SHAMPOO MANUFACURING UNIT - Invest in Assam

SHAMPOO MANUFACURING UNITINTRODUCTIONIndian shampoo market is valued at Rs. 1,207 crore in year 2001-02. Shampoo market in Indiahas grown at compounded annual growth rate of about 10% during period 1997-98 to 2001-02.NER market for Shampoo is valued at Rs. 33.4 crore in year 2001-02 and accounts for about2.8% of the domestic shampoo market. NER market has grown at a CAGR of about 16% duringthe period 1997-98 to 2001-02.Based on the demand-supply gap analysis, Consumer preferences/ profile and consumptionpattern, the shampoos have significant demand in the North-East Region (NER) as well as atnational level. The following shampoo variants can be manufactured at the proposedmanufacturing unit:(a) Normal Shampoo(b) Shampoo with ConditionerApart from the basic classification indicated above, various other types of shampoos can bemanufactured like- anti-dandruff shampoos, herbal based shampoos, etc.It is important to note that, in the case of shampoo manufacturing unit, with the sameinfrastructure, a unit can manufacture a multiple variants without significant changes in theequipment, tools and processes.MARKET POTENTIALExhibit 1 provides the shampoo market size in terms of all India domestic market and NERmarket in year 2001-02.Exhibit 1Shampoo Market Size (2001-02)(Unit: Rs. Crore)ParticularsAll IndiaMarket SizeNERMarket SizeShampoo 1,207 33.4Total (Shampoo) 1,207 33.4Source: AFF ResearchHindustan Lever Limited (HLL) is the only large organised shampoo manufacturer in NER and itis catering to the national demand from its facility in Doom Dooma in Tinsukia district in upperAssam. All other organised players are meeting the demand of NER from sources/manufacturing facilities outside the NE region. The estimated demand-supply gap for shampooproducts is about 34% of the total NER shampoo market (2001-02) and is valued at Rs. 11.3crore in the year 2001-02.The domestic shampoo market has grown at a CAGR of about 10% during the past the period1997-98 to 2001-02. Considering that the market will grow at the same growth rate in next 10years, the domestic shampoo market in India is estimated to be Rs. 3,000 crore in the year 2011-12. The NER shampoo market is estimated to grow at about 12% over next 10 years. In the year2011-12, the NER market for shampoos is estimated to be Rs. 104 crore.PLANT CAPCITY AND PRODUCTION TARGETSPlant capacity and production targets for the proposed unit have been arrived at based onfollowing factors:

(a) Product Mix (based on various shampoo products proposed for manufacturing)(b) Demand : Supply Gap (in the North East Region)(c) Minimum Economic Plant Size- The economic size for manufacturing for NERregion is 200-Kg batch size (Based on the discussion with large shampoo manufacturersand various units involved in contract manufacturing).Rated Capacity of the key equipmentThe proposed plant will have a batch size of 200 kg in one shift and will operate on two-shiftbasis. With annual sales realisation of Rs. 2.6 crore, the manufacturing unit will be accountingfor about 15 to 16% of the total NER shampoo market (considering the retail value of theproducts as the unit will be involved in contract manufacturing) and about 45% of the demandsupplygap of NER shampoo market in year 2001-02.It is proposed that the unit would be involved in contract manufacturing for a larger shampoomanufacturing/ marketing company. It would primarily cater to the needs of the NER.There is an opportunity for about 2 to 3 shampoo manufacturing units of similar size in NER.Summing up:Batch Size: 200 Kg. on a single batch basis (two batches per day)Plant Capacity: 11.4 lakh bottles per annum (@ 100 ml per bottle)Capacity Utilisation: 50% (Year 1)Full Capacity Utilisation: Year 2RAW MATERIALS AND INPUTSRaw MaterialsRaw materials used in the process depend upon the type of shampoo manufactured. Typically, inany shampoo manufactured there are two types of raw materials used:- Active Ingredients (AIs) – These are the chemicals used in manufacturing theshampoo. Active ingredients used in the manufacturing process are different for differentvariants. Commonly used active ingredients include emulsifying/ suspending agents likeAmmonium/ Sodium Lauryl Sulfate, Zinc Pyrithione, etc.- Others- Other ingredients include Citric Acid, Sodium Hydroxide,Ammonium Chloride, Fragrances, Pigments, etc.WaterThe requirement of water for 200-kg batch shampoo-manufacturing unit is approximately 3,000litres per day.ELECTRICITYApproximate power requirement of a 200-kg batch shampoo-manufacturing unit is 40 kW,which can be availed from the nearest sub-station of respective State Electricity Board (SEB).MANUFACTURING PROCESSThe flow chart for the manufacturing process is as shown below in the Exhibit 2.The shampoo manufacturing process is a batch process. Initially, the raw material goes through aQuality Check (QC) and if approved various Active Ingredients (AIs) and other raw materials aredispensed for processing.Initially, active ingredients and other raw materials are taken into a vessel known as ‘MixingVessel’. In this vessel the raw materials are mixed with hot water. The water used for thisprocess should be De-mineralised and free from any kind of impurities. The mixing process iscarried out at a specific temperature (about 75 to 80 0 C).Subsequently, the solution is taken to another vessel (known as ‘Side Vessel’) and otheringredients like Fragrances, Pigments, etc. are added. The mixture is agitated for about 20-30

minutes to form a homogenous solution. If required, Citric Acid or Sodium Hydroxide is used toadjust pH of water. Finally, the solution is brought back to room- temperature and is ready forpacking. Before, proceeding with packing, the solution goes through an Intermediate ProcessQuality Check (IPQC) related to the efficacy of the product.Exhibit 2Flow Chart for Shampoo Manufacturing Process

Raw Material SamplingRaw MaterialHandlingQCTestQC Not ApprovedQC ApprovedRaw Material DispensingMixing VesselRaw MaterialMixingSectionRecoverMixingSide VesselMixing/ AgitationHotWaterFragrances,Preservatives,Dyes, etc.IPQC NotApprovedIPQCTestRejectIPQC ApprovedPrimary PackingProductPackingProductInformationLeaflet (ifrequired)Inspection (If required)Secondary PackingQC NotapprovedRe-packingQCTestQC Approved ProductThereafter, the solution is transferred to the packing assembly through a pipeline. Normally, thecapacity of the shampoo product assembly line is dependent on the throughput of packingmachinery.Primary Packing for shampoo products can be done in the following ways depending upon therequirement-

5. Raw material prices --- Landed cost (includingtransportation)6. Labour --- Prevalent rate in NER7. Power and fuel --- Prevalent charges in NER8. Repair and maintenance --- Industry norm9. Inventory: Raw materials (RM) 2 Months Industry norm10. Inventory: Finished goods (FG) 1 Month Industry norm11. Bills receivable 1 Month Industry norm12. Creditors 1 Month Industry norm13. Product distribution expenses 7% Taking into consideration averagedistribution costs.14. Other Expenses --- Includes cost of conversion duringmanufacturing (i.e. utilities) andvariable product distribution costs15. Interest on working capital 9% 3% subsidy on working capital loanunder the Central Interest SubsidyScheme, 199716. Subsidy on plant and machinery 30% Under the Central Capital InvestmentSubsidy Scheme, 200717. Subsidy on insurance premium 100% Under the Central ComprehensiveInsurance Scheme, 200718. Subsidy on Income Tax 100%19. Debt : Equity ratio 60 : 40 Industry norm20. Interest on term loan 12%21. Margin money for working25%capital22. RM cost Landed cost at the factory gate(inclusive of transportation cost andexcise duty)FINANCIAL ASPECTSA. Land and Site DevelopmentSr. Particulars Units Unit Rate Total (Rs.)No.1. Land and Site Development 500 sq. m. Rs. 250/ sq. m. 125,000Total 125,000B. BUILDING AND CIVIL WORKSSr. Particulars Units Unit Rate Total (Rs.)No.1. Building and Civil Work 400 sq. m. Rs. 4,000/ sq. m. 1,600,000Total 1,600,000

