Green - Poly House Farm Fresh Cut Roses Rs. 8.7 Million Sep-2018
Green - Poly House Farm Fresh Cut Roses Rs. 8.7 Million Sep-2018
Green - Poly House Farm Fresh Cut Roses Rs. 8.7 Million Sep-2018
3rd Floor, Building No. 3, 5TH Floor, Bahria Ground Floor Bungalow No. 15-A
Aiwan-e-Iqbal Complex, Complex II, M.T. Khan Road, State Life Building Chaman Housing Scheme
Egerton Road Lahore, Karachi. The Mall, Peshawar. Airport Road, Quetta.
Tel: (042) 111-111-456 Tel: (021) 111-111-456 Tel: (091) 9213046-47 Tel: (081) 831623, 831702
Fax: (042) 36304926-7 Fax: (021) 5610572 Fax: (091) 286908 Fax: (081) 831922
[email protected] [email protected] [email protected] [email protected]
September 2018
Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
Table of Contents
1 DISCLAIMER .................................................................................................... 3
2 EXECUTIVE SUMMARY ................................................................................... 4
3 INTRODUCTION TO SMEDA ........................................................................... 5
4 PURPOSE OF THE DOCUMENT ..................................................................... 5
5 BRIEF DESCRIPTION OF PROJECT & PRODUCT ........................................ 6
5.1 INSTALLED AND OPERATIONAL CAPACITIES ................................................... 6
5.2 PRODUCTION PROCESS FLOW...................................................................... 7
6 CRITICAL FACTORS ....................................................................................... 7
7 GEOGRAPHICAL POTENTIAL FOR INVESTMENT ....................................... 8
8 POTENTIAL TARGET CUSTOMERS / MARKETS .......................................... 8
9 PROJECT COST SUMMARY ........................................................................... 9
9.1 PROJECT ECONOMICS ................................................................................. 9
9.2 PROJECT FINANCING ................................................................................... 9
9.3 PROJECT COST ........................................................................................... 9
9.4 SPACE REQUIREMENT ............................................................................... 10
9.5 GREEN / POLY HOUSES ............................................................................. 11
9.6 FURNITURE & FIXTURES REQUIREMENT ...................................................... 12
9.7 RAW MATERIAL REQUIREMENT ................................................................... 12
9.8 HUMAN RESOURCE REQUIREMENT ............................................................. 13
9.9 OTHER COSTS .......................................................................................... 13
9.10 REVENUE GENERATION ............................................................................. 13
10 CONTACT DETAILS....................................................................................... 14
10.1 TECHNICAL EXPERTS / CONSULTANTS ........................................................ 14
11 USEFUL WEB LINKS ..................................................................................... 15
12 ANNEXURES .................................................................................................. 17
12.1 INCOME STATEMENT .................................................................................. 17
12.2 BALANCE SHEET ....................................................................................... 18
12.3 CASH FLOW STATEMENT ........................................................................... 19
13 KEY ASSUMPTIONS ...................................................................................... 20
13.1 OPERATING COST ASSUMPTIONS ............................................................... 20
13.2 PRODUCTION COST ASSUMPTIONS ............................................................. 20
13.3 REVENUE ASSUMPTIONS ........................................................................... 20
13.4 FINANCIAL ASSUMPTIONS .......................................................................... 20
September 2018
Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
1 DISCLAIMER
For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk
Document Control
Revision 5
Prepared by SMEDA-Punjab
September 2018
Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
2 EXECUTIVE SUMMARY
Growing cut flowers especially roses is a profitable business, as they are the most
traded flowers around the world. Local demand for cut flowers is growing
tremendously due to increased usage especially decorative items in weddings,
birthday parties, and other social gatherings.
Production of high quality fresh cut roses, requires proper green / poly house with
a controlled environment. An important aspect of using a greenhouse is that high
quality flowers can be produced all year round, irrespective of the weather
changes. Additionally, it also increases annual production of fresh cut roses three
times compare to open cut flower farms. Low cost of labor combined with
reasonable land lease rates and a suitable climate for most part of the year makes
investment in this business a lucrative proposition.
On average 12,000 rose plants will be sowed on 1 acre of land on four green / poly
houses that will produce 2.16 million flowers per year. However, 20% of the total
production goes to rose petals. Capacity utilization during first year of operation is
assumed to be at 40%, whereas capacity utilization growth rate for subsequently
years will be considered 20%. The maximum capacity utilization is worked out at
80% in the 3rd year of operation.
