METALS AND ENGINEERING CORPORATION

HIBRET MANUFACTURING AND MACHINE

BUILDING INDUSTRY

FEASIBILITY STUDY
ON
HEAVY FLEXIBLE MANUFACTURING WORK SHOP

2016
 I. SUMMARY

II. PRODUCT DESCRIPTION & APPLICATION

III. MARKET STUDY AND PLANT CAPACITY
A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME
IV. RAW MATERIALS AND INPUTS
A. RAW MATERIALS
B. UTILITIES
V. TECHNOLOGY & ENGINEERING
A. TECHNOLOGY
B. ENGINEERING
VI. MANPOWER & TRAINING REQUIREMENT
A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT
VII. FINANCIAL ANLYSIS

SIMPLE RATE OF RETURN (SRR)

PAY-BACK PERIOD
INTERNAL RATE OF RETURN (IRR)
VIII. ANNEX
I. SUMMARY

This study envisions the establishment of a plant for the manufacturing, fabrication and
production of industrial spare parts and equipments with a capacity of 132,300 and 127 pieces
per annum respectively.

The major raw materials required to make such designed products are metals, non-metals,
consumables and other on shelf standard parts, which are available locally and in global market.

At the startup product output of the line will increase as follow in the next three consecutive
years. Estimated products are 151,200, 163,800 and 176,400 pieces per annum respectively.

The total investment requirement is estimated at about Birr 258,684,910 out of which Birr
50,047,949.70 is required for building work and the remaining 66,786,962.50 birr is required for
equipment and others. The plant will create employment opportunities for 250 persons.

The project is financially viable with a Simple Rate of Return (SRR) of 29% and Pay-back
Period is 3.75 years

The project will create a forward linkage effect with other industrial sub-sector.

II. PRODUCT DESCRIPTION AND APPLICATION

One of the modern flexible manufacturing equipments and technology comprise improved
products and efficiency. The manufacturing and availing of this item/output will have a profound
impact on the manufacturing industry sub-sector development in the country. Some of the
outputs of the factory are listed in annex 1.

This designed flexible manufacturing plant will engaged on manufacturing/fabrication of

different high and low value spare parts and industrial machine tools as well. Expected
Customers for this plant outputs are Textile Industry, Leather Industry, Sugar Industry,
Construction Machinery, Automotive Industry, Cement Industry, agro processing industry and
other private sector. To realize its ultimate objective the factory is deployed as manufacturing,
fabrication and production discipline lines align with the necessary technology.
PRICING AND DISTRIBUTION

Projected sales

Table 1.1 Daily Sales of Spare Parts

S/N Description UOM Required Qty./day Unit price Cost

1 High value psc 27 3,000 81,000
2 Low value psc 580 300 174,000
Total 255,000

Remark the assumption in high and low value is price distribution, below 1000 birr is low value
and above 1000 are high value items.

Machine distribution

 The work shop is equipped with 13 conventional lathe machine, by assuming 20 low
values and 1 high value product per lathe machine in single shift per day.
 The work shop is equipped with 4 CNC lathe machine, by assuming 25 low values and 1
high value product per lathe machine in single shift per day
 4 CNC milling machine have capacity to work 25 low and 1 high value item each
machine per day in single shift.
 6 conventional milling have capacity to do 20 low and 1 high value items each machine
per day in single shift.

Yearly 254Days/Year x 255,000 Birr = 64,770,000 Birr

Table 2 Daily Sales of Fabrication and Production Work shop in service

S/N Type of machine Production Qty. Unit selling price Total selling price
Pcs/day
1 Shearing 150 45 6,750
2 Combination shearing 300 40 12,000
3 Rolling machine 70 50 3,500
4 Pope and RHS bending 120 25 3,000
5 ARC welding 1 trailer 70,000 70,000
6 MIG welding 1 trailer 20,000 20,000
Total 642 90,160 115,250

Yearly 254Days/Year x 115,250.00 = 29,273,500.00 Birr

Equipment’s

The daily sales of equipment’s are calculated by assuming dry and liquid heavy truck Trolleys as
end product. 127 Trolleys per year in 254 working days is manufactured using the whole facility,
and 1,200,000 birr per lorry is sailing price.

