INTRODUCTION

Fruits are an important source of energy for human beings but

they are perishable items. Since many years various products are made from juice of

fruits so that they can be consumed during off season as well. Fruit based beverages

are relished when served, chilled, particularly during summers. These are delicious as

well as nutritious containing the goodness of fresh fruit. This project deals with the

product squash.

Squashes are a concentrated form of fruit beverages. They are normally

consumed after reconstitution with water to the extent of 5 to 7 times. They are

preferred because of their ready to serve nature. They need no terminal processing

except dilution with water to form a ready to serve beverage. They also have a good

nutritive value and therefore are liked by one and all. Among squashes orange,

mango, lemon and grapes are the most commonly consumed.

MARKET POTENTIAL

India is the second largest producer of fruits (45 million tones) and

vegetables (90 million tones). Fruits are liked by people of all age groups .But they

are available only during specific seasons. Due to high water or juice contents they

are perishable. Certain fruits require very careful and consequently costly

transportation. hence many down the-line products like squash, fruit juice

concentrates etc are made from fruits with preservatives which increase in disposable

incomes and changing life style, demand for them is steadily going up .The products

find placement in all stores and margin free shops. Despite various brands such as

kissan, Happy etc. being available in the market, on a national scale, many small scale

manufacturers have a market share because of the ever increasing market size and

demand for the product

1

MARKETING STRATEGY

There are some established brands available in the market but they are

costly and hence people would prefer low cost, good quality products. It is possible to

introduce competitive pricing for a small scale unit due to its inherent features.

MANUFACTURING PROCESS

The manufacturing process for making fruit juice and squash is

standardized and not very complicated or time consuming.

In the first process, fully ripe and matured fruits are washed,

cleaned and then peeled. Thereafter juice is then processed, sterilized. In case of

squash, syrup of sugar along with preservatives is added to juice and this mixture is

stirred. To improve the flavor and colors are added and finally stirred to get a perfect

homogenous mix. After mixing all ingredients, the preservative meta-bi-sulphite is to

be added. The squash is then filled in washed and sterilized bottles leaving about one

inch space. Then they are closed with crown, capsuled and labeled. They are then

stored in a cool place. The product keeps well for one year without change in colour

or taste.

LOCATION OF THE UNIT

The unit can be set up in the area where there is near to market, where

the availability of raw materials is available in plenty.

POLLUTION CONTROL

There is no major pollution problem associated with this industry except for

disposal of waste which is to be managed appropriately.

2

BASIS AND PRESUMPTIONS.

1. The unit proposes to work at least 300 days per annum

2. The wages for workers is taken as prevailing rates in this type of industry.

3. Interest rate for total capital investment is calculated at 12 percent per annum

4. The entrepreneur is expected to raise 30 percent of the capital as margin

money.

ORGANISATIONAL CHART

3

ENTREPRENEUR

SKILLED WORKERS

CHEMIST/LAB ASSISTANT

UNSKILLED WORKERS

HELPERS

CAPITAL INPUTS

LAND AND BUILDING

Total requirement of built up area shall be around 150 square meters and

hence land measuring about 500 square meters will be adequate. Cost of land is

estimated to be 100000 where as that of civil work.

Table 3.1 Land and Building

Sl.No Particulars Area(square

meters)

Cost( Rs)

1 Land 500 100000

Building 150 200000

300000

PLANT AND MACHINERY

In view of size of the market and to ensure economic viability of the project, rated

production capacity of 100 tones per year with a shift working and 300 working days

is advisable. To install this capacity following machines shall be required.

4

Table 3.2 Plant and machinery

Sl.no. Item Quantity Price(Rs.)

1 Fruit washing Tank 2 10000

2 Juice Extractors 2 90000

3 Stirrer 1 15000

4 Baby boiler 1 60000

5 Bottle washing and filling

machine

1 80000

6 Sealing machine 1 20000

7 Testing equipments like

salinometer, pipette etc.

