16.
PROFILE ON SANITARY
NAPKINS
16 - 2
TABLE OF CONTENTS
PAGE
I SUMMARY 16 - 3
II PRODUCTION DESCRIPTION AND APPLICATION 16 - 3
III MARKET STUDY AND PLANT CAPACITY 16 - 3
A. MARKET STUDY 16 - 3
B. PLANT CAPACITY AND PRODUCTION PROGRAMME 16 - 5
IV MATERIALS AND INPUTS 16 - 5
A. MATERIALS 16 - 5
B. UTILITIES 16 - 5
V TECHNOLOGY AND ENGINEERING 16 - 5
A. TECHNOLOGY 16 - 5
B. ENGINEERING 16 - 5
VI MANPOWER AND TRAINING REQUIREMENT 16 - 7
A. MANPOWER REQUIREMENT 16 - 7
B. TRAINING REQUIREMENT 16 - 7
VII FINANCIAL ANALYSIS 16 - 7
A. TOTAL INITITAL INVESTMENT COST 16 - 8
B. PRODUCTION COST 16 - 8
C. FINANCIAL EVALUATION 16 - 9
D. ECONOMIC BENEITS 16 - 10
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I. SUMMARY
This profile envisages the establishment of a plant for the production of 900 tonnes of
sanitary napkins per annum.
The present demand for the proposed product is estimated at about 12778 tonnes per
annum. The demand is expected to reach 23319 in year 2013.
The plant will create employment opportunities for 28 persons.
The total investment requirement is estimated at Birr 10.20 million, out of which Birr
1.09 million is for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 18% and a net
present value (NPV) of Birr 3.82 million, discounted at 10.5%.
II. PRODUCT DESCRIPTION AND APPLICATION
Sanitary napkin is a piece of soft paper cut to required size and packed which is used
for wiping the lips and / or finger after a meal. As a result, the proposed product has a
wide application and use by the middle and upper class citizens. Sanitary napkin is
also widely used in occasional ceremonies like wedding, birthday party and other
farewells where provision of water for washing is either inconvenient or
uneconomical.
III. MARKET STUDY AND PLANT CAPACITY
A. MARKET STUDY
1. Past Supply and Present Demand
Napkin is tissue paper used for sanitary purposes. Modern living requires the usage of
napkins now and then. Paper napkins are popular enough due to the growing
awareness of health standard of living.
Data on the domestic production of napkins is not available. However, MAMCO and
Yekatit Paper Converting are producers of napkin in the country. According to
retailers in the field the domestic supply covers about 60% of the total supply. Taking
into consideration the direct imports of international hotels, it is assumed that 40% of
the total supply is covered by domestic supply.
Import of napkins for the years 1994-97 is presented in Table 3.1. The 1994-96
import of napkins ranges between 4.9 and 6.2 tons while in 1997 is shot up to 100.4
tons. In 1999 it declined to 30.7 tons. For the purpose of this study both the 1997 and
1998 import are disregarded and the 1994-96 average i.e. 5.634 ton considered.
Napkins being consumed in urban areas the current effective demand for napkins is
estimated by applying the average urban population growth rate i.e. 4.5%. Hence, the
current effective demand for napkins is estimated at 12,778 tons the share of imported
and domestic supply being 7,667 tons and 5,111 tons respectively.
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Table 3.1
IMPORT OF NAPKIN
Year Kg
2004 6,151
2005 4,906
2006 5,844
2007 100,440
2008 30,736
2. Demand Projection
The demand for napkins is related with increased health standards and modernization,
changes in life style. It will therefore be appropriate to associate the demand for
napkins with the GDP growth rate. Projected demand for napkins by employing the
1998/99-1997/98 GDP growth rate i.e. 6.2% is presented in Table 3.2. The regional
demand for Tigray region is derived from the country level estimated demand in
accordance with the ratio of urban population in the region i.e. 6.8%.
Table 3.2
PROJECTED DEMAND FOR NAPKINS
Demand Country Demand Tigray Region
Year Level (kg) (kg)
2004 13,570 923
2005 14,412 980
2006 15,305 1041
2007 16,254 1105
2008 17,262 1174
2009 18,332 1247
2010 19,469 1324
2011 20,676 1406
2012 21,958 1493
2013 23,319 1586
3. Pricing And Distribution
A packet of napkin composed of three ply ten sheets (20 gm) is retailed at Birr 1.00 in
Addis Ababa. The recommended price of the new project is Birr 0.70 for the same
type of packet. The products needs a very wide retailer chain in widespread areas
covering almost all shops of towns and cities.