Yearly 127 Trolleys *1,200,000 birr = 152,400,000 birr

Total Sales = 64,770,000 Birr + 29,273,500.00 Birr + 152,400,000 birr = 246,443,500 birr

III. PLANT CAMPACITY AND PRODUCTION PROGRAMME

Table 3 Projected capacity of the plant (tones) per single shift.

year Projected capacity(ton)

2016 218.3
2017 249.5
2018 270.3
2019 291.1
2020 311.85
IV. MATERIALS AND INPUTS
A. RAW MATERIALS

Main raw materials of the project are indicated in table 4. The necessary consumable
materials/inputs required are cutting tools and chemicals which are available from the local and
global market.

Table 4 Raw materials requirement

Sr. no. Raw material Unit of measurement Qty. Remark

1 Sheet metals Ton 25 Considering
2 Plates Ton 50 ferrous and
3 Round, square, rectangular Ton 120 non-ferrous
and flat bars materials in
4 RHS, angle iron, steel Ton 35 different size
structure. ranges.
5 Bakelite and composites Ton 10
Total Ton 240

B. UTILITIES

Electricity and water are the principal utilities of the project. Mainly water required for coolant
mixture, garden watering, workers cleaning, janitor works, showers, garage and heavy
machineries required high electricity amount, lighting. The annual utilities requirement and cost
are indicated in Table 5. The unit price of utilities is shown in financial analysis section.
Table 5 Utilities requirement and cost

S/N Description UOM Required Qty./day Unit price Cost

1 Electric power Kwh 2,400,000 0.5 1,200,000
2 Water M3 60,000 5 300,000
Total 1,500,000
TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY
Production of the plant is environmental friendly. The by-products that are left over during
designed production are cheeps and scraps of metals that can be used as recycled raw materials
and consumables goods.

B. ENGINEERING

1. Machinery and Equipment

The list of machinery and equipment is indicated in table 6 the total cost of necessary
Equipments and other related issues is estimated at Birr 66,786,962.5 birr.

Table 6 Machinery and equipment requirement.

Sr. No. name Code Qty.

1 Conventional Lathe CA6140×1000 02

2 Conventional Lathe CA6140×1000 05
3 Conventional Lathe CA6140×1000 02
4 Conventional Lathe CA6140×1000 02
5 Conventional Lathe CA6140×1000 02
6 CNC Lathe CAK6140×1000 01
7 CNC Lathe CAK6140×1000 02
8 CNC Lathe CAK6140×1000 01
9 Horizontal milling machine X6132 01
10 X6132 01
11 Universal Milling Machine X6132 02
12 Vertical Milling Machine X6132 01
13 vertical Milling Machine X6132 01
14 Pity Furnace with Quenching medium 01
15 CNC Milling Machine XK713 01
16 CNC Milling Machine XK7136 01
17 Slotting Machine B5020 01
18 Slotting Machine B5020 01
19 Slotting Machine B5020 02
20 CNC Vertical Machine Center MLV1060 02
21 universal cylindrical grinding machine M13 series 02
22 surface grinding machine 02
23 radial drilling machine Z3063X20 02
24 vertical drilling machine Z3063X20 03
25 pedestal grinding machine 03
26 power hack saw 03
27 shearing machine QC12Y-4X2000 01
28 QC12Y-6X3000 01
29 QC12Y-16X3000 01
30 combination shearing machine Q35Y-16 01
31 Q35Y-20 01
32 ROLLING MACHINE 01
33 W11-4X2000 01
34 W11-4X2000 01
35 W11-4X2000 01
36 hydraulic press brake machine WC67Y-160X3200 01
37 hydraulic pipe bending machine DW38NC 01
38 DW38NC 01
39 Hydraulic Press 03
40 Rivet Gun -
41 Electric Flat Truck 6T -
42 Fork Lift –5T 01
43 Electrical Chamber Furnace RJ2-30-12 01
44 Electrical Chamber Furnace RJ2-30-12 01

2. LAND, BUILDING AND CIVIL WORKS

The plant requires a total of 10,000m2 area of land out which 4000 m2 is built – up area which
includes manufacturing/fabrication/production area, and finished product stock area , the
remaining 6000 square meters for general purpose building, raw material , stock and space for
future expansion. The total cost of construction is estimated to be Birr 50,047,949.7.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No
272/2002) in principle, urban land permit by lease is on auction or negotiation basis, however,
the time and condition of applying the proclamation shall be determined by the concerned
regional or city government depending on the level of development.