The cost for setting up the proposed green / poly house farm for fresh cut roses on
01 acre land is Rs. 8.71 million out of which Rs. 8.34 million is capital cost and Rs.
0.37 million is for working capital. The farm will provide employment to 3
individuals in addition to seasonal labor for picking and pruning etc. The project is
proposed to be financed through 50% debt and 50% equity. The project NPV is
projected Rs. 4.19 million, with an IRR of 25% and a payback period of 4.34 years.
The legal status of the business is proposed as ‘Sole Proprietorship’.
September 2018
Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
3 INTRODUCTION TO SMEDA
With a mission "to assist in employment generation and value addition to the
national income, through development of the SME sector, by helping increase the
number, scale and competitiveness of SMEs", SMEDA has carried out ‘sectoral
research’ to identify policy, access to finance, business development services,
strategic initiatives and institutional collaboration and networking initiatives.
September 2018
Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
Apart from carefully studying the whole document one must consider critical
aspects provided later on, which form basis of any Investment Decision.
The basic structure of green / poly house is made of ‘Galvanized Pipes’ which is
covered by ‘Green Shade Net’ in summer and ‘Polythene Sheets’ in winter.
Galvanized Pipes have a useful life of 10 years, whereas ‘Green Shade Net’ and
‘Polythene Sheets’ have useful life of 05 years and 01 year, respectively.
The farm will have 12 thousand rose plants having productive life of 10 years. On
average, maximum yield of one plant is approximately 180 flowers per year.
Accordingly, the farm will have a total production capacity of 2.16 million flowers
per year, however, for the first year farm productivity is assumed at 40%. The cut
flowers will be sold in the wholesale markets of the respective districts /
metropolitan cities. Moreover, based on quality of flowers and efficient
management of supply chain, export potential of cut rose flowers will also be
tapped.
Four green / poly houses will be constructed for one-acre land with useful life of 10
years. On average there are 12,000 rose plants, which will be producing 2.16
million flowers per year, with adequate pruning, picking and delivery
arrangements. However, 20% of the total production goes to rose petals, hence,
quantity available for sale i.e. rose petals, would be 1,080 kgs from 432,000
flowers.
September 2018
Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
The details of installed and operational capacities are provided in the table below:
Table 1: Installed and Operational Capacities
Operational
Maximum
Installed Capacity
Description Capacity
Capacity Year 1
Utilization (80%)
(40%)
Cut Flowers Produced (180
flowers per plant, total plants 2,160,000 864,000 1,728,000
12,000)
Cut Flowers Lost to Petals (20% of
432,000 172,800 345,600
flowers produced)
6 CRITICAL FACTORS
Picking of the flowers is the most important process as it plays vital role for
determining the price of flowers. Following steps should be followed:
September 2018
Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
Flowers should be treated with life enhancing solutions to increase their life.
Inspect each flower for its quality then pack in wooden / cardboard boxes.
Forward linkages with the bulk buyers, and appropriate storage &
transportation services.
Although Kasur and Sheikhupura districts of Punjab, Matiari & Jhirk in Sindh and
Swat and Quetta valley have developed some expertise in the production of cut
flowers. However, as Pattoki still serves as the hub for floricultural trade in
Pakistan, it is therefore considered the most appropriate location. All major cities
of the country with comparable land and atmospheric conditions can be selected
for establishment of Cut Flower Farms.
Patto ‘mandi’ is the major forum for buying and selling of fresh cut flowers,
especially roses. Flowers are distributed to all parts of the country including
Karachi, Peshawar, Lahore, and Islamabad from here.
Flower markets such as Patto Mandi and Begumkot Mandi at Pattoki and
Sheikhpura districts, respectively.
September 2018
Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
All the figures in this financial model have been calculated for estimated sales
revenue of Rs.1.91 million in the year one. The capacity utilization during year one
is worked out at 40% with 20% increase in subsequent years up to the maximum
capacity utilization of 80%.
The following table shows internal rate of return, payback period and net present
value of the proposed venture.
Table 2: Project Economics
Description Details
September 2018
Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
10
September 2018
Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
Galvanized Pipes
Connecting Joints
Polythene Sheet
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Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
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September 2018
Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
Total 3 52,000
Weeding will be done from outsourced laborers whose cost is already mentioned
in Raw Material Calculation table.