C. PLANT AND MACHINERYSr.ParticularsNo.Quantity(Nos.)Unit Cost(Rs.)Total Cost(Rs.)Manufacturing Equipment1 Mixing Vessels 1 nos. 1,500,000 1,500,0002 Side Vessel 1 nos. 1,000,000 1,000,0003 Bottle Filling/ Packing Machine 1 nos. 500,000 500,000(16 Station)4 Sachet Filling/ Packing Machine 1 nos. 500,000 500,000Utilities/ Misc. Other Equipment5 Electrification, Control Panels andCabling, Transformer, etc.6 Water Plant, Generation andDistribution7 Steam Generation Units,Compressors1,000,0002,000,000600,000Total Machinery, Utilities and7,100,000EquipmentNote: Above mentioned equipment is indicative for the proposed shampoo- manufacturing unitD. MISCELLANEOUS FIXED ASSETSSr. No. Particulars Total (Rs.)1 Furniture and Fittings 25,0002 Office Equipment 100,0003 Fire Fighting Equipment 50,0004 Cost of Tube-well 20,000Total Misc. Fixed Assets 195,000E. PRELIMINARY AND PRE-OPERATIVE EXPENSESSr. No. Particulars Total Cost (Rs.)1 Detailed Techno-economic Feasibility Study 100,0002 Loan Processing Fees 10,0003 Establishment expenses 200,000Total Preliminary & Preoperative Expenses 310,000F. PROVISION FOR CONTINGENCYProvision for contingency- @ 10% of the total capital investmentOPERATING COSTA. RAW MATERIALRaw materials consumed for manufacturing any shampoo are of two types-

Active Ingredients (AIs)Others (like binding materials, fragrances, pigments, etc. used in manufacturing process)Sr. No. Particulars Units Value1 Average cost of raw material Rs. per Kg. 1102 Raw materials consumed per batch Kg. 2003 Number of batches per year Nos. 600Total Raw Materials Consumed per Annum Rs. 13,167,000Note: Above raw material consumption pattern is calculated at 100% capacity utilisation of themanufacturing unit working for 300 days per annum and two shifts per day basis.B. LABOURSr.No.Particulars Qualification Nos. SalaryperMonth(Rs.)Direct Labour1 Factory Manager BE/B.Tech +MBA/MMSAnnualManpowerCost(Rs.)1 20,000 264,0002 Production Manager BE/B.Tech 1 15,000 198,0003 Chemists BE/B.Tech 2 12,000 316,8004 Engineer and Technicians BE/B.Tech 4 10,000 528,0005 Skilled Workers BE 2 5,000 132,0006 Semi-skilled and Un-skilled Workers Matriculate 8 3,000 316,8007 Other Misc. Personnel 8 2,500 264,000Total Direct Labour Cost 26 2,019,600Indirect Labour8 Finance Manager MBA/MMS +CA1 15,000 198,0009 Accountant CA 1 10,000 132,00010 Business Development Executives Graduate 2 8,000 211,20011 Security Personnel 2 3,000 79,200Total Indirect Labour 6 620,400Total Cost of man-power 32 2,640,000Note: (1) Manpower cost also includes Perks @ 10% of annual salary(2) There is no specific requirement of other highly skilled and specifically trained manpower apart fromthe normally available qualified manpower as mentioned above at the proposed manufacturing location.C. POWER AND FUELParticulars Units Consumptionper dayUnit Cost(Rs.)Annual Cost(Rs.)Electricity (40 kW) Units 527 6 948,000Furnace Oil Litres 75 8 180,000Water Litres 3,000 0 0Total 1,128,000Source: It is assumed that ground water is tapped through tubewell and hence water is considered free ofcost.D. OTHER EXPENSESSr. No. Particulars Total Cost(Rs.)

