCOME STATEMENT

Projected Income Statement (Rs.) Net (Adjusted Sales) Cost of Sales Fuel & Electricity Consumed During Production Labor (Production Staff) Other Utilities Gross Profit General Administrative & Selling Expenses Salaries Lease Charges of Land - Quarry / Excavation Factory/Office Miscellaneous Expenses Amortization of Preliminary Expenses Depreciation Expense Maintenance Expense Selling & Distribution Subtotal Operating Income Financial Charges (15% Per Annum) Earnings Before Taxes Tax Net Profit Monthly Profit After Tax Year 1 20,894,133 7,783,992 6,415,992 1,248,000 120,000 13,110,141 Year 2 23,128,189 8,437,695 6,938,895 1,372,800 126,000 14,690,493 Year 3 25,033,455 9,146,795 7,504,415 1,510,080 132,300 15,886,660 Year 4 27,073,537 9,916,028 8,116,025 1,661,088 138,915 17,157,509 Year 5 29,279,872 10,750,539 8,777,481 1,827,197 145,861 18,529,333 Year 6 31,666,007 11,655,916 9,492,846 2,009,916 153,154 20,010,091 Year 7 34,246,595 12,638,232 10,266,513 2,210,908 160,811 21,608,362 Year 8 37,037,481 13,704,085 11,103,234 2,431,999 168,852 23,333,396 Year 9 40,055,803 14,860,641 12,008,147 2,675,199 177,295 25,195,162 Year 10 43,320,095 16,115,689 12,986,811 2,942,719 186,159 27,204,406

120,000 100,000 60,000 60,000 2,013,000 544,200 417,883 3,315,083 9,795,059 1,495,762 8,299,297 2,777,254 5,522,043 460,170

132,000 103,000 66,000 60,000 1,811,700 544,200 462,564 3,179,464 11,511,030 1,246,902 10,264,127 3,464,945 6,799,183 566,599

145,200 106,090 72,600 60,000 1,630,530 544,200 500,669 3,059,289 12,827,371 958,038 11,869,333 4,026,767 7,842,566 653,547

159,720 109,273 79,860 60,000 1,467,477 544,200 541,471 2,962,000 14,195,509 622,737 13,572,772 4,622,970 8,949,802 745,817

175,692 112,551 87,846 60,000 1,320,729 544,200 585,597 2,886,616 15,642,718 233,535 15,409,183 5,265,714 10,143,469 845,289

193,261 115,927 96,631 1,196,306 544,200 633,320 2,779,646 17,230,445 17,230,445 5,903,156 11,327,289 943,941

212,587 119,405 106,294 1,076,676 544,200 684,932 2,744,094 18,864,268 18,864,268 6,474,994 12,389,274 1,032,440

233,846 122,987 116,923 969,008 544,200 740,750 2,727,714 20,605,682 20,605,682 7,084,489 13,521,193 1,126,766

257,231 126,677 128,615 872,107 544,200 801,116 2,729,946 22,465,216 22,465,216 7,735,326 14,729,890 1,227,491

282,954 130,477 141,477 784,897 544,200 866,402 2,750,406 24,454,000 24,454,000 8,431,400 16,022,600 1,335,217