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B. PLANT CAPACITY AND PRODUCTION PROGRAMME
1. Plant Capacity
Based on the indication of the market assessment, the suggested plant capacity is 900
tonnes per annum. The plant is envisaged to operate in a single shift a day for 270
days a year.
2. Production Programme
The plant is expected to operate at 100% of the rated capacity starting from the first
year.
IV. MATERIALS AND INPUTS
A. MATERIALS
The major raw and auxiliary materials required are absorption paper, water proof
paper, crushed pulp and rayon paper, laminated paper, adhesive tape and polyethylene
film. Annual raw material requirement is estimated to be 1,404 tons of different types
of pulp paper, 35 tons of adhesives, and 4,350 rolls of polythene film. Most of the
materials and inputs required for the manufacturing of sanitary napkin are imported.
Estimated annual cost of raw and auxiliary materials and inputs at full capacity of the
plant is Birr 29.3 million.
B. UTILITIES
The major utilities required are electric power and water for general purposes. The
annual consumption of electric power and water is 41,200 kWh and 1,300 m 3,
respectively. The total cost of utilities is estimated to be 2,000 Birr.
V. TECHNOLOGY AND ENGINEERING
A. TECHNOLOGY
1. Production Process
The manufacturing process of sanitary napkin will differ depending on the raw
materials used, the shape of finished products, the size etc. Therefore, there is no
fixed method of manufacturing and processing. The required materials are cut to
desired size using scissors.
Then they are laid step by step and rolled one after the other sequentially to have
absorption and strength against leak.
After the napkin is covered by laminated paper, adhesive tape is stripped horizontally
so as to fix the napkin to the position in order to have stability to bodily movement.
Finally, the napkin is packed by polyethylene film.
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2. Source of Technology
The source of technology can be countries like Korea, India and China, etc. the
addresses of some of which is given here below:-
- China National Machinery
Import and Export Corporation
Shandong Branch
82 Fan/ Hsia Road
Tsinglao
China
- The National Small Industries Corporation Limited
Ladha Udying Bhavan
New Delhi - 100 020
India
B. ENGINEERING
1. Machinery and Equipment
The major machinery and equipment required comprise a set of sanitary napkin
machines, a small conveyor, a hoist and sealing machine. The machinery and
equipment required and their estimated cost are given in Table 6.1.
Table 6.1
MACHINERY AND EQUIPMENT REQUIREMENT AND
THE ESTIMATED COSTS
Qty Cost ('000 Birr)
No. Description (set) F.C L.C Total
1 Sanitary napkin 1
manufacturing machine
2 Conveyor (small) 1
3 Hoist 1
4 Sealing machine 1
5 Others, set 1
Total Land Cost - 979.00 108.80 1,087.80
2. Buildings And Civil Works
The total site area required including parking is estimated to be 500 square meters.
The cost for land holding for 70 years is estimated at Birr 87,500.
The total built-up area for housing of machinery, storage of products and office is
about 350 m2. The total cost of construction is estimated at Birr 490,000.
3. Proposed Location
Since the sanitary napkin is mostly used by urban population and in institutions like
restaurants and hotels that are characteristic for towns, it will be appropriate to
establish the envisaged plant in towns of the region like Mekele and others,
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VI. MANPOWER AND TRAINING REQUIREMENT
A. MANPOWER REQUIREMENT
The plant requires 28 workers. The total annual cost of labour including employees
benefit is estimated at Birr 193,680. For further details see Table 7.1.
B. TRAINING REQUIREMENT
The shift leader, four operators, one mechanic and one electrician require a few weeks
training on machine operation and production technology. Since it is a simple
manufacturing process plant, training of the other workers is not required. Training is
assumed to be free of charge but local cost is estimated to be Birr 12,000.