Sr. No. Particulars Total Cost(Rs.)Fixed1 Repairs and maintenance 609,7502 Advertising and promotion expenses 500,0003 Lease rent for land 210,0004 Office Administration and other misc. expenses 100,0005 Professional and legal fees 300,0006 Bank charges and commissions 20,0007 Printing and stationary 100,0008 Insurance and taxes 100,000Total other expenses 1,939,750E. Total Working CapitalParticulars Norms Total (Rs.)Raw Materials 2 Months of raw materials 2,194,500Packing 2 Month of packing materials 790,020MaterialsFinished Goods 1 Month of cost of production 1,711,710Bills Receivables 1 Month of sales value 2,194,500Outstandings 1 Month of Raw Material and Packing Material 1,492,260Total 5,398,470Note: 1. Working capital requirement indicated above is at 100% capacity utilisation.2. Margin money @ 25% of total Working Capital – Rs. 1,349,618CAPITAL INVESTMENTThe capital investment required for the project is Rs.1.16 crore. The break-up of the capitalinvestment is indicated in below.Sr. No. Particulars Total Value (Rs.)1 Land and Site Development Cost 125,0002 Building and Civil Works 1,600,0003 Plant and Machinery 7,100,0004 Misc. Fixed Assets 195,0005 Preliminary and Pre-operative Expenses 310,0006 Provisions for Contingency 933,0007 Margin Money for Working Capital 1,349,618Total Cost of the Project 11,612,618Means of FinanceTotal Cost of ProjectRs. 11.61 lakhsPromoter’s Equity (40%) Rs. 4.64Loan from Bank/FI (60%) Rs. 6.97Note - * Transportation subsidy is added to Gross Profit while calculating the profitability of the unitFINANCIAL ANALYSISA. Cost of Production

Sr. No. Particulars Total (Rs.)1 Raw materials 13,167,0002 Packing materials 4,740,1203 Administrative overheads 2,019,6004 Other overheads 1,128,0005 Interest on working capital 364,397Total cost of production 21,419,117Note: Cost of production indicated above is at 100% capacity utilisation.B. TurnoverAnnual sales realisation of the manufacturing unit with the assumed product mix is illustratedbelow. Sales realisation at 100% capacity utilisation is around Rs. 2.63 crore.Sr.No.ParticularsNo. ofBottles(Nos.)SalesRealisationper Bottle(Rs.)Total SalesRealisation(Rs.)1 Shampoo (Various variants) 1,140,000 26,334,000Total 1,140,000 23.1 26,334,000Note: For simplicity purpose all the sales mentioned above are in bottle of 100-ml weightC. Profit and Loss Statement for 10 Years(Unit: Rs. lakhs)Particulars Formula Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7Capacity Utilisation 50% 100 100% 100% 100% 100% 100%%Sales Realisation A 110 263 263 263 263 263 263Operating Costs BRM and PM Costs 75 179 179 179 179 179 179Labour Costs 20 20 20 20 20 20 203. Other Overheads 6 11 11 11 11 11 11Interest on Working2 4 4 4 4 4 4CapitalGross Profit incl.Transport SubsidyC=A-B 7 49 49 49 49 49 49Interest D 8 8 7 6 5 4 3Depreciation E 12 10 9 8 7 6 5PBT F=C-(D+E) -12 31 34 36 37 39 41Tax G 0 0 0 0 0 0 0PAT H=F-G -12 31 34 36 37 39 41Cash Profit I=H+E 0 42 42 43 44 45 46GP Margin J=C/A 7% 19% 19% 19% 19% 19% 19%NP Margin K=H/A -11% 12% 13% 14% 14% 15% 15%Note:1. Figures indicated above are rounded-off2. Annual sales values indicated above are after taking into consideration opening and closing stocksReturn on Investment (ROI): 32%D. Breakeven AnalysisThe breakeven analysis for the proposed shampoo-manufacturing unit is indicated below. Theunit achieves operational breaks-even in the first year of operations.