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PROJECTED BALANCE SHEET

Projected Balance Sheet (Rs.) Assets Current Assets Cash & Bank Balance Fuel Inventory (Diesel) Finished Goods Inventory Accounts Receivable Total Current Assets Fixed Assets Plant Machinery & Facility Factory Construction Furniture & Fixtures Vehicle Total Fixed Assets Intangible Assets Preliminary Expenses Total Assets Owner's Equity Long Term Liability Total Equity & Liabilities 300,000 21,324,373 10,662,187 10,662,187 21,324,373 240,000 24,798,346 15,684,230 9,114,116 24,798,346 180,000 28,800,599 21,483,412 7,317,186 28,800,599 120,000 32,557,371 27,325,979 5,231,392 32,557,371 60,000 36,086,078 33,275,781 2,810,297 36,086,078 38,919,249 38,919,249 0 38,919,249 43,746,539 43,746,539 0 43,746,539 48,635,813 48,635,813 0 48,635,813 52,157,006 52,157,006 0 52,157,006 54,886,896 54,886,896 0 54,886,896 56,909,496 56,909,496 0 56,909,496 Year 0 551,248 343,125 0 0 894,373 18,140,000 1,530,000 60,000 400,000 20,130,000 Year 1 4,706,455 267,333 416,545 1,051,013 6,441,346 16,326,000 1,377,000 54,000 360,000 18,117,000 Year 2 10,397,513 289,121 472,255 1,156,409 12,315,299 14,693,400 1,239,300 48,600 324,000 16,305,300 Year 3 15,686,057 312,684 512,187 1,251,673 17,762,601 13,224,060 1,115,370 43,740 291,600 14,674,770 Year 4 20,571,422 338,168 555,518 1,353,677 22,818,785 11,901,654 1,003,833 39,366 262,440 13,207,293 Year 5 24,523,925 365,728 602,539 1,463,994 26,956,186 10,711,489 979,950 35,429 236,196 11,963,064 Year 6 30,347,380 395,535 653,566 1,583,300 32,979,781 9,640,340 881,955 31,886 212,576 10,766,757 Year 7 36,096,686 427,771 708,944 1,712,330 38,945,731 8,676,306 793,759 28,698 191,319 9,690,082 Year 8 40,352,377 462,635 769,047 1,851,874 43,435,933 7,808,675 714,383 25,828 172,187 8,721,073 Year 9 43,700,520 500,339 834,281 2,002,790 47,037,930 7,027,808 642,945 23,245 154,968 7,848,966 Year 10 46,156,718 541,117 905,087 2,166,005 49,768,927 6,325,027 655,150 20,921 139,471 7,140,569

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PROJECTED CASH FLOW STATEMENT

Projected Statement of Cash Flows (Rs.) Year 0 Cash Flow From Operating Activities Net Profit 0 Add: Depreciation Expense 0 Amortization Expense 0 (Increase) / decrease in Receivables (Increase) / decrease in RM - Fuel Inventory (Increase) / decrease in FG Inventory Net Cash Flow From Operations 0 Cash Flow From Financing Activities Receipt of Long Term Debt 10,662,187 Repayment of Long Term Debt Owner's Equity 10,662,187 Net Cash Flow From Financing Activities 21,324,373 Cash Flow From Investing Activities Capital Expenditure (20,070,000) Factory/Office Furniture (60,000) Preliminary Operating Expenses (300,000) Raw Material Inventory (15 Days) (343,125) Net Cash Flow From Investing Activities (20,773,125) NET CASH FLOW 551,248 Cash at the Beginning of the Period Cash at the End of the Period Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

5,522,043 2,013,000 60,000 (1,051,013) 75,792 (416,545) 6,203,277

6,799,183 1,811,700 60,000 (105,397) (21,788) (55,710) 8,487,988

7,842,566 1,630,530 60,000 (95,263) (23,563) (39,932) 9,374,338

8,949,802 1,467,477 60,000 (102,004) (25,484) (43,331) 10,306,460

10,143,469 1,320,729 60,000 (110,317) (27,561) (47,021) 11,339,300

11,327,289 1,196,306 (119,307) (29,807) (51,028) 12,323,455

12,389,274 1,076,676 (129,029) (32,236) (55,378) 13,249,306

13,521,193 969,008 (139,544) (34,863) (60,103) 14,255,691

14,729,890 872,107 (150,916) (37,705) (65,234) 15,348,143

16,022,600 784,897 (163,215) (40,778) (70,806) 16,532,698

(1,548,070) (500,000) (2,048,070)

(1,796,930) (1,000,000) (2,796,930)

(2,085,794) (2,000,000) (4,085,794)

(2,421,095) (3,000,000) (5,421,095)

(2,810,297) (4,500,000) (7,310,297)

(6,500,000) (6,500,000)

(7,500,000) (7,500,000)

(10,000,000) (10,000,000)

(12,000,000) (12,000,000)

(14,000,000) (14,000,000)

(76,500)

(76,500)

0 4,155,207

0 5,691,058

0 5,288,544

0 4,885,365

(76,500) 3,952,503

0 5,823,455

0 5,749,306

0 4,255,691

0 3,348,143

(76,500) 2,456,198

0 551,248

551,248 4,706,455

4,706,455 10,397,513

10,397,513 15,686,057

15,686,057 20,571,422

20,571,422 24,523,925

24,523,925 30,347,380

30,347,380 36,096,686

36,096,686 40,352,377

40,352,377 43,700,520

43,700,520 46,156,718

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