Start a Papad Manufacturing Unit

       


(213). Start a Papad  Manufacturing Unit 


1.0 INTRODUCTION
Papad is a popular and tasty food item in the Indian diet since many centuries. It is 
essentially a wafer-like product, round in shape and made from dough of powdered pulses, 
spices, powdered chilly and salt. Variety of pulses and proportion of pulses and spices varies 
from region to region depending upon preferences of local people whereas certain varieties are 
popular on a larger scale. Traditionally this activity was confined to household papad making 
but in view of increasing demand and availability of machinery (mechanisation) it has now 
been developed in cottage and small scale sector.


2.0 PRODUCT
2.1 Applications
Papad is a favourite item with Indians and is used as taste enricher with the main course 
and as a snack item. Since it is made from pulses, it is easy to digest and nutritious as well. 
It is very easy to make instant food item and is either fried in edible oil or simply roasted 
before serving. Its shelf life is 2½ to 3 months. This product can be made anywhere in the 
country. The note envisages location at an appropriate place in Assam. 


2.2 Availability of technology, quality standard and compliances
CFTRI, Mysore, has successfully developed papad press. Compliance with PFA Act is 
mandatory. Quality standards as specified by BIS are available vide IS 2639:1984


3.0 MARKET POTENTIAL
Market for papad is steadily growing across the country. There are not much seasonal 
fluctuations but demand generally goes up by 10% to 15% during winter season. There are a 
couple of national brands but the market is predominantly controlled by the local brands. 
63This activity is yet to pick up in Assam and thus prospects for a new entrant are bright, 
provided quality is good and prices are competitive. It can be sold through many outlets of 
provision and departmental stores. Before launching the product, a quick assessment of 
consumer preferences is advisable.


4.0 MANUFACTURING PROCESS
Papad can be manufactured from different varieties of pulses or there could be a combination 
of pulses as well. Adequate quantity of water is added in flour of pulses, common salt, spices 
and sodium bicarbonate and homogenous mixing is done to obtain dough. After about 30 
minutes, small balls weighing around 7-8 grams of dough are made. These balls are then 
placed in papad making machine or papad press wherein these balls are pressed and circular 
papads are made as per the size of mould. These papads are then sun-dried but in this note 
drier with trolley is recommended as sun-drying may not be always feasible in Assam. Lot of 
25 or 50 papads is then packed in polythene bags. CFTRI, Mysore, has successfully developed papad making press.


5.0 CAPITAL INPUTS
5.1 Land and Building
A plot of land of about 150 sq.mtrs. with built-up area of approximately 80 sq.mtrs. shall be 
adequate to house all the equipments leaving sufficient space for storage and packing. The 
location need not be at a prominent place as counter sales is not envisaged. The total cost of 
land is taken at Rs. 50,000 whereas the construction cost is assumed to be Rs.2.00 lacs.




  
5.2 Plant and Machinery
It is suggested to have annual rated production capacity with 300 working days and 2 shift 
working of 60 tonnes. To install this capacity, following machinery shall be needed:


Item Qty. Price (Rs.)
Grinder with electric motor having 30-35 kgs/hr. capacity 1 22,000
Mixer of 20 kgs. per charge capacity with electric motor 1 20,000
Pedal-operated papad press 2 14,000
Drier with trolley and 48 trays with heating element of 9 KW 1 50,000
Extra aluminium trays  50 5,000
Sealing Machine 2 4,000
Water Storage tank 1 5,000
Laboratory Equipments -- 5,000
Weighing Scale 1 7,000
Total 1,32,000


5.3 Miscellaneous Assets
Some other assets like aluminium top tables, furniture & fixtures, baskets, drums, storage 
racks, aluminium/stainless steel utensils etc. shall also be required for which a provision of 
Rs. 40,000/- is made.


5.4 Utilities
The total power requirement shall be 25 HP whereas water required for process and 
sanitation and other purposes shall be about 700-750 ltrs per day. The annual cost under this 
head at 100% capacity utilisation shall be around Rs. 50,000/-.


5.5 Raw Material
The all important raw material would be flour of pulses depending upon the product mix. 
Since annual requirement even at 100% will not be more than 60 tonnes, availability would 
not be a bottleneck. Other materials like salt, spices, edible oil, preservatives etc. shall be 
required in small quantity and they will be available locally. Packing material like different 
sizes of polythene bags and corrugated boxes shall also be available locally.


6.0 MANPOWER REQUIREMENTS
Particulars                        Nos.                      Monthly                         Total Monthly 
                                                                   Salary (Rs.)                   Salary (Rs.)
Skilled Workers                   2                        1,800                                     3,600
Helpers                               4                        1,200                                     4,800
Salesman                            1                        2,000                                     2,000
                                                                   Total                                       10,400


7.0 TENTATIVE IMPLEMENTATION SCHEDULE
Activity Period                                                             (in months)
Application and sanction of loan                                             2
Site selection and commencement of civil work                       1
Completion of civil work and placement of orders for machinery 4
Erection, installation and trial runs                                          1


8.0 DETAILS OF THE PROPOSED PROJECT
8.1 Land and Building
Item Area (Sq.Mtrs) Cost (Rs.)
Land 160 50,000
Building 80 2,00,000
Total 2,50,000


8.2 Machinery
The total cost as spelt out earlier will be Rs. 1, 32,000/-.
8.3 Miscellaneous Assets
A provision of Rs. 40,000 as explained before is considered to be sufficient.
8.4 Preliminary & Pre-operative Expenses
Expenses like registration & establishment charges, trial run, interest during project 
implementation etc. will be around Rs.40,000/-.