Particulars Unit Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7Capacity Utilisation (%) 50% 100% 100% 100% 100% 100% 100%Sales Realisation Rs. lakhs 110 263 263 263 263 263 263Variable Cost of SalesDirect MaterialRs. 55 132 132 132 132 132 132lakhsPacking CostRs. 20 47 47 47 47 47 47lakhsConversion CostRs. 6 11 11 11 11 11 11lakhsDirect LabourRs. 20 20 20 20 20 20 20lakhsInterest on Working Rs. 2 4 4 4 4 4 4CapitallakhsTotal Variable Costs Rs. lakhs 102 214 214 214 214 214 214Contribution Rs. lakhs 7 49 49 49 49 49 49Fixed CostsOther overheads (excl. Rs.Repairs and Maintenance) lakhs7 12 12 12 12 12 12Repairs and Maintenance Rs. 6 6 6 6 6 6 6lakhsManpower CostRs. 6 6 6 6 6 6 6lakhsInterest on Term Loan Rs. 8 8 7 6 5 4 3lakhsTotal Fixed Cost Rs. lakhs 27 32 31 31 30 29 28Break Even Point Rs. lakhs 405 173 168 163 159 154 150Actual Sales Realisation Rs. 110 263 263 263 263 263 263lakhsBreak Even Sales at % ofCapacity% 154% 66% 64% 62% 60% 59% 57%Note: 1. Figures indicated above are rounded-off2. Annual sales values indicated above are after taking into consideration opening and closing stocksSOURCE OF RAW MATERIALS AND PACKING MATERIALSThe raw materials that are required for manufacturing shampoo products are not locally availablein NER. In case of the herbal shampoos, certain raw materials like Heena and other herbs areavailable in NER (in hilly states like Meghalaya, Arunachal Pradesh, etc.) through theGovernment approved agencies. The closest source for procuring raw materials (apart fromherbal ingredients) is Hyderabad or Delhi. As far as packing materials are concerned, fewvendors are present in NER but they are relatively small in size.Additionally, the raw materials and packing materials can be procured from West Cluster(Mumbai, Ahmedabad, etc) but the cost of transportation will increase substantially.Mentioned below are few sources of raw materials-

EI Dupont India LimitedSahar Plaza Complex, 7 Th Floor, Bandra (E), Mumbai- 400067Tel: +(91)-(022)-28390770Rolex Lanolin Products Ltd.52/58 Babu Genu Road, 24-26 Jivraj Shamji Building, Mumbai- 400002Tel: +(91)-(022)-22012251, 22017395Fax: +(91)-(022)-22015990Silicones Industries (India) Limited502, Arcadia Building, Nariman Point, Mumbai-400021Tel: +(91)-(022)-22855033, 22855034Fax: +(91)-(022)-22821779Standard Silica Pvt. Ltd.Industrial Assurance Building, 5 Th Floor, J. Tata Road, Churchgate, Mumbai- 400020Tel: +(91)-(022)-22821113Suru Chemicals and Pharmaceuticals11 Sona Udyog, P. P. Road, Andheri (E), Mumbai- 400069Tel: +(91)-(022)-28378500Fax: +(91)-(022)-28376321Email: info@suru.comIndia Dye ChemD 9, Ground Floor, Rana Pratap Bagh, G. T. Road, Delhi- 110007Tel: +(91)-(011)-27244736Fax: +(91)-(011)-27459097Jayant Vitamins Limited12, Bhargava Lane, Civil Lines, Delhi- 110054Tel: +(91)-(011)- 22911653, 22519414Mentioned below are few sources of packing materials-