10000

8 Working tables and other

equipments

30000

Total 315000

MISCELLANEOUS ASSETS

Many other assets like stainless steel utensils, plastics tubs etc. shall be needed.

A provision of Rs. 50,000 is made for the same.

UTILITIES

Power requirement will be Rs.1500 per month and water requirement will be Rs. 750

per month.

RAW MATERIAL

The all important raw material will be fresh, ripe and matured fruits. Other items

like sugar, salt additives and preservatives etc. shall be available locally. Packing

materials are also available.

5

Table 3.3 Raw Materials Required at 100%

Sl.No Products Quantity(kg) Price/Kg Value

1 Fresh fruits(oranges,

pineapple, grapes etc.)

5000 20 1200000

2 Sugar 600 25 180000

3 Citric Acid 56 50 33600

4 Flavour, colours and other

preservatives

25 150 45000

Total 1458600

Table 3.4 Man power requirement

Sl.No Particulars Nos. Monthly

Salary(Rs.)

Total Monthly

Salary(Rs.)

1 Skilled worker 6 6000 432000

2 Semi-skilled

workers

2 3000 72000

3 Technician/ lab

assistant

1 7000 84000

4 Helpers 1 1000 12000

Total 600000

6

Table 3.5 Other contingent expenses

Sl.no Other Contingent Expenses Per Month Rs/ Year

1 Postage and stationery 2000 24000

2 Transportation 2000 24000

3 Other expenses 500 6000

4 Telephone 1333 6000

5 Administrative expenses and

others

4167 5000

Total 120000

MACHINERY

Production capacity of 80 tonnes can be installed with investment under this

head to the extent of Rs 3.15 lakhs.

MISCELLANEOUS ASSETS

A provision of Rs. 50000 is adequate to have support assets.

SELLING EXPENSES

There will be competition from some national brands and local brands as well.

Hence, a provision @15% of sales income has been made towards selling commission

and publicity in local media.

INTEREST

Interest on working capital assistance from the bank is calculated at 14 % per annum.

Interest on term loan of Rs. 1006726 is calculated at 12 % per annum considering

repayment of loan in 5 years.

7

DEPRECIATION

It is computed on the Written down value Method Basis at 10% on building and 20%

on machinery and miscellaneous assets.

PRE-OPERATIVE EXPENSES

It includes consultancy fee, project report, deposit with electricity

department etc. It costs Rs.50000

WORKING CAPITAL REQUIREMENT

Against installed production capacity of 80 tonnes per year, actual utilization in

the first year is expected to be 65%. At this level of activity, the working capital needs

will be as under.

Recurring Expenditure for one year.

Man power requirements - Rs. 600000

Utilities - Rs. 27000

Raw Materials - Rs. 1458600

Other Expenses - Rs. 120000

Total - Rs 2205600

Working Capital Margin (30%) = 2205600*30/100

= 661680

Bank Loan (70%) = 2205600*70/100

= 1543920

8

Table 3.6 Working Capital Requirement

Sl.No Items Rs

1 Working Capital 2205600

2 Promoters (30%) 661680

3 Bank 1543920

Table 3.7 Cost of the project and means of financing

Sl.No Item Amount

1 Land and Building 300000

2 Plant and Machinery 315000

3 Miscellaneous assets 50000

4 Pre operative expenses 50000

5 Contingencies at 10%on land and Building

and Plant and Machinery

61500

6 Working Capital Margin 661680

Total 1438180

Means of Finance

Promoters contribution 431454

Term loan From Bank 1006726

Total 1438180

Debt equity Ratio 2.33:1

Promoters contribution 30%

Financial assistance in the form of grant is available from the Ministry of Food

Processing Industries, Govt of India, towards expenditure on technical civil works and

plant and machinery for eligible projects subject to certain terms and conditions.

9

PROFITABILITY CALCULATIONS

Production capacity and Build-up

The rated production capacity of the plant will be 80 tones per year. But actual

utilization is restricted to 65% in the first year, 75 % in the second year and 80% there

after.