The legislation has also set the maximum on lease period and the payment of lease prices. The
lease period ranges from 99 years for education, cultural research health, sport, NGO , religious
and residential area to 80 years for industry and 70 years for trade while the lease payment
period ranges from 10 years to 60 years based on the towns grade and type of investment.

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the entire
amount of the lease will receive 0.5% discount from the total lease value and those that pay in
installments will be charged interest based on the prevailing interest rate of banks. Moreover,
based on the type of investment, two to seven years grace period shall also be provided.

However, the Federal Legislation on the Lease Holding of Urban Land apart from setting the
maximum has conferred on regional and city governments the power to issue regulations on the
exact terms based on the development level of each region
V. MANPOWER AND TRAINING REQUIREMENT
A. MANPOWER REQUIREMENT

The manpower requirement of the envisaged project is 250 persons. The list of manpower is
indicated in the Table 7.

Table 7 Manpower requirement

Market Potential

Installed capacity of the plant may have market destinations like sugar factories, fertilizer
factories, mega projects, machine building industries, automotive industries, textile industries,
food processing and machine manufacturers industries and etc.
VI. Opportunities and Threats Analysis
A. Opportunity
 Limited options in locally produced real heavy duty industrial spare parts. High import
reduction potential.
 With good pre-feasibility study and business plan, which is around 100% of the total
production, could be turned into potential business opportunity.
  Reduction in excise and import duties on processing machinery.
B. Threat
 Unavailability of adequate industry statistics.
 Simple Product Company.
 Frequent power interruption.
 High cost of backward integration (availability of raw material).
 Threat from other machine tools exporting countries (such as china which is already in
foreign market).
 Heavy advertising from existing giant players.
 High cost to meet international quality standards.
VII. Socio-economic impact of the project

Over a long time horizon and setting up of a number of similar units would result into following
socio-economic benefits for the country.

 Indigenous production of such industrial products would lead to self-reliance for these
items in the field of heavy processing supplies. This would also insulate the financial
flows from vagaries of external economies.
 Local production of such spare parts would lead to import substitution which would
result in saving of foreign exchange. Setting up of more units to meet the requirement of
industrial supplies would have a multiplier effect on foreign exchange saving.
 There are possibilities of export of these products to other neighboring markets. This
would lead to earning to foreign exchange for the country.
 There are not many medium and small scale units manufacturing units in Ethiopia.
Setting up of this unit would have a catalytic effect on growth of entrepreneurship in
medium and small scale sector.
 The setting up of the project would lead to generation of direct and indirect employment,
both for skilled and unskilled workers which would result into economic upliftment of
local population. This would also lead to up gradation of skills.
 There are employment opportunities in the project for persons with managerial, technical,
financial and marketing capabilities. The employment of such people in the local industry
would provide them an option to have an employment in private sector in the country and
also reduce the migration of qualified manpower.
 There would be revenue generation for the local government by way of excise, sales
tax/VAT and income tax from the unit as well as from its promoters.
 Finally, the project would lead to enhancement of economic activities in the field of
construction, transport of raw materials and finished goods, marketing and trade, repairs
and maintenance, etc.
VIII. FINANCIAL ANALYSIS.

The financial analysis of the heavy duty flexible manufacturing project is based on the data
presented in the previous chapters and the following assumptions:-

Basic assumptions

Source of finance 100% Loan

Tax holidays 5 years
Bank interest 13.5%
Constriction period 1year
Depreciation
Building 5%
Machinery 20%
Vehicle 20%
Office equipment 20%

Total Initial Investment Cost

The total initial investment cost of the project including working capital is estimated at Birr
110,417,712. The breakdown of the total initial investment cost is shown in Tables below.
Table 8 Fixed Investment Cost

Initial working capital

The major raw materials required to make such designed products are metals, non-metals,
consumables and other on shelf standard parts, which are available locally and in global market.
Raw materials requirement of the plant at the startup operation and the estimated costs are shown
in Table below.
Table 9 Raw material cost

No . description Unit of Qty. Estimated cost

measurement
1 Raw material ton 218.3 120,000,000
2 Cutters and consumables Pcs 236 2,150,000
Total 5,799,999.95

Utilities

The utilities required for the plant comprise electric power and water. The total annual
requirement for utilities at 100% capacity utilization rate and the estimated costs are given in
table below