8.5 Working Capital Requirement
The rated production capacity of the project shall be 60 tonnes per year but it is assumed 
that it would operate at 60% in the first year. The working capital needs at this level shall be 
as under:(Rs.  in  lacs)
Particulars           Period      Margin                     Total              Bank                 Promoters
Stock of Raw
Materials            ½ Month       30%              0.28                     0.20                     0.08
Stock of Finished
Goods                ½ Month       25%             0.40                      0.30                     0.10
Receivables         1 Month       25%             0.90                       0.68                    0.22
Other Expenses   1 Month      100%            0.20                       --                         0.20
                                             Total            1.78                  1.18                          0.60


8.6 Cost of the Project and Means of Financing (Rs. in lacs)
Item                                                                           Amount
Land and Building                                                        2.50
Machinery                                                                   1.32
Miscellaneous Assets                                                  0.40
P&P Expenses                                                            0.40
Contingencies @ 10% on Building and 
Plant & Machinery                                                       0.38
Working Capital Margin                                                0.60
Total                                                                           5.60


Means of Finance
Promoters' Contribution                                               1.75
Term Loan from Bank/FI                                               3.85
Total                                                                          5.60
Debt Equity Ratio                                                        2.20 : 1
Promoters' Contribution                                                31%
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.


9.0 PROFITABILITY CALCULATIONS
9.1 Production Capacity and Build-up
The annual installed capacity shall be 60 tonnes but in view of teething troubles and other 
difficulties like power failure, absenteeism etc. the actual utilisation is taken at 60% and 75% 
respectively during first 2 years.


9.2 Sales Revenue at 100%        (Rs. in lacs)
Product Qty. Selling Price  Sales 
(Tonnes) (Rs.)
Papad 60 32,000 19.20


9.3 Raw Materials Required at 100%           (Rs. in lacs)
Product Qty. Rate per  Value 
(Tonnes) Ton
Flour of Pulses 58 16,000 9.28
Edible Oil, Salt, Spices, 
Preservatives, etc. -- -- 0.60
Packing Material -- -- 0.70
Total 10.58


9.4 Utilities
Annual expenditure on utilities even at 100% activity level is likely to be Rs. 50,000/- as 
explained earlier.


9.5 Interest
Interest on term loan of Rs. 3.85 lacs is calculated @ 12% per annum considering a 
moratorium period of 1 year and then repayment in 3 years. Interest on working capital 
assistance from bank is taken at 14% per annum.
9.6 Depreciation
The method adopted is WDV and rates considered are 10% on building and 20% on plant & 
machinery and miscellaneous assets.


10.0 PROJECTED PROFITABILITY (Rs.  in  lacs)
No. Particulars 1st Year 2nd Year
A Installed Capacity ---- 60 Tonnes -----
Capacity Utilisation 60% 75%
Sales Realisation 11.52 14.40
B Cost of Production
Raw Materials 6.34 7.93
Utilities 0.30 0.38
Salaries 1.25 1.40
Stores & Spares 0.15 0.18
Repairs & Maintenance 0.18 0.24
Selling Expenses @ 10% 1.15 1.44
Administrative Expenses 0.18 0.24
Total 9.55 11.81
C Profit before Interest & Depreciation 1.97 2.59
Interest on Term Loan 0.43 0.29
Interest on Working Capital 0.17 0.21
Depreciation 0.59 0.50
Net Profit 0.78 1.59
Income-tax @ 20% -- 0.30
Profit after Tax 0.78 1.29
Cash Accruals 1.37 1.79
Repayment of Term Loan -- 1.20


11.0 BREAK-EVEN ANALYSIS         (Rs. in lacs)
No Particulars Amount
[A] Sales 14.40
[B] Variable Costs
Raw Materials 7.93
Utilities (70%) 0.28
Salaries (70%) 0.98
Stores & Spares 0.18
Selling Expenses (80%) 1.01
Admn. Expenses (50%) 0.12
Interest on WC 0.21 10.71
[C] Contribution [A] - [B] 3.69
[D] Fixed Costs 2.10
[E] Break-Even Point [D] ÷ [C] 57%
6812.0 [A] LEVERAGES
Financial Leverage
= EBIT/EBT
= 1.38 ÷ 0.78
= 1.77
Operating Leverage
= Contribution/EBT
= 2.79 ÷ 0.78
= 3.56
Degree of Total Leverage
= FL/OL
= 1.77 ÷ 3.56
= 0.50
[B] Debt Service Coverage Ratio (DSCR)
          (Rs.  in  lacs)
Particulars 1st Yr 2nd Yr 3rd Yr 4th Yr
Cash Accruals 1.37 1.79 1.99 2.24
Interest on TL 0.43 0.29 0.18 0.07
Total [A] 1.80 2.08 2.17 2.31
Interest on TL 0.43 0.29 0.18 0.07
Repayment of TL -- 1.30 1.30 1.25
Total [B] 0.43 1.59 1.48 1.32
DSCR [A] ÷ [B] 4.19 1.31 1.47 1.75
Average DSCR ---------------------------- 2.18--------------------------
69[C] Internal Rate of Return (IRR)


Cost of the project is Rs. 5.60 lacs. (Rs.  in  lacs)
Year Cash 16% 18% 20% 24%
Accruals
1 1.37 1.18 1.16 1.14 1.10
2 1.79 1.33 1.29 1.24 1.16
3 1.99 1.28 1.21 1.15 1.04
4 2.24 1.24 1.16 1.08 0.95
5 2.47 1.18 1.08 0.99 0.84
9.86 6.21 5.90 5.60 5.09
The IRR is around 20%.


The machinery suppliers in Guwahati are:
1. Industrial Equipments
2. Archana Machinery Stores