13
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Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
10 CONTACT DETAILS
14
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September 2018
Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
12 ANNEXURES
Calculations SMEDA
Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue 1,909,440 3,150,576 4,620,845 5,082,929 5,591,222 6,150,344 6,765,379 7,441,917 8,186,108 9,004,719
Cost of sales
Cost of goods sold 1 200,000 220,000 242,000 266,200 292,820 322,102 354,312 389,743 428,718 471,590
Packing Material 138,240 285,120 418,176 459,994 505,993 556,592 612,251 673,477 740,824 814,907
Operation costs 1 (direct labor) 624,000 686,400 755,040 830,544 913,598 1,004,958 1,105,454 1,215,999 1,337,599 1,471,359
Operating costs 3 (direct electricity) 108,000 118,800 130,680 143,748 158,123 173,935 191,329 210,461 231,508 254,658
Total cost of sales 1,070,240 1,310,320 1,545,896 1,700,486 1,870,534 2,057,588 2,263,346 2,489,681 2,738,649 3,012,514
Gross Profit 839,200 1,840,256 3,074,949 3,382,444 3,720,688 4,092,757 4,502,033 4,952,236 5,447,459 5,992,205
Gain / (loss) on sale of Polythene Sheet 25,600 53,760 84,736 118,810 156,291 197,520 242,872 292,759 347,635
Earnings Before Interest & Taxes 154,042 1,152,035 2,381,258 2,705,841 3,062,882 3,382,188 3,814,208 4,289,429 4,812,173 4,979,193
Interest expense on long term debt (Debt facility : Bank 1) 522,529 522,529 413,198 290,747 153,602 - - - - -
Subtotal 522,529 522,529 413,198 290,747 153,602 - - - - -
Earnings Before Tax (368,487) 629,506 1,968,060 2,415,094 2,909,280 3,382,188 3,814,208 4,289,429 4,812,173 4,979,193
Tax - 71,926 272,709 339,764 413,892 484,828 549,631 620,914 699,326 724,379
NET PROFIT/(LOSS) AFTER TAX (368,487) 557,580 1,695,352 2,075,330 2,495,388 2,897,360 3,264,577 3,668,515 4,112,848 4,254,815
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Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
Calculations SMEDA
Balance Sheet
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Assets
Current assets
Cash & Bank 200,000 324,147 525,854 1,981,689 3,746,119 5,118,770 9,026,147 13,334,189 18,079,671 23,302,354 29,380,234
Accounts receivable 26,157 34,658 53,229 66,464 73,111 80,422 88,464 97,310 107,041 117,745
Raw material inventory 169,120 277,816 399,406 483,282 584,771 707,573 856,163 1,035,958 1,253,509 1,516,745 -
Total Current Assets 369,120 628,120 959,918 2,518,200 4,397,355 5,899,453 9,962,732 14,458,611 19,430,490 24,926,140 29,497,979
Fixed assets
Land 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
Building/Infrastructure 380,000 361,000 342,000 323,000 304,000 285,000 266,000 247,000 228,000 209,000 190,000
Farm Structure 4,836,269 4,352,642 3,869,015 3,385,388 2,901,761 2,418,134 1,934,508 1,450,881 967,254 483,627 0
Green Shade Net 456,000 410,400 364,800 319,200 273,600 962,393 843,353 724,314 605,275 486,236 1,549,943
Furniture & fixtures 115,000 103,500 92,000 80,500 69,000 57,500 46,000 34,500 23,000 11,500 -
Office equipment 64,000 70,400 77,440 85,184 93,702 103,073 113,380 124,718 137,190 150,909 -
Total Fixed Assets 7,851,269 7,297,942 6,745,255 6,193,272 5,642,064 5,826,100 5,203,241 4,581,413 3,960,718 3,341,271 3,739,943
Intangible assets
Pre-operation costs 488,428 439,585 390,742 341,900 293,057 244,214 195,371 146,528 97,686 48,843 -
Total Intangible Assets 488,428 439,585 390,742 341,900 293,057 244,214 195,371 146,528 97,686 48,843 -
TOTAL ASSETS 8,708,817 8,365,647 8,095,915 9,053,371 10,332,475 11,969,767 15,361,344 19,186,552 23,488,894 28,316,254 33,237,922
Other liabilities
Deferred tax - 71,926 344,634 684,398 1,098,290 1,583,118 2,132,749 2,753,663 3,452,988 4,177,367
