Pre-Feasibility Report

1st Draft

PRE-FESIBILITY STUDY

(Sheep Fattening)

PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD

MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH

Government of Pakistan

www.parc.gov.pk

January 2014

1 CONTENTS 1. DISCLAIMER...... 1 2. PURPOSE OF THE DOCUMENT...... 2 3. INTRODUCTION TO SCHEME...... 2 4. EXECUTIVE SUMMARY...... 2 5. BRIEF DESCRIPTION OF PROJECT...... 2  Selection of Suitable Breed……………………………………………………………………….3  Location…………………………………………………………………………………………..3  Target Markets……………………………………………………………………………………3  Employment Generation…………………………………………………………………………3 6. CRITICAL FACTORS...... ….3 7. OPERATIONAL CAPACITIES...... 4 8. POTENTIAL TARGET MARKET...... 4 9. PRODUCTION PROCESS FLOW...... 4 10. BREED SELECTION...... 4 11. PROJECT COST SUMMARY...... 4 12. PROJECT ECONOMICS……..………………………………………………………………………4 13. PROJECT FINANCING……..………………………………………………………………………..5 a. Project Cost………………………………………………………………………….……5 b. Space Requirement……………………………………………………………………….5 c. Machinery and Equipment……..……………………………………………………..….6 d. Human Resource Requirement……………………..…………………………………....6 e. Revenue Generation………………………………………………………………………6 14. CONTACTS-SUPPLIERS, EXPERTS/CONSULTANTS……………………………………………6 15. ANNEXURES...... 7 16. KEY ASSUMPTIONS...... …9

ii L IST OF T ABLES

Table 1: Project Economics 4

Table 2: Project Financing 5

Table 3: Project Cost 5

Table 4: Space Requirement 5

Table 5: List of Machinery and Equipment 6

Table 6: Human Resource Requirement 6

Table 7: Revenue Generation 6

L IST OF ANNEXURES

14.1. Income Statement 7

14.2. Cash Flow Statement 8

iii 1. DISCLAIMER

This information memorandum is to introduce the subject matter and provide a general idea and information on the subject. Although, the material included in this document is based on data / information generated from experiments and field testing by a team of relevant scientists; however, it is based upon certain assumptions which may differ from case to case. The contained information may vary due to any change in any of the concerned factors, and the actual results may differ accordingly from the presented information. The PARC and its employees do not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The prospective user of this memorandum is encouraged to contact qualified consultant/technical expert, especially designated focal person(s) of this enterprise for reaching to an informed decision.

1 2. PURPOSE OF DOCUMENT The purpose of this document is to facilitate potential investors in Sheep Fattening by providing them with a general understanding of the business, with the intention of supporting potential investors in crucial investment decisions. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, production, finance, and business management. The need to come up with pre- feasibility reports for undocumented or minimally documented sectors attains greater imminence as the research that precedes such reports reveal certain thumb rules; best practices developed by existing enterprises by trial and error, certain industrial norms and well established research findings that become a guiding source regarding various aspects of business set-up and it’s successful management. Apart from carefully studying the whole document, one must consider critical aspects provided later on, which form the basis of investment decisions.

3. INTRODUCTION TO SCHEME Prime Minister’s Youth Business Loan Program, for young entrepreneurs, with an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidized financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions, initially through National Bank of Pakistan (NBP) and First Women Bank Ltd. (FWBL). Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8 years inclusive of 1 year grace period, and a debt: equity of 90: 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan, Gilgit-Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).

4. EXECUTIVE SUMMARY Sheep Fattening Farm is proposed to be located at any suitable areas of Pakistan. The project is related to sheep fattening purposes, the total capacity is 50 sheep. Project Cost Estimate is Rs. 0.66 Million with fixed investment of Rs. 0.07 Million. Given the cost assumptions, IRR and payback are 15% and 7.56 years for sheep.

5. BRIEF DESCRIPTION OF PROJECT The following parameters must be addressed as per pre-feasibility study,  Selection of Suitable Sheep Breed

2 In Punjab Kajli, Lohi, Thali and Fateh Khani of Salt range sheep breeds, in KPK, Balkhi, Hashtnagri and Waziri sheep breeds , in Baluchistant, Baluchi sheep breed, in Sindh Dumbi, Kachi and Kooka are most suitable breed.  Location The farm can be established in sheep rearing areas of country where range grazing is available. In Punjab, the suitable areas to establish the sheep farming are Southern Punjab (Thal, Cholistan) and also pothowar areas. In Balochistan the suitable areas to establish sheep farm are northern and central parts. Major production areas in Northern Balochistan include Killla Saifullah, Ziarat, Loralai, Zhob, Barkhan and Musakhel Districts, Central Balochistan includes Sibi, Kalat, Mastung and Khuzdar Districts. In KPK, the northern areas, Malakanad and Hazara divisions.  Targets Market In addition to major cities such as Lahore, Multan, Quetta, Karachi, Hyderabad and Islamabad, there is demand of Pakistani mutton in Middle East and Malaysia countries.  Employment Generation: The proposed project will provide direct employment to two individuals. Financial analysis shows the profitability of proposed business within first year of its operation.

