arcea nut

Commercialization of Dried Arecanut Peeler

Name of the Innovation: Dried Arecanut Peeler

Team Name: Vikinger

Institute Name: Acharya Institute of Management and Sciences, Bangalore

Team Members:

Ms. Suneeta Bhat

Email id: [email protected]

Ph No: 09844303266

Ms. Vidhya Damodharan


Ph No: 09844202978

Mr. Gautam K P


Ph No: 09480106398

Mr. Pramod Kumar


Ph No: 09901899118

Contact Address: Acharya Institute of Management & Sciences

1st Cross, 1st Stage, Peenya, Bangalore-58

1

mailto:[email protected]





Executive Summary

‘Commercialization of Dried Arecanut Peeler’ will be the first effort to bring the

motorized equipment close to the farmer. The equipment peels the dried

arecanut which was otherwise done manually. The product is innovated by Mr.

Narasimha Bhandari, Chickmaglur, Karnataka and it has won National Award in

Agriculture Equipment Category. The patent for the equipment is filed in India.

Four young entrepreneurs are going to take up the commercialization process; all

of them are MBA students with different specialization and different educational

background. Two of the entrepreneurs belong to the same geographic region in

Karnataka where arecanut is largely grown.

Arecanut is largely grown in many parts of Karnataka and India accounts for 54

percent of total global arecanut production. It is also grown in Malaysia,

Singapore and Indonesia, China, Bangladesh and Myanmar. Peeling of arecanut

is a labor intensive activity. But there is a huge scarcity of skilled labors to peel

the arecanut. This gives an opportunity to commercialize dried arecanut peeler.

This business plan completely depicts the process of commercializing the dried

arecanut peeler and it would be revised semi-annually.

This motorized equipment running with the aid of electricity is capable of peeling

45 Kgs per hour and costs Rs. 50,000. A plant for assembling the components

will be located at Shimoga, Karnataka in the vicinity of arecanut growers. As the

equipment do not involve high precision, the components will be outsourced, only

assembly would take place in the plant.

The market research and the test marketing indicated that product is unique and

has a huge market potential. There are around 10 lakhs arecanut growers in

Karnataka alone. This target population would be reached through co-operatives,

panchayats, farmers associations, self help groups and sometimes reaching

individual farmers to convince them to attend demonstration and thereby

2


motivate to purchase the equipment. We would have tie ups with co-operatives

for providing loans to customers.

We are projecting sales of 500 units in the first year. In the subsequent years

sales are expected to increase because of intense promotional activities like

demonstration. The revenue for the first would be Rs. 2,50,00,000. The sales

volume for second year is projected to be 600 units. The total capital required is

Rs. 18,35,000 (fixed and working capital). 57 percent of the total capital required

will be borrowed from Commercial banks. In the next year the loan amount will

be repaid back and the significant portion of the profit will be invested in research

and development and diversification process. With continuous innovation and

research we will keep upgrading the product and even think of diversifying at a

later stage with the back up of innovator (Mr. Narasimha Bhandari) who has

many such inventions to his credit.

The firm will be a responsible corporate social citizen by taking the rural

poor/farmers on the path of economical growth. This is essential if the country

has to truly achieve 'developed nation' status by 2020. This project is in line with

that goal.

Our Key to Success

1. Thorough local market knowledge

2. First mover advantage

3. Goal to reach every farmer

4. Strong networking with co-operatives

5. Continuous development and research

Limitations

1. Limited market survey because the sample size is 250 only

2. No entry barriers

3


Table of Contents

Sl. No Contents Page No

I Executive Summary 2-3

II Table of Contents 4-5

1

1.1

1.2

Introduction to the Business

Working of the Equipment

Entrepreneur’s Background

6-8

6

8

2

2.1

2.2

2.3

2.3.1

2.3.2

2.3.3

Industry Analysis

The Need Being Served

Manual Vs Motorized Peeling; A Comparison

The Venture

Vision

Mission

Objectives

8-11

9

10

11

11

11

11

3

3.1

3.2

3.3

3.3.1

3.4

Production Strategy

The Plant

Labor Requirements

Vendor Management Strategies

Quality Control Process

Inventory Management

11-14

12

12

13

14

14

4

4.1

4.2

4.3

4.4

4.5

Market Condition and Marketing Strategy

Analysis of Information

Attractiveness of Target Segment

Identification of Market Demand

Pricing Strategy

Selling and Distribution Strategy

15-19

15

16

16

18

18

4


4.6 Promotion Strategy

19

5

5.1

5.2

5.3

5.4

5.5

5.6

5.7

5.8

5.9

5.10

5.11

5.12

5.13

5.14

5.15

Financial Plan

Initial Investment in Fixed Assets

Estimate of Components

Estimated Labor Cost

Estimated Overhead

Estimated Cost of Sales

Estimated Working Capital

Projected Income Statement for Five Years

Breakeven Analysis

Sensitivity Analysis with respect to Demand

Sensitivity Analysis with respect to Price

Repayment of Loan

Return on Investment

Cash cycle

Financing Requirements and Deal Structure

Financial policies

20-28

20

20

21

21

22

22

23

24

25

25

26

26

27

27

28

6

6.1

Organization Structure

Legal Requirements

29-30

30

7

7.1

7.2

7.3

Competitive Business Strategy

Analysis of Industry Structure (Porter’s Five Forces)

SWOT Analysis

Risk as Perceived by Investor

30-32

30

32

32

8 The Way Ahead 32

III Annexure-I 35-36

IV Annexure-II 37-42

V Annexure-III 43-44

5


1. Introduction to the Business

This business plan “Commercialization of Dried Arecanut Peeler” is developed to

serve as a blue print and provide a road map to the entrepreneur. The product of

commercialization here is “Dried Arecanut Peeler” which was invented by

Mr.Narasihma Bhandari from Koppa, Chikmaglur district, Karnataka. In 2001 the

invention was awarded “National award” (First prize in agriculture equipment

category) by the National Innovation Foundation, Ahmedabad.