Table 3.8 Sales Revenue at 100 %

Sl.No Product Quantity Selling price

(Rs./Li)

Sales

1 squashes 60000 70 4200000

10

PROJECTED PROFITABILITY

Table 3.9 Projected Profitability

No. Particulars 1st year 2nd year 3rd year 4th year 5th

A Installed Capacity 80 Tonnes

Capacity utilization 65% 75% 80% 80% 80%

Sales Realization 2730000 3150000 3360000 3360000 3360000

B Cost of production

Raw material 948090 1093950 1166880 1166880 1166880

utilities 17550 20250 21600 21600 21600

Salaries 600000 660000 666000 666600 666660

Selling and

distribution@ 15%

409500 37500 504000 504000 504000

Administrative

expense

78000 90000 50400 96000 96000

Total 2053140 2336700 2454480 2455080 2455140

C Profit before

Interest and

Depreciation

676860 813300 905520 904860

Interest on Term

loan

120807 106310 93553 82327 72448

Interest on Working

capital

216149 185888 159864 137483 118235

Depreciation 103000 85400 71020 59246 49584

Net Profit 236904 435702 581083 749564 664593

Income Tax @20% 47381 87140 116217 149913 132919

Profit after Tax 189523 348562 464866 599651 531674

Cash Accruals 292532 433962 535886 658897 581258

11

BREAK EVEN ANALYSIS

Break Even Point is the specific level of activity or the volume

of sales which breaks the total revenues and total costs evenly. In other words, it is the

level of activity or volume of sales at which the total costs are exactly to the revenues.

The break even point may be defined as that point of sales volume at which total

revenue is equal to total cost. It is a point of no profit, no loss. A business is said to

break even at which total revenue is equal to its total costs. The break even point

refers to that level of output which evenly breaks the costs and revenues and hence the

name. At this point, contribution, i.e. sales minus marginal cost, equals the fixed costs

and hence this point if often called as ‘Critical point’ or ‘equilibrium point’ or

‘balancing point’.

Break Even Point = Annual Fixed cost*100/ Annual Fixed cost+ Profit

Annual Fixed Cost = All depreciation + Interest+ 40% of salaries, wages,

contingencies

= (103000+115641+216149)+240000+7020+24020

All depreciation = (300000*10/100 +315000*20/100+ 50000*10/100)

= 103000

Interests

14% on working capital loan

= 216149

12% on Term loan = 120807

40% of salary, wages, contingencies and utilities)

= 240000+10800+24600+48000

= 323400

Profit(1st year) = 189523

Break Even Point = 763356*100/763356+189523

= 80%

12

DEBT SERVICE COVERAGE RATIO

The Debt Coverage Ratio (DCR), also known as "debt

coverage ratio," is the ratio of cash available for debt servicing to interest, principal

and lease payments. It is a popular benchmark used in the measurement of an entity's

(person or corporation) ability to produce enough cash to cover its debt (including

lease) payments. The higher this ratio is, the easier it is to obtain a loan. The phrase is

also used in commercial banking and may be expressed as a minimum ratio that is

acceptable to a lender; it may be a loan condition or covenant.

Debt service coverage ratio is calculated using the formula

DSCR = Cash flow available for debt service/debt service

Table 3.10 Debt Service Coverage Ratio

Particulars 1st year 2nd year 3rd year 4th year 5th year

Cash accruals 292532 433962 535886 658897 581258

Interest on term loan 120807 106310 93553 82327 72448

Interest on Working

capital loan

216149 185888 159864 137483 118235

Total(A) 629488 726160 789303 878707 771941

Interest on Term Loan 12087 106310 93553 82327 72448

Interest on working

capital loan

216149 185888 159864 137483 118235

Repayment of Term

loan

201345 201324 201324 201324 201324

Repayment of

Working Capital loan

308784 308784 308784 308784 308784

Total(B) 738365 802327 763546 729939 700812

DSCR(A/B) .8525 .9050 1.033 1.2038 1.1014

Average DSCR 1.0191

13

Inference:

DSCR shows that the amount of cash flow available to meet the annual

interest and principal payment on debt. As we got 1.0191 as DSCR. DSCR>1 means

the cash flow from the project is strong enough to support the level of debt

REPAYMENT SCHEDULE

(1)Term loan

Table 3.11 Repayment schedule of term loan

Year Principal Interest(*12%) Total Loan outstanding

0 201345 1006726

1 201345 24161 225506 1805381

2 201345 96646 297991 604036

3 201345 72484 273829 402691

4 201345 48323 249668 201345

5 201345 24162 225507 -

The loan amount is 1006726 has to be repaid in 5 years at the rate of interest of 12%.

(2)Working capital loan

Table 3.12 Repayment schedule of Working capital loan

Year Principal Interest

(*14%)

Total Loan

outstanding

0 308784 1543920

1 308784 43230 352013 1235136

2 308784 172919 481703 926352

3 308784 129689 438473 617568

4 308784 86460 395244 308784

5 308784 43230 352013 -

14

Here the interest rate is 14%. The principal amount 1543920 and repayment

period is 5 years.

STATEMENT OF DEPRECIATION

Table 3.13 Statement of depreciation

Category 1st year 2nd year 3rd year 4th year 5th year

Land and Building@ 10% 300000 27000 24300 21870 19683

Plant and Machinery@ 20% 63000 50400 40320 32256 25805

Miscellaneous assets@ 20% 10000 8000 6400 5120 4096

Depreciation is calculated on the basis of Written down Value Method.

15

Table 3.14 Calculation of Depreciation

Year Land and

Building @

10%

Plant and

Machinery

@ 20%

Miscellaneous

assets@ 20%

Total

Principal Amount

Depreciation for 1st

year

300000 315000 50000

30000 63000 10000 103000

Principal amount after

depreciation

Depreciation for the 2nd

year

270000 252000 40000

27000 50400 8000 85400

Amount after

depreciation

Depreciation for 3rd

year

243000 201600 32000

24300 40320 6400 71026

Amount after

depreciation

Depreciation for 4 th

year

218700 161280 25600 59246

21870 32256 5120

Amount after

depreciation

196830 1580624 20480 59246

Depreciation for the 5th

year

19683 25805 4096 49584

NET PRESENT VALUE

It is one of the discounted cash flow techniques, which fully recognize the

time value of money. It stipulates that cash flows accruing in different time periods

are having different value and are comparable only when the present values are found

out

NPV=(A1/(1+k) + A2/(1+k)^2 + ………….+(An/(1+k)^n) – A0

16

Where A0 = Initial Cash out flows

A1, A2 = Represent cash flow

K = the firms cost of capital or discount rate

n = Period of expected life of the project in years

Table 3.14 Net Present Value

Year Cash flow Discount factor at

16%

Present value

1 292532 0.862 252163

2 433962 .743 322434

3 535886 0.641 343506

4 658897 0.552 363711

5 581258 0.476 276679

1558490

NPV = Present value of cash inflow- Initial investment

= 1558490-1438180

= 120310

Inference

Since NPV is greater than Zero, The project can be accepted. Here we get

a higher NPV. That is the present value of cash flow is much higher than the cash

flow. The project will earn profit.

INTERNAL RATE OF RETURN

The IRR is the rate at which the discounted net returns equal to the original

investment of the project. In other words, it is the rate at which the NPV is zero. If the

IRR of a particular project is higher than the minimum require rate of return( also

known as cost of capital ), the said project can be accepted otherwise, it can be

rejected, if tit is less than the cost of capital.

17

Cost of the project is 1438180

Table 3.15 Internal Rate of Return

Year Cash flows Discount

rate@ 16%

Present

value @

16%

Discount

rate @ 20%

Present

value

@20%

1 292532 0.862 252163 .833 243679

2 433962 0.743 322434 0.694 301170

3 535889 0.641 343503 0.579 310278

4 658897 0.552 363711 0.482 317588

5 581258 0.476 276679 0.402 233666

1558490 1406381

IRR = LDR+ (HDR-LDR) (PV @ LDR-Initial investment)/ PV@ LDR- PV

@HDR

LDR= Lower discount rate

HDR= Higher discount rate

PV= present value

IRR = 16+2(120310)/112970

= 16+ 2.1

= 18.1%

Since IRR is greater than the cost of capital. The project can be accepted.