6. CRITICAL FACTORS  Establishment of the farm in areas where cheap land is available, but it should not be far away from the market.  The farming should be done on scientific grounds taking care of Vaccination, Medicine etc.  Healthy and quality male stock should be selected for fattening.  New feeding techniques including concentrate feeding and preparation of urea molasses blocks etc should be used for better results.  Well-trained / experienced staff adding to the efficiency of the farm. Strict vaccination and deworming program for successful operation may be followed.  Good feeding and management practice will give the success in the business. Fresh water will be available all the time. In the concentrate; minerals may also be included.

7. OPERATIONAL CAPACITY

3 The farm will start production with 50 sheep. The limit of 50 sheep has been imposed on the farm because a very large flock would be difficult to manage. The farm would focus on rearing of young stock for fattening and marketing. Sheep from aged less than 1 year of age will be purchased and resold in the market after a fattening period of 120 days. 8. POTENTIAL MARKETS Target market would be the areas where breeding is being undertaken as well as major cities like Karachi, Quetta, Lahore, Rawalpindi, Islamabad, Peshawar etc. In addition to local markets there is an enormous export potential to Middle Eastern countries. 9. PRODUCTION PROCESS FLOW Animals selected for fattening should be of about of age of 6 months. During this age the daily weight- gain capacity is also better particularly in sheep. 10. BREED SELECTION The farmers should not only select good quality breed which can bring better results for fattening but also select most suitable animals from the selected breeds. Through better management, the weight gain of these selected breeds would be higher. 11. PROJECT COST SUMMARY A detailed financial model has been developed to analyze the commercial viability of Sheep Fattening Farm. Various cost and revenue related assumptions along with results of the analysis are outlined in this section. 12. PROJECT ECONOMICS All the figures in this financial model have been calculated for 50 sheep for total area of around 21,00 sq.ft, that would be used for different functions of the farm. The following table shows internal rates of return and payback period. Table 1. Project Economics Description Sheep Internal Rate of Return (IRR) 15% Payback Period (yrs) 7.56 Net Present Value (NPV) 311,704

13. PROJECT FINANCING Following table provides details of the equity required and variables related to bank loan; 4 Table 2. Project Financing Description Sheep Total Equity (@ 10%) Rs. 73,848 Bank Loan (@ 90%) Rs. 664,636 Markup to the Borrower (%age/annum) 8% Tenure of the Loan (Years) 8 Grace Period (Year) 1

a. Project cost Following requirements have been identified for operations of the proposed business.

Table 3. Project cost Project Investment Amount (Rs.)

Building 330000 Machinery & Equipment 90000 Total Capital Cost 420000

b. Space Requirement

Details of the area required are given below: Table 4 Space requirement Description Space per animal sq Total space sq ft Cost per sq ft Total cost (Rs.) ft Shed for 50 kids 12 600 300 180000 (covered) Open paddock for 50 24 1200 50 60000 kids Isolation Pen for 5 12 60 300 18000 kids (covered) Stores for ration & - 240 300 72000 machinery (12x20) Total 330000

c. Machinery and Equipment Following table provides list of machinery and equipment required for Sheep Fattening Farm working for Livestock sector. Table 5. List of Machinery and Equipment

Farm supplies Unit Cost (Rs) Total Cost (Rs) Feeding mangers 5 3000 15000

5 Chaff cutter 50000 50000 Water pump 20000 20000 Other farm - 5000 equipment Total cost 90000

d. Human resource requirement The table above provides details of human resource required for sheep fattening farm.

Table 6 Human resource requirement

Description No. of Employees Salary per month

Worker 1 10,000

e. Revenue Generation

Table 7 Revenue Generation

Sales Average weight First Year First Year Product Price per kg live Production Sales (Rs./Unit) weight Revenue (Rs) Sale of Live Sheeps 400 kg 45 50 900000 Total Sales Revenue 900000

14. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS

Dr. M. FatehUllah Khan

Animal Sciences Institute (ASI), NARC

Email: [email protected], Phone: 051-8443944

6 15. ANNEXURES

15.1 Income Statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Revenue 882000 948150 1019261 1095706 1177884 1266225 1361192 1463281 1573027 1691005 Cost of Goods Sold Feed & Vaccination Cost 252500 265125 278368.8 292312.2 306937.8 322279.7 338373.7 355307.4 373070.2 391703.7 Cost of Calves 450000 472500 496125 520931.3 546977.8 574326.7 603043 633195.2 664854.9 698097.7 Direct Labor 60000 66000 72600 79860 87846 96630.6 106293.7 116923 128615.3 141476.9 Repair & Maintenance 4900 5145 5402.25 5672.363 5955.981 6253.78 6566.469 6894.792 7239.532 7601.508 Utilities 29400 32340 35574 39131.4 43044.54 47348.99 52083.89 57292.28 63021.51 69323.66 Total Cost of Sales 798800 843210 890275 940222 993193 1049392 1109041 1172427 1239756 1311306 Gross Profit 83200 104940 128986 155483 184691 216833 252151 290854 333271 379698 Travelling & Comm. expense (phone, fax, etc.) 6000 6300 6615 6945.75 7293.038 7657.689 8040.574 8442.603 8864.733 9307.969 Office expenses (stationary, etc.) 12000 12600 13230 13891.5 14586.08 15315.38 16081.15 16885.21 17729.47 18615.94 Depreciation expense 42000 42000 42000 42000 42000 42000 42000 42000 42000 42000 Amortization expense 9716.882 9716.882 9716.882 9716.882 9716.882 0 0 0 0 0 Subtotal 69716.88 70616.88 71561.88 72554.13 73595.99 64973.07 66121.72 67327.81 68594.2 69923.91 Operating Income 13483.12 34323.12 57424.37 82929.26 111094.6 151859.7 186029.3 223526.7 264676.8 309774.5 Earnings Before Interest & Taxes 13483.12 34323.12 57424.37 82929.26 111094.6 151859.7 186029.3 223526.7 264676.8 309774.5 Interest expense 55164.46 50503.6 44377.72 37743.38 30558.41 22777.08 14349.9 5223.276 0 0 Earnings Before Tax -41681.3 -16180.5 13046.65 45185.88 80536.24 129082.6 171679.4 218303.4 264676.8 309774.5 NET PROFIT/(LOSS) AFTER TAX -41681 -16180 13046.7 45185.9 80536.2 129083 171679 218303 264677 309774 Balance brought forward -41681.3 -57861.8 -44815.2 370.7057 80906.95 209989.5 381668.9 599972.3 864649.1 Total profit available for appropriation -41681.3 -57861.8 -44815.2 370.7057 80906.95 209989.5 381668.9 599972.3 864649.1 1174424 Balance carried forward -41681.3 -57861.8 -44815.2 370.7057 80906.95 209989.5 381668.9 599972.3 864649.1 1174424

7 15.2 CASHFLOW STATEMENT

Operating activities Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Net profit - (41,681) (16,180) 13,047 45,186 80,536 129,083 171,679 218,303 264,677 309,774 Add: depreciation expense - 42,000 42,000 42,000 42,000 42,000 42,000 42,000 42,000 42,000 42,000 amortization expense - 9,717 9,717 9,717 9,717 9,717 - - - - - Equipment inventory (1,633) (167) (185) (203) (224) (247) (273) (301) (331) (365) 3,931 Raw material inventory (234,167) (24,002) (26,458) (29,184) (32,170) (35,461) (39,089) (43,111) (47,522) (52,384) 563,547 Accounts payable - 39,755 2,548 2,733 2,935 3,151 3,384 3,638 3,915 4,213 (21,174) Cash provided by operations (235,800) 25,621 11,443 38,110 67,444 99,696 135,105 173,906 216,365 258,141 898,078 Financing activities - Change in long term debt 664,636 - (73,806) (79,932) (86,567) (93,751) (101,533) (109,960) (119,087) - - Issuance of shares 73,848 ------Cash provided by / (used for) financing activities 738,484 - (71,164) (38,110) (67,444) (99,696) (135,105) (134,032) (119,087) - - Investing activities - Capital expenditure (468,584) ------Cash (used for) / provided by investing activities (468,584) ------NET CASH 34,100 25,621 (59,721) - - - - 39,874 97,278 258,141 898,078 Cash balance brought forward 34,100 59,721 - - - - - 39,874 137,153 395,293 Cash available for appropriation 34,100 59,721 - - - - - 39,874 137,153 395,293 1,293,371 Cash carried forward 34,100 59,721 - - - - - 39,874 137,153 395,293 1,293,371

8 16. Key Assumptions

Particulars Assumption Sales Price Growth Rate 5 % per year Capacity Utilization Growth Rate 5 % per year Increase in Cost of Raw Materials 10 % per year Increase in Staff Salaries 10 % per year Increase in Utilities (Electricity / Water / Gas) 10 % per year Debt / Equity Ratio 90 : 10 Depreciation Plant Building 10 % per annum Machinery 10 % per annum Office Furniture & Equipment 10 % per annum Loan Period 8 Years (inclusive of 1 year grace Loan Installments period) Financial Charges (Loan Rate) Quarterly