Essential Oil of Orange
Essential Oil of Orange
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TABLE OF CONTENTS
PAGE
I.
SUMMARY
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II.
222-3
III.
MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME
IV.
V.
VI.
VII.
FINANCIAL ANLYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS
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I.
SUMMARY
This profile envisages the establishment of a plant for the production of essential oil of orange with a capacity of 45 tones per annum.
1157 tones
per annum.
The total investment requirement is estimated at about Birr 4.31 million, out of which Birr 2.2 million is required 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 1.49 million discounted at 8.5%.
II.
The essential oil of orange has a dominant volatile component, limonene, about 90%. In addition, citral, citronellal and methyl anthranilate are parts of the essential oil.
The essential oil of orange is used in beverages, ice creams, perfumes and cosmetics.
A.
MARKET STUDY
1.
Orange oil is used as a flavoring agent in deserts, soft drinks, ice creams and odorants in perfumery and cosmetics. The local demand for orange oil is met through imports. In order to determine the current effective demand for essential oil of orange, the imported quantity of essential oils of orange and other essential oils of a kind used in non alcoholic drink industries and in preparation of flavoring food (excluding essential oils used in alcoholic drinks, medicaments etc) is presented in Table 3.1.
Table 3.1 IMPORT OF ESSENTIAL OIL OF ORANGE AND OTHER ESSENTIAL OILS USED IN NON ALCOHOLIC DRINKS AND FLAVORING FOOD
As could be seen from Table 3.1 import of essential oils of orange and other essential oils used in non-alcoholic beverages and in preparation of flavoring food has been increasing from year to year. The amount of import which was 279,069 kg during year
222-5 2000 has increased to 521,573 kg and 964,083 kg by the year 2003 and 2006, respectively. Annual average growth rate during the past seven years was more than 20%.
Since the consumption of the product in the past seven years has been annually increasing by about 20% current effective demand is estimated at 1,157 tons by taking year 2006 as a base.
2.
Demand Projection
The demand for essential oils of orange will increase with the expansion and establishment of the food and soft drinks industries. Due to the favorable climate created for domestic and foreign investors a number of food and soft drinks factories are in pipe line for establishment. Although the demand for the product has been increasing by more than 20% in the past seven years a conservative growth rate of 8% is taken to project the future demand (see Table 3.2.)
Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Quantity (kg) 1,250 1,350 1,457 1,574 1,700 1,836 1,983 2,142 2,313 2,498
Based on Customs Authority data (year2006) a factory gate price of Birr 120 per k.g is recommended.
The product can be sold directly to the end users mainly for food and soft drinks factories.
B.
1.
Plant Capacity
The annual production capacity of the proposed project is 45 tones of orange peel oil, based on 300 working days and three shifts per day.
2.
Production Program
The production program is indicated in Table 3.3. At the initial stage of the production period, the plant requires some years to penetrate the market. Therefore, in the first and second year of production, the capacity utilization rate will be 70% and 90% respectively. In the third year and then after, full capacity production shall be attained. .
Product 1 1 2 Orange peed oil (ton) Capacity Utilization Rate (%) 33.75 70
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IV.
A.
The essential ail content of orange peel is about 1 to 2.5 %. The annual orange peel requirement and estimated cost is indicated in Table 4.1.
Table 4.1 ANNUAL RAW AND AUXILIARY MATERIALS REQUIREMENT & COST (AT FULL CAPACITY)
Qty 3000 45
2,750.4
Utilities of the project are electricity, fuel oil and water. The annual utility requirement and its cost are indicated in Table 4.2. Table 4.2 ANNUAL UTILITY REQUIREMENT AND COST Sr. No. 1 2 3 Electricity Furnace oil Water Total Kwh lt M3 150.000 270,000 5000 71.1 1460.7 50 1581.8 Utility Unit Qty Cost (1000 Birr)
A.
TECHNOLOGY
1.
Process Description
First the orange peel shall be chopped in small pieces; to that steam can easily vaporize the essential oil in the peel.
The steam, produced in a boiler is introduced into an evaporation kettle which contains the chopped orange peel and water. The peel is located on a grid placed at a certain distance above the level of the water which fills the bottom of the vessel. The water is vaporized indirectly, by steam flowing in a pipe coil submerged by the water. The water vapor plus the distilled oil coming from the evaporator is recovered in a separate water cooled condenser.
The mixture flowing out of the condenser is separated in a Florentine flask. The essential oil is collected at the top and distilled water leaves the leaves the flask at the bottom. As water still contains some soluble parts of the oil, it is sent back to the evaporator to recover the soluble components by means of second distillation.
2.
Source of Technology
Among the different suppliers of essential oil production machinery the following company can be requested for an after:
Food and Biotech Engineers Khwaja, Faridabad Haryana- 121003, India Phone: +91-129-2510924 Website: http://www.dairyfoodtech.Com.
222-9 B. ENGINEERING
1.
The list of machinery and equipment is shown in Table 5.1. The total cost of machinery is estimated at Birr 2.2 Million of which Birr 1.83 Million is in foreign currency.
Description
No
2.
The total area of the required by the project is about 1500 m2 of which 350 m2 is a builtup area. The cost of buildings is estimated at Birr 525,000. The lease value of land is calculated to be Birr 120,000 at a rate of 1 Birr / m2 / years for 80 years.
3.
Arbaminch town is the best location of the project, for its proximity to raw material sources.
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VI.
A.
MANPOWER REQUIREMENT
The list of manpower and the annual labour cost are indicated in Table 6.1. The total annual labour cost is estimated at Birr 213,000.
Sr. No. 1 2 3 4 5 6 Manpower General Manager Production Head Accountant Operators Laborers Guards Subtotal Benefit (25%BS) Total No 1 1 1 6 8 2 19
Monthly Salary (Birr) 3000 2000 2000 4200 2400 600 14,200 3,550 17,750
Annual Salary (Birr) 36,000 2400 2400 50,400 28,800 7200 170.400 42,600 213,000
B.
TRAINING REQUIREMENT
Training of labour force is carried out during plant erection by the experts of machinery suppliers. The cost of training is estimated at Birr 20,000
Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable
A.
The total investment cost of the project including working capital is estimated at Birr 4.30 million, of which 39 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.
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Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share
Total Cost (000 Birr) 120 525.00 2,200.00 75 200 302.60 886.25 4,308.9 39
* N.B Pre-production expenditure includes interest during construction ( Birr 202.60 thousand ) training (Birr 20 thousand ) and Birr 80 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.
B.
PRODUCTION COST
The annual production cost at full operation capacity is estimated at Birr 5.11 million (see Table 7.2). The material and utility cost accounts for 83.73 per cent, while
repair and maintenance take 1.46 per cent of the production cost.
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Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost
Cost 2,705.00 1581.8 75 127.8 42.6 85.2 4,617.40 313.75 188.57 5,119.72
% 52.83 30.90 1.46 2.50 0.83 1.66 90.19 6.13 3.68 100
C.
FINANCIAL EVALUATION
1.
Profitability
According to the projected income statement, the project will start generating profit in the first 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
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2.
Break-even Analysis
The break-even point of the project including cost of finance when it starts to operate at full capacity ( year 3) is estimated by using income statement projection.
BE =
31 %
3.
The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 6 years.
4.
Based on the cash flow statement, the calculated IRR of the project is 18 % and the net present value at 8.5% discount rate is Birr 1.49 million.
D.
ECONOMIC BENEFITS
The project can create employment for 19 persons. In addition to supply of the domestic needs, the project will generate Birr 1.37 million in terms of tax revenue. The
establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.