18

PROFITABILITY INDEX (BENEFIT COST RATIO)

It is the ratio of the present value of cash inflows, at the required rate of

return to the initial cash out flows of the investment. It may be gross or net, Net is

simply gross minus one.

Profitability index (Gross) = NPV/ Cash out lay

= 120310/1438180

= 0.083%

CALCULATION OF PAY BACK PERIOD

The payback Period method is one of the popular and widely recognized

traditional methods of evaluating investment proposal. This period is useful to

ascertain the number of years required to recover the initial investment of a project.

Thus, this method reveals the length of time required for the inflow of cash proceeds

generated from the investments. The formula of this method is

PBP = Original Investment/ Annual cash flows

Projects having short Pay back period (PBP) can be accepted. Cash flows of first 5

years

Table 3.16 Cash inflows.

Years Cash inflows

1. 292532

2. 433962

3. 535886

4. 658897

5. 581258

Out lay of the project = 1438180

Time taken to get Rs. 1262380 = 3 years

Time taken to get Rs. 1921277 = 4 years

19

Since Cash flow is evenly spread over years time taken to get Rs.175800

= 12/658897*175800

= 3.20

Pay back period = 3 years and 3 months.

Since the pay back period is small. The project can be accepted.

ACCOUNTING RATE OF RETURN

The average rate of return represents the ratio of the average annual

profits to the average investment in the project. The average investment would be

equal to the original investment plus salvage value, if any divided by 2. Alternatively

it can be found out by dividing the total return on the investment after depreciation

and taxes by the original investment of the project

ARR =Average Income/ Average Investment

Average income = Total income after tax and depreciation/ No of years

= 2134281/5

= 426856.2

Average Investment = 1438180/2

= 719090

ARR = 426856.2/719090

= 59.36%

Since the ARR is high, the project can be accepted.

PERT (Performance Evaluation and Review Technique)

It forms the basis for all planning and predicting which

provides management with the ability to plan for best possible use of resources to

achieve a given goal within time and cost limitations.

It helps management handle the uncertainties involved on programs by answering

such questions as to how time delays in certain elements influence project completion,

where slack exists between elements and what elements are crucial to meet the

20

completion date. It provides the basis for obtaining the necessary facts for decision

making. It provides the basic structure for reporting information

The expected time was calculated using the following formula:

te = to + 4tm + tp

6

Where,

to = Optimistic time

tm = Most likely time

te = Expected time

tp = Pessimistic time

21

ACTIVITY CHART (Time in weeks)

Sl.No Activity Description Proceeding

Activity

Optimistic

Time(to)

Most likely

time( tm)

Pessimi

stic time( tp)

Exact

time

1 A Procurement

of and

- 3 4 6 9

2 B Preparation of

project report

A 2 4 6 4

3 C Application

for loan and

sanctioning

and licensing

B 2 3 4 3

4 D Leveling of

and

B 1 2 3 2

5 E Construction

of Building

and Boundary

wall

C,D 2 4 6 4

6 F Electricity

connection

E 1 2 3 2

7 G Purchase of

plant and

machinery

F 2 4 6 4

8 H Installation of

plant and

machinery

G 1 2 3 2

9 I Collection of

rawmaterias

H 1 2 3 2

10 J Selection and

training of

employees

I 3 5 7 5

11 K Trail J 2 3 4 3

22

production

12 L Start up K 6 8 10 8

CRITICAL PATH

There are different paths for the implementation of the project. Different paths for

the above networks are,

1) A+B+C+E+F+G+H+I+J+K+L = 9+4+3+4+2+4+2+2+2+5+3+8

= 46

2) A+B+D+E+F+G+H+I+J+K+L = 9+4+2+4+2+4+2+2+5+3+8

= 45

Here Path one (46) is greater than path two (45). So we take path one as critical

path.

