Business Title:

“Bio-degradable Plastic Bags Manufacturing Unit”.

Location:

Bio-degradable Plastic Bags Manufacturing Unit is proposed to be located at semi-

urban areas where competition is less as compared to the urban areas like Karachi,
Lahore and Islamabad.

20 km Bahawalpur bypass road, Multan ,Punjab, Pakistan.

Product Line:

Products include Pure Bio-degradable Plastic Bags, Recycled Bio-degradable

Plastic Bags of various sizes from size 2inch -40inch and thickness from 40 micron -
100 micron.

Business environment:
Biodegradable bags are bags that are capable of being decomposed by bacteria or
other living organisms. Every year approximately 500 billion to 1 trillion plastic bags are
used worldwide.
In typical parlance, the word biodegradable is distinct in meaning from compostable.
While biodegradable simply means an object is capable of being decomposed by
bacteria or other living organisms, "compostable" in the plastic industry is defined as
able to decompose in aerobic environments that are maintained under specific
controlled temperature and humidity conditions. Compostable means capable of
undergoing biological decomposition in compost site such that the material is not
visually distinguishable and breaks down into carbon dioxide, water, inorganic
compounds and biomass at a rate consistent with known compostable materials.
The inclusion of "inorganic materials" precludes the end product from being considered
as compost, or humus, which is purely organic material. Indeed, under the ASTM
definition, the only criterion needed for a plastic to be called compostable is that it has to
appear to go away at the same rate as something else that one already knows is
compostable under the traditional definition.
Plastic bags can be made "oxo-biodegradable" by being manufactured from a normal
plastic polymer (i.e. polyethylene) or polypropylene incorporating an additive which
causes degradation and then biodegradation of the polymer (polyethylene) due
to oxidation.
The plastic packaging sector is growing industrial segment in Pakistan. The increased
trade and commercial activity in consumer and industrial sectors, changing lifestyle,
increased population and growth in retail business has created a great demand for
supply of plastic bags as most of the consumer sector use plastic bags while delivering
their products to the customer.
Pakistan-Environmental Protection Agency (Pak-EPA) conducted a study that showed
that in the early 1990s as many as 12 billion plastic bags a year were produced in
Pakistan. By the years 2007-08, the production went higher than 55 billion per year. In
addition, the projected projection of plastic bags by 2017-18 stood at 135 billion a year.
Today 600,000 people directly and 900,000 indirectly involved in the production of
plastic bags in more than 8,000 manufacturing units spread across the country, mostly
Lahore, Karachi and Peshawar. Due to environmental pollution problems, Government
of Pakistan has imposed a ban on non-biodegradable plastic bags like other countries
to encourage Bio-degradable Plastic Bags. The production of biodegradable plastic
bags does not require a major change of machinery or process. It involves mixing a
small quantity of a petroleum based compound or olefin with the polyethylene resins.
The olefin introduces biodegradation characteristics to the plastic, which are activated
when the plastic comes in contact with air. From there on, bacteria can decompose the
weak molecular structure of the plastic.

Here are some of the points which make us different from our competitors:

 Highlights advantages in a classy way( through advertising, conducting seminars

etc).
 Staying 100% honest with our product.
 Uses humor to gain customers.
 Doesn’t use any stupid gimmicks.
 Communicates what the market cares about
 Didn’t fall into the trap of competitor-bashing.

BRIEF DESCRIPTION OF PROJECT & PRODUCT

The plastic packaging sector is growing industrial segment in Pakistan. The increased
trade and commercial activity in consumer and industrial sectors, changing lifestyle,
increased population and growth in retail business has created a great demand for
 supply of plastic bags as most of the consumer sector use plastic bags while delivering
their products to the customer.
Pakistan-Environmental Protection Agency (Pak-EPA) conducted a study that showed
that in the early 1990s as many as 12 billion plastic bags a year were produced in
Pakistan. By the years 2007-08, the production went higher than 55 billion per year.
In addition, the projected projection of plastic bags by 2014-15 stood at 112 billion a
year. Today 200,000 people directly and 600,000 indirectly involved in the production
of plastic bags in more than 8,000 manufacturing units spread across the country,
mostly Lahore, Karachi and Peshawar.
Due to environmental pollution problems, Government of Pakistan has imposed a ban
on non-biodegradable plastic bags like other countries to encourage Bio-degradable
Plastic Bags. The production of biodegradable plastic bags does not require a major
change of machinery or process. It involves mixing a small quantity of a petroleum
based compound or olefin with the polyethylene resins. The olefin introduces
biodegradation characteristics to the plastic, which are activated when the plastic
comes in contact with air. From there on, bacteria can decompose the weak molecular
structure of the plastic.
Following key parameters must be addressed as per pre-feasibility study under
preparation:

 Technology: This proposed unit including hopper, extruder, cooling tower,

sealing and cutting machines which will produce plastic bags of different sizes
using pure and recycled raw material.
 Materials:
Most bags that are manufactured from plastic are made from corn-based materials,
like polylactic acid blends. Biodegradable plastic bags are nowadays as strong and
reliable as traditional (mostly polyethylene)-bags. Many bags are also made from
paper, organic materials, or polycaprolactone.
"The public looks at biodegradable as something magical," even though the term
is broadly used, according to Ramani Narayan, a chemical engineer at
Michigan State University in East Lansing, and science consultant to the
Biodegradable Plastics Institute. "This is the most used and abused and
misused word in our dictionary right now. In the Great Pacific garbage patch,
biodegradable plastics break up into small pieces that can more easily enter
the food chain by being consumed."

 Recycling:
In-plant scrap can often be recycled but post-consumer sorting and recycling is difficult.
Bio-based polymers will contaminate the recycling of other more common polymers.
While oxo-biodegradable plastic manufacturers claim that their bags are recyclable,
many plastic film recyclers will not accept them, as there have been no long-term
studies on the viability of recycled-content products with these additives. Further, the
Biodegradable Plastics Institute (BPI) says that the formulation of additives in oxo films
varies greatly, which introduces even more variability in the recycling process.

 Marketing qualification and legal issues:

Since many of these plastics require access to sunlight, oxygen, or lengthy periods of
time to achieve degradation or biodegradation, the U.S. Federal Trade Commission's
Guides for the Use of Environmental Marketing Claims, commonly called the "green
guide," require proper marking of these products to show their performance limits.
The Federal Trade Commission provides an example:
Example : A trash bag is marketed as "degradable," with no qualification or other
disclosure. The marketer relies on soil burial tests to show that the product will
decompose in the presence of water and oxygen. The trash bags are customarily
disposed of in incineration facilities or at sanitary landfills that are managed in a way
that inhibits degradation by minimizing moisture and oxygen. Degradation will be
irrelevant for those trash bags that are incinerated and, for those disposed of in landfills,
the marketer does not possess adequate substantiation that the bags will degrade in a
reasonably short period of time in a landfill. The claim is therefore deceptive.
Since there are no pass-fail tests for "biodegradable" plastic bags, manufacturers must
print on the product the environmental requirements for biodegradation to take place,
time frame and end results in order to be within US Trade Requirements.
In 2007, the State of California essentially made the term "biodegradable bags" illegal,
unless such terms are "substantiated by competent and reliable evidence to prevent
deceiving or misleading consumers about environmental impact of degradable,
compostable, and biodegradable plastic bags, food service ware, and packaging."
In 2010, an Australian manufacturer of plastic bags who made unsubstantiated or
unqualified claims about biodegradability was fined by the Australian Competition and
Consumer Commission, which is the Australian equivalent of the U.S. Federal Trade
Commission.
In recent years, the Biodegradable Products Institute and related companies have
claimed products compost in available compost facilities at 60 °C (140 °F). The Vermont
attorney general found these claims to be misleading and sued compostable plastic
companies for false claims

 Target Market: The target customers will be distributors and retailers of consumer
goods, which include grocery stores, bakeries, shopping malls, hardware shops,
boutiques, garment shops, etc.
 Production Process Flow:

Stage 1

1. The machine operator pours the polyethylene resin into the hopper along with the
additives d2w (for converting it into bio-degradable) and master batch (for color adding
purposes)