Anil Tubes524 Sandharst Building, S V P Road, Opera House, Mumbai- 400004Tel: +(91)-(022)-23896559Fax: +(91)-(022)-23802286Email: anilchem.mktg@vsnl.net.inCaravan Packaging LimitedG 3, Hind Service Estate, Off. Ranade Road, Shivaji Park, Mumbai- 400028Tel: +(91)-(022)-24467704Fax: +(91)-(022)-24368477Vora Packaging Pvt. Ltd.467/A, TV Indl. Estate, S. K. Ahire Marg, King’s Circle, Mumbai- 400019Tel: +(91)-(022)-24078193, 24095829Fax: +(91)-(022)-24078219Email: sales@vorapack.comClassic Crown & Closures21, Crescent I E, Kherani Road, Saki Naka, Andheri (E), Mumbai -400072Tel: +(91)-(022)-28522859SOURCE OF MACHINERY AND EQUIPMANTMost of the machinery for manufacturing shampoo products is manufactured locally. Most of themachinery manufacturers are based in Mumbai, Ahmedabad. Smaller clusters for machinerymanufacturers include Delhi, Haryana, Kolkata, etc.

PROCESS EQUIPMENTAutopack Machines Pvt. Ltd.101 C, Poonam Chambers, Dr. A. B. Road, Worli, Mumbai- 400018Tel: +(91)-(022)- 24974800, 24934406Fax: +(91)-(022)- 24964926Email: autopack@bom3.vsnl.net.inPacking Machinery Pvt. Ltd.M/ Celler, Ambekar Nagar, G. D. Amsedkar Road, Parel, Mumbai- 400012Tel: +(91)-(022)- 24162551Fax: +(91)-(022)- 24168516Spanpak SystemsB 136, Ghatkopar, Industrial Estate, LBS Marg, Ghatkopar (W), Mumbai- 400080Tel: +(91)-(022)- 28597620Ambica Engineering WorksPlot NO. 1804, Phase III, GIDC Industrial Area, Vatva, Ahmedabad, 380045Tel: +(91)-(079)-22744262Fax: +(91)-(079)-22744262Cadmach Machinery Co. Pvt. Ltd.Plot No. 3604/ 05, GIDC Phase IV, Vatva, Ahmedabad, 382445Tel: +(91)-(079)-25831491Emkey Engineering WorksB 33, DDA Shed, Okhla Industrial Area, Phase II, New Delhi- 110020Tel: +(91)-(011)- 25415882Mitsubishi Heavy Industries Limited1 St Floor, Gopal Das Bhawan, 28- Barakhamba Road, New Delhi- 110001Tel: +(91)-(011)- 23354465Swastik IndustriesA 76, Clock Tower, Hari Nagar, New Delhi-110064Tel: +(91)-(011)- 27538203AUXILIARY EQUIPMENTThermax (India) LimitedThermax House, 4, Mumbai-Pune Road, Shivajinagar, Pune- 411019Tel: +(91)-(020)- 25512122Fax: +(91)-(020)- 25512242Website: www.thermaxindia.comAtlas Copco (India) LimitedSevanagar, Dapodi, Pune- 411012Tel: +(91)-(020)- 27146416/17Fax: +(91)-(020)- 27146637Website: www.atlascopco.comAquatech India LimitedPlot No. 3, Baner Park, Near D. P. Road, Aundh, Pune- 411007Tel: +(91)-(020)- 27292103, 27291104Fax: +(91)-(020)- 7291805Website: www.aquatech.com

Email: asa@aquatech.comAlfa Laval (India) LimitedShivajinagar, Pune- 4110112Tel: +(91)-(020)- 27147721Fax: +(91)-(020)- 27147711Ion Exchange, MumbaiTiecicon House, Dr. E. Moses Road, Mahalaxmi, Mumbai- 400011Tel: +(91)-(022)- 24939520/23/25Fax: +(91)-(022)- 24938737Website: www.ionindia.comEmail: ho.commun@ho.ionxchng.co.inCourtesy : NEDFi