S/N Description UOM Required Qty./day Unit price Cost

1 Electric power Kwh 2,400,000 0.5 1,200,000
2 Water M3 60,000 5 300,000
Total 1,500,000

Initial investment cost

Total investment cost of the project is thus estimated for the year at 258,684,910 Birr and is the
sum of the fixed investment cost and the initial working capital as shows in the table below

S/N Cost items Cost Remark

1 Fixed investment
1.1 Building and civil work 50,047,949
1.2 Machinery, testing equipment and measuring 53,836,962
instruments.
1.3 Office furniture and equipment’s 1,200,000
Sub total 105,084,912
2 Working capital
2.1 For erection and commissioning 1,925,000
2.2 Training, technology transfer and documents 2,574,999
2.3 Raw material 120,000,000
2.4 Cutter and consumables 2,150,000
2.5 Utilities 1,500,000
2.6 Transport and contingency 2,650,000
2.7 Wages and salary 6,000,000 2,000 per each
Sub total 136,799,999
Grand total 258,684,910
Loan Repayment Schedule

Repayment of principles is assumed to be equal instilment of the outstanding amount of each

year ending & interest rate would be assumed 13.5%. Therefore, the loan repayment schedule &
interest payable is calculated below

S/N Year Principal Interest Annual payment Outstanding

balance
258,684,910
1 End of year 1 51,736,982 34,922,462 38,367,024.05 206,947,928
2 End of year 2 51,736,982 27,937,970 35,274,756.44 155,210,946
3 End of year 3 51,736,982 20,953,477 32,182,488.83 103,473,964
4 End of year 4 51,736,982 13,968,985 29,090,221.22 51,736,982
5 End of year 5 51,736,982 6,984,492 25,997,953.61 000

Average interest = 20,953,477

Financial Viability
The annual production cost at full operation capacity is estimated at Birr 166,763,266 Table below. The
cost of raw material accounts is birr 120,000,000 (71%) of the production cost. The other major
components of the production cost are depreciation and average interest.

Annual production cost at full capacity

items Cost (Birr) Remark
Raw Material input 120,000,000
Utilities 1,500,000
Wages & Salaries 6,000,000
Transportation and Contingency 2,650,000
Cutter and consumables 2,150,000
Total operation costs 132,300,000
Depreciation 13,509,789
Average interest 20,953,477
Total production 166,763,266
Project Revenue

S/N Year Value (birr)

1 Net sales 246,443,500
2 Sales tax (VAT-15%) 36,966,525
3 Production cost 166,763,266
4 Gross profit 79,680,234
5 Income tax (30%) 23,904,070
6 Net profit (birr) 55,776,163

Pay-back Period

The pay-back period, also called pay – off period is defined as the period required for recovering
the original investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the project’s initial investment
will be fully recovered within 3.75 years.

Pay-back period = total investment cost

Net profit + total depreciation

= 258,684,910
(55,776,163+13, 509,789)

= 3.75 years

Simple Rate of Return

The internal rate of return (SRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate
of return for an investment is the discount rate that makes the net present value of the
investment's income stream total to zero. It is an indicator of the efficiency or quality of an
investment. As we seen from SRR analysis the result is greater than bank interest rate.

SRR = Net-profit + Av. Bank interest x 100%

Total investment

SRR= 55,776,163+20,953,477
258,684,910

= 29 %
IX. Annex:- Some of the products of the factory when it comes in to its full production.

Low value items High value items Equipments

Shafts different sizes sheave Trolleys
Sleeves Connecting shaft Assembled chains
Rings Proof shaft Cylinders boiler
Drums End shaft Automotive Body
Sprockets Middle shaft Plate blocks (jig and fixtures)
Gears Drive side shaft Frame (machine or building)
Pulleys machining of tail end Gang tree crane
sprocket for cane feeder
table
Sealing head end shaft for main
cane carrier
Gear housing tail end shaft for main cane
carrier
Chains Tail/take up
Keys Drive shaft with sprocket
Shafts Equalizer shaft
Pins
Flanges
Axle
Bushings
Threads (internal &external)
Bolt and nuts
Attritions works
Washers
Studs
Plates
Levers
Wheel
Knob
Seal
Toggle
Cotter
Disc
Screw
Rack and pinion