Long term debt (Debt facility : Bank 1) 4,354,408 4,354,408 3,443,316 2,422,893 1,280,019 - - - - - -
Total Long Term Liabilities 4,354,408 4,354,408 3,515,242 2,767,527 1,964,417 1,098,290 1,583,118 2,132,749 2,753,663 3,452,988 4,177,367
Shareholders' equity
Paid-up capital 4,354,408 4,354,408 4,354,408 4,354,408 4,354,408 4,354,408 4,354,408 4,354,408 4,354,408 4,354,408 4,354,408
Retained earnings (368,487) 189,093 1,884,444 3,959,774 6,455,163 9,352,523 12,617,099 16,285,615 20,398,462 24,653,277
Total Equity 4,354,408 3,985,921 4,543,501 6,238,853 8,314,183 10,809,571 13,706,931 16,971,508 20,640,023 24,752,871 29,007,685
TOTAL CAPITAL AND LIABILITIES 8,708,817 8,365,647 8,095,915 9,053,371 10,332,475 11,969,767 15,361,344 19,186,552 23,488,894 28,316,254 33,237,922
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Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
Calculations SMEDA
Cash Flow Statement
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Operating activities
Net profit (368,487) 557,580 1,695,352 2,075,330 2,495,388 2,897,360 3,264,577 3,668,515 4,112,848 4,254,815
Add: depreciation expense 623,727 630,127 637,167 644,911 653,429 736,239 746,546 757,884 770,356 784,075
amortization of pre-operating costs 48,843 48,843 48,843 48,843 48,843 48,843 48,843 48,843 48,843 48,843
Deferred income tax - 71,926 272,709 339,764 413,892 484,828 549,631 620,914 699,326 724,379
Accounts receivable (26,157) (8,501) (18,571) (13,235) (6,646) (7,311) (8,042) (8,846) (9,731) (10,704)
Raw material inventory (169,120) (108,696) (121,590) (83,875) (101,489) (122,802) (148,590) (179,794) (217,551) (263,237) 1,516,745
Accounts payable 25,317 11,855 9,819 6,884 8,031 9,389 11,000 12,913 15,187 (57,526)
Cash provided by operations (169,120) 194,547 1,190,239 2,561,442 3,001,007 3,490,135 4,020,757 4,432,760 4,882,671 5,373,591 7,260,627
Financing activities
Debt facility : Bank 1 - principal repayment - (911,092) (1,020,423) (1,142,874) (1,280,019) - - - - -
Additions to Debt facility : Bank 1 4,354,408 - - - - - - - - - -
Issuance of shares 4,354,408 - - - - - - - - - -
Cash provided by / (used for) financing activities 8,708,817 - (911,092) (1,020,423) (1,142,874) (1,280,019) - - - - -
Investing activities
Capital expenditure (8,339,697) (70,400) (77,440) (85,184) (93,702) (837,465) (113,380) (124,718) (137,190) (150,909) (1,182,747)
Acquisitions
Cash (used for) / provided by investing activities (8,339,697) (70,400) (77,440) (85,184) (93,702) (837,465) (113,380) (124,718) (137,190) (150,909) (1,182,747)
NET CASH 200,000 124,147 201,707 1,455,835 1,764,430 1,372,650 3,907,378 4,308,042 4,745,482 5,222,683 6,077,880
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Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
13 KEY ASSUMPTIONS
Description Details
Transportation Expenses 2% of Sales
Depreciation Method Straight Line
20% on Green Shade Net
Depreciation Rate
100% on Polythene Sheet
Operating Cost Growth Rate 10%
Description Details
No of Plants Per Acre 12,000
Pesticide Sprays Rs. 45,000 / Year
Fertilizers Rs. 35,000 / Year
Water Rs. 80,000 / Year
Weeding Rs. 40,000 / Year
Electricity Cost Rs. 9,000 per month
Packing and Handling Cost Rs. 0.20 / Cut Flower
Input Cost Growth Rate 10%
Description Details
Growth in Sale Price 10%
Production Capacity in First Year 40%
Percentage Increase in Production Capacity every
20%
Year
Maximum Production Capacity 80%
Production Loss (Petals) 20% of Production
Description Details
Debt 50%
Equity 50%
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Pre-Feasibility Study Green / Poly House Farm (Fresh Cut Roses)
September 2018 21