APPRAISAL OF PROJECT

The term ‘project appraisal’ refers to a detailed evaluation of the

project to determine its technical, economic and financial viabilities.

Financial Viability:

Preparation of reports on the financial viability of a project is

imperative for the soundness of the financial health of an organization. The financial

analysis focuses on the financial viability, stability, and the profitability of the project.

Moreover, regular financial analysis ensures timely changes in the strategies of

business for betterment.

No financial institution should sanction the financing of a project

unless it is satisfied about the financial viability of the project. The financial

institutions evaluate the project with the help of projected financial statements

prepared for a number of years. Various tools of financial analysis, such as ratios,

funds flow and cash flow statements etc. are also used for this purpose. The

evaluation results not only to profitability but also to cash flows to determine the

capacity of the firm to pay interest charges and repayment of debt installments.

23

There are many capital budgeting techniques to judge the economic

viability of the project. There are Pay Back Period (PBP), Accounting Rate of Return

(ARR), Net Present Value (NPV), Internal Rate of Return (IRR), and Profitability

Index (PI). PBP is the period in which the total investment in the permanent assets

pays back itself. Here the PBP is 3 years and 3 months. It is a short period compared

to the investment of the project. The ARR shows the profitability of the investment.

The ARR of the proposed project is 59.36 per cent, which shows the high profitability

of the investment. Net Present Value calculates the return on investment by taking

into consideration the time value of money. The NPV of the proposed project is

Rs.120310. which is favorable for the project. IRR shows the return on investment

which also takes into consideration the time value of money. In the case of Vinaya

squash unit it is 18.1%, which is good ratio when we consider the interest rates. PI

shows the relationship between the present value of cash inflows and present value of

cash outflows. The PI of Vinaya squashes 0.083%. so the project can be accepted.

No projects can be approved unless it is technically feasible to

run the same. The promotional stages are explained with the help of network

technique that is Programme Evaluation Review Technique. As per the PERT

network it will take 43 weeks for the implementation of projects. .

The materials used for the production are natural material it will not pollute

the air in an unsystematic manner and production will be eco friendly. Thus, all the

technical factors are favorable to the project.

CONCLUSION

The proposed project vinaya squashes are analyzed in three

parts such as economic viability, technical feasibility and financial viability. The

projected financial statements shows that the proposed project is a profitable one. The

tools used to analyse the economic viability such as Pay Back Period, Accounting

Rate of Return, Net Present Value, Internal Rate of Return, Profitability Index proves

the worthwhile ness of the project. The technical factors are also favorable for the

project. So the proposed project may be accepted. Hence the project is a feasible one.

24

PROJECT AT A GLANCE

NAME OF THE UNIT : VINAYA SQUASHES

NAME AND ADDRESS OF

PROPRIETOR :NISHA.I, ROHINI,

PALAKKADAV,NEYYATTINKARA, THIRUVANANTHAPURAM

NAME OF THE PRODUCT : FRUIT SQUASHES

NATURE OF THE UNIT : AGRO PROCESSING

DISTRICT : THIRUVANANTHAPURAM

TALUK : NEYYATTINKARA

BLOCK : KARODE

PANCHAYAT : KARODE

COST OF THE PROJECT : 1438180

CAPITAL EXPENDITURE : 13000000

WORKING CAPITAL (1 YEAR): 2205600

OWN CONTRIBUTION : 661680

TERM LOAN : 1006726

WORKING CAPITAL LOAN : 1543920

BREAK EVEN POINT : 80%

PAY BACK PERIOD : 3 YEARS AND 3 MONTHS

AVERAGE RATE OF RETURN : 59.36%

NET PRESENT VALUE : 120310

INTERNAL RATE OF RETURN : 18.1%

25

BENEFIT COST RATIO (GROSS) : 0.083%

AVERAGE DSCR : 1.019

26