2. The hopper feeds the resin into the extruder

3. Extruder melts the resin into molten form under 200 oC maintained temperature

4. The molten poly flows evenly up and over the circular die

5. The machine operator grabs the molten poly and pinches it together

6. Air ring blows air upward, to avoid sticking together and solidify the molten poly
7. The guides gradually flatten the solidified poly

8. Nip rollers grab the solidified film at the top of cooling tower

9. The lay flat film travels over a series of rollers

10. The film is wound on a roll and then taken out of line for further processing at a
converting facility

Stage 2

10. The wounded film on a roll taken in of line for further processing
11. Seals bottom of the tubes
12. Separator separates the tubes
13. Pile up stacks of plastic bags
14. Packer inspects product and places in carton

 Installed and Operational Capacities:

The operational capacity of this unit is 1,000 Kg per day. The assumed operational
capacity during the first year of operations is 60% on double shift basis with annual
increase of 5%.

 Critical Factors:

The main critical success factors that affect the decision to invest in the
proposed business setup are:

 Availability of continuous power supply

 Securing a regular source of raw material at competitive prices
 Machine operators with technical knowledge
 Credit Recovery
 Background Experience
 Marketing Skill
 Product size and quality with respect to market demand

Project Cost:

Description Amount
(Rs.)
Capital Cost
Plant and Machinery (2) 1,800,000
Furniture & Fixture (3) 140,000
Office Equipment (4) 104,000
Office Vehicles (5) 698,000
Pre-operating Cost 352,196
Legal, Licensing and Training Costs 50,000
Total Capital Cost 3,144,196
Working Capital
Equipment Spare Part Inventory 3,750
Raw Material Inventory 841,500
Up-front Building Rent (1) 360,000
Cash 1,000,000
Total Working Capital 2,205,250
Total Project Cost 5,339,446
 Space Requirement

The space requirement for the proposed Bio-degradable Plastic Bag unit is estimated
as follows, considering various facilities which includes management building and
factory. Details of space requirement and cost related to building rent are given below:

Space Requirement(1)
Description Estimated Total Rent Total Rent
Area (Monthly) (Yearly)
(Sqft) (Rs.) (Rs.)
Rented Space 1,500 30,000 360,000
Total 360,000

Machinery & Equipment Requirement

Plant, machinery and equipment for the proposed project are stated below:

Table 9.5: Machinery &

Equipment (2)
Description Quantity Unit Cost Total Cost
(Rs.) (Rs.)

Plastic Bags Manufacturing Unit 1 1,400,000 1,400,000

(Imported)

Generator (25 KVA) 1 400,000 400,000

Total 1,800,000

Furniture & Fixtures Requirement (3)

Details of the furniture and fixture required for the project are given below:

Description Quantity Unit Cost Total Cost

(Rs.) (Rs.)
Table, Visitor Chairs & Cabinets 2 70,000 70,000
Total 140,000
 Office Equipment Requirement (4)

Following office equipment will be required for Bio-degradable Plastic Bag unit:

Table 9.7: Office Equipment

Description Quantity Unit Cost Total Cost
(Rs.) (Rs.)

Computer 2 35,000 70,000

Printer 1 15,000 15,000

Telephone Sets 2 2,000 4,000

Fax Machine 1 15,000 15,000

Total 104,000

Office Vehicles Requirement (5)

Following office vehicles will be required for Bio-degradable Plastic Bag unit:

Description Quantity Unit Cost Total Cost

(Rs.) (Rs.)

Suzuki Ravi 1 650,000 650,000

Motor bike 70 cc 1 48,000 48,000

Total 698,000

Human Resource Requirement (6)

In order to run operations of Bio-degradable Plastic Bag unit smoothly, details of

human resources required along with number of employees and monthly salary are
recommended as following:
Description No. of Monthly Monthly
Employees Salary per Salary
person (Rs.) (Rs.)
Accountant 1 30,000 30,000
 Machine Operator – (2 shifts) 2 30,000 60,000
Plant Helper – (2 shifts) 4 20,000 80,000
Guard – (2 shifts) 2 20,000 40,000
Total 210,000