Table 7.1
MANPOWER REQUIREMENT AND ESTIMATED LABOUR COST
Item No. of Salary (Birr)
No. Job Title Persons Monthly Annual
1 Plant Manager 1 1,800 21,600
2 Secretary 1 700 8,400
3 Accountant 1 600 7,200
4 Cashier 1 500 6,000
5 Salesman 1 500 6,000
6 Store keeper 1 500 6,000
7 Purchaser 1 500 6,000
8 Personnel 1 700 8,400
9 Mechanic 1 600 7,200
10 Production Head 1 1,500 18,000
11 Shift leader 1 750 9,000
12 Operator 4 1600 19,200
13 Assist Operator 4 1000 12,000
14 Electrician 1 600 7,200
15 Labourer 3 450 5,400
16 Driver 2 700 8,400
17 Guard 3 450 5,400
18 Sub Total 28 13,450 161,400
Employees' benefit 20% of basic 2,690 32,280
salary
Total 16,140 193,680
VII. FINANCIAL ANALYSIS
The financial analysis of the sanitary napkins project is based on the data presented in
the previous chapters and the following assumptions:-
Construction period 2 years
Source of finance 30 % equity
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70 % loan
Tax holidays 3 years
Bank interest 10.5%
Discounted cash flow 10.5%
Land value Based on estimated lease rate of the region
Repair and maintenance 5% of the total plant and machinery
Accounts receivable 30 days
Raw material, local 30 days
Raw material, import 90 days
Work in progress 2 days
Finished products 30 days
Cash in hand 25 days
Accounts payable 30 days
A. TOTAL INITIAL INVESTMENT COST
The total investment cost of the project including the working capital is estimated at
about Birr 10.20 million, out of which 78 per cent will be required in foreign
currency. The major breakdown of the total initial investment cost is shown in Table
7.1.
Table 7.1
INITIAL INVESTMENT COST ('000 BIRR)
Cost Items Foreign Local Total
Currency Currency
1 Land - 87.5 87.5
2. Building and Civil Work - 490.0 490.0
3. Plant Machinery and Equipment 979.0 108.8 1,087.8
4. Office Furniture and Equipment - 125.0 125.0
5. Vehicle - 175.0 175.0
6. Pre-production Expenditure* - 478.6 478.6
Total Investment cost 979.0 1,464.9 2,443.9
7 Working Capital 6,984.54 776.06 7,760.6
Total 7,963.54 2,241.06 10,204.6
B. PRODUCTION COST
The annual production cost at full operation capacity is estimated at about Birr 29.9
million (see Table 7.2). The material and utility cost accounts for 98 per cent while
repair and maintenance take 0.2 per cent of the production cost.
____
* Pre production expenditure include interest during construction ( Birr 328,630
training (Birr 12,000) and cost of registration, licensing and formation of the
company including legal fees, commissioning expenses, etc.
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Table 7.2
ANNUAL PRODUCTION COST ('000 BIRR)
Year
Items 3 4 7 10
Raw Material and Inputs 29,300.00 29,300.00 29,300.00 29,300.00
Labour direct 96.8 96.8 96.8 96.8
Utilities 2.0 2.0 2.0 2.0
Energy and Power
Spare parts
Maintenance and repair 54.4 54.4 54.4 54.4
Factory overheads 32.3 32.3 32.3 32.3
Administration Overheads 64.6 64.6 64.6 64.6
Total Operating Costs 29,550.1 29,550.1 29,550.1 29,550.1
Depreciation 212.0 212.0 212.0 147.0
Cost of Finance 189.8 177.2 139.2 101.2
Total Production Cost 29,951.9 29,939.3 29,901.3 29,798.3
C. FINANCIAL EVALUATION
1. Profitability
According to the projected income statement, the project will start generating profit in
the second year of operation. Important ratios such as profit to total sales, net profit
to equity (Return on equity) and net profit plus interest on total investment (return on
total investment) show an increasing trend during the life-time of the project.
The income statement and the other indicators of profitability show that the project is
viable.
2. Break-even Analysis
The break-even point of the project is estimated by using income statement projection.
BE = Fixed Cost = 11%
Sales – Overhead Cost
3. Pay Back Period
The investment cost and income statement projection are used to project the pay-back
period. The project's initial investment will be fully recovered within 8 years.
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4. Internal Rate of Return and Net Present Value
Based on the cashflow statement, the calculated IRR of the project is 18% and the net
present value at 10.5% discount rate is Birr 3.82 million.
D. ECONOMIC BENEFITS
The project can create employment for 28 persons. In addition to supply of the
domestic needs, the project will generate Birr 6.33 million, interms of tax revenue.
Moreover, the Regional Government can collect employment, income tax and sales
tax revenue. The establishment of such factory will have a foreign exchange saving
effect to the country by substituting the current imports.