Utilities and other costs

The direct electricity expenses are estimate to be around Rs.162,360 per month,
whereas, pure and recycled polyethylene resins are Rs.180 and Rs.130 per Kg
respectively. Furthermore, cost of additives d2w is estimated as Rs.15 per Kg of
polyethylene resin.
Revenue Generation

Based on the capacity utilization of 50% and 50% for Pure Bio-degradable Plastic
Bags and Recycled Bio-degradable Plastic Bags respectively, sales revenue
during the first year of operations is estimated as under:
Description No. of Finished Units Sale Sales
Units Goods available Price / Revenue
Produced Inventory for Sale Kg (Rs.) (Rs.)
(Kg) (Kg) (Kg)
Combine Average 198,000 2,475 195,525 225 43,993,125
Total 43,993,125

Machinery Suppliers

The machinery suppliers easily available in the areas like Shershah in

Karachi, Railway Road in Lahore and State two in Gujranwala.
For Imported Machinery following can be contacted:

Name of Supplier Plastipack Machines (PVT.) LTD

G-2, State Life Building No. 3, Dr.Ziauddin Ahmed Road,

Address
Karachi – 75530, Pakistan.

Phone (+92-21) 35684449 Fax (+92-21) 35682150

E-mail [email protected]

Website www.plastipack.com
 Raw Material Suppliers

The raw material suppliers easily available in the areas like Jodia Bazar in
Karachi, Shahalmi Market in Lahore and Daal Bazar & Rail Bazar in Gujranwala.

Technical Experts / Consultants

Name of Expert
/Organization Fawad Aftab / Premier Plastic Industries (PVT) LTD

Plot # 229 Suparco Road, on Hub River Road, Opp. TCF

Address
School Mouch Goth, Karachi, Pakistan.

Phone (+92-21) 32819055-6 Fax (+92-21) 32819057

E-mail [email protected]

Website www.premierplastics.com.pk

Operating Cost Assumptions

Description Details
Shift Length 12 hours
Number of shifts 2
Days operational per year 330 days
Calculations
Income Statement

Year 1 Year 2

Revenue 43,993,125 50,626,898

Cost of sales
Cost of goods sold 1 33,660,000 38,288,250
Operation costs 1 1,659,000 1,841,795
(direct labor) 90,000 99,000
Operating costs 2 (machinery 1,948,320 2,321,748
627,660 747,962
maintenance) Operating costs
3 (direct electricity)

Total cost of sales 37,984,980 43,298,754

Gross Profit 6,008,145 7,328,144

14% 15%
General administration & selling expenses
Administration expense 1,320,000 1,448,517
Administration benefits expense 92,400 101,396
Building rental expense 360,000 396,000
Distribution Expense 86,031 94,289
Electricity expense 114,240 123,379
Communications expense (phone, fax, mail, 66,000 72,426
internet, etc.)
Office vehicles running expense 244,300 268,730
Office expenses (stationary, entertainment, 52,800 57,941
janitorial services, etc.)
Marketing & selling 439,931 506,269
Professional fees (legal, audit, consultants, etc.) 87,986 101,254
Depreciation expense 517,000 517,000
Amortization of pre-operating costs 70,439 70,439
Amortization of legal, licensing, and training 10,000 10,000
costs
Bad debt expense 879,863 1,012,538
Miscellaneous expense 1 500,000 525,000

Subtotal 4,840,990 5,305,178

Operating Income 1,167,155 2,022,966

Gain / (loss) on sale of machinery & equipment - -

Gain / (loss) on sale of office vehicles - -

1,167,155 2,022,966
Earnings Before Interest & Taxes

Interest expense on long term debt (Project 398,416 342,726

Loan)

Subtotal 398,416 342,726

Network Diagram

A=Marketing survey

B=Search of supplier for machinery

C= Search of supplier for Raw material

D=Investment management

E= Machinery import

F= Hiring labor

G=Site selection and rent

H=Vehicles

I=Start operations

B D G

A H I

C E F
Risk Factor

1. Team experience and depth risk.

2. Market and opportunity risk.
3. Competitive risk.
4. Market entry strategy risk.
5. Political and economic risk
6. Technology risk
7. Operational risk.