Arecanut is one of the important commercial crops of India. According to the

available statistics India is the largest arecanut producing country in the world

and Karnataka is the major producing state in India. Today, timely non-availability

of skilled labour is the major inconvenience for the producer. There was no

proper effort from formal Research and Development institutes and industry to

develop machines for

Fig 1: Peeling Arecanut Manually

arecanut peeling (See Fig 1). This motivated the inventor to work on a motorized

dried arecanut peeler.

1.1 Working of The Equipment

The dried arecanut peeler (See Fig 2) consists of a feed hopper with a screw

conveyor coupled through rubber layered MS flange disc covered with suitable

MS sheet work. The flange is connected with a 2 hp (3 phase) electrical motor

6


through a shaft to rotate at a high speed. A single hp motor is connected with

blower at the bottom to separate the husk after getting peeled. A suitable

framework with MS pipe sections supported the whole set up. It consists of feed

hopper, two stainless steel discs rotating opposite to each other and a blower at

the bottom. The peeler is powered by a 2 hp electric motor, the areca nut get

husked in between the high speed rotating disc. The husks will be thrown out

through a blower in the exhaust and the nuts will be collected at the bottom. The

husking efficiency is about 92 percent with less than 2 percent breaking validated

by Central Plantation Crops Research Institute (CPCRI) Regional Station, Vitla

located near Mangalore, Karnataka. The capacity of the machine is 45 kg/h and

the cost of the machine is Rs.50,000/-only. The maintenance charges will be Rs.

300 per year.

The inventor has already given the equipment to two farmers (Mr.Venkatesh

Ranade, Chikamaglur and Mr. Rajashekar Hebbar, Beltaangadi, South Canara).

The feedback received from them about the product was excellent.

Fig 2: Dried Arecanut Peeling Machine

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1.2 Entrepreneur’s Background

The entrepreneurs belong to different educational background (see Appendix III)

and two of the entrepreneurs belong to the family which grows arecanut and

clearly understand the market condition. This will be one of the key factors for

success of the business.

2. Industry analysis

The world production of arecanut sums up to around 6,40,000 tonnes per annum

and is dominated by Asian countries. India dominates the world production of

arecanut, with 54 percent of the total world production. And 28 percent is from

China. The share from neighboring countries; Bangladesh and Myanmar together

comes to 10 percent. Production in Malaysia, Indonesia, and Singapore forms 8

percent of the world production.

The production of arecanut in India is estimated to be around 3,50,000 tonnes

per annum. Main arecanut growing states are Karnataka, Kerala, and Assam

together accounting for 90 percent of production in the country. Karnataka is the

largest arecanut producing state in India accounting for 40 percent. Maharastra,

Tamil Nadu, Tripura, West Bengal and Goa are other major arecanut producing

states in India.

Within Karnataka in India, South Canara, Shimoga, and North Canara are the

major arecanut producing districts. South Canara with 39 percent of production

stands first in the state followed by Shimoga 26 percent and North Canara 12

percent. Other districts producing arecanut in Karnataka are Chickmaglur,

Kodagu, Tumkur, and Chitradurga (See Fig 3).

8


Fig 3: Map Showing Arecanut Producing Districts in Karnataka and Plant Location

2.1 The Need Being Served

The traditional arecanut peeling is purely labor intensive activity. Because of

higher requirement and acute shortage of labors, the cost of production is

increasing continuously. Arecanut peeling requires largest cost compared to

other activities. Hence there is a need for mechanization in arecanut processing

especially for peeling.

Following are the benefits of mechanization of arecanut peeling

1. Timeliness of operations

2. Precision in operation

3. Reduction of drudgery of labour

4. Increased economic return to farmers

9

North Canara

Shimoga

South Canara

Chickmaglur

Tumkur

Kodagu

Chitradurga

Plant Location


2.2Manual Vs. Motorized Peeling; A Comparison

Sl. No. Particulars Manual Peeling Using Dried

Areca nut Peeler

1 Quantity Peeled 45 kgs 45 kgs

2 Time taken 16 hours One Hour

3 Labor Charges Rs. 200 Rs. 10

4 Power Consumption Nil Rs. 3 per hour

5 Initial fixed investment Nil Rs. 50,000

6 Maintenance Nil Rs. 300 per year

Table i: Cost Benefit Analysis for the Customer

As per tabular information (See Table i), the following inference can be made:

On an average if a farmer grows 1000 Kgs of arecanut per year,

i. For peeling manually, it takes Rs.4.50 per Kg. To peel 1000 Kgs it

takes

Rs. 4,500

ii. If dried arecanut peeler is used for peeling,

Labor Charge is 0.25 per Kg, for 1000 Kgs it is Rs. 250

Power consumption is Rs 67 for 1000 Kgs

Maintenance Rs 300 per year

Total expenditure for 1000 Kgs would be Rs 617 (250+67+300)

Assuming that the machine has a life time of 10 years ( with timely servicing), if

the investment made on the equipment is spread over the life time, the cost

comes to Rs 5 per Kg ( 50000/10000; 10000 is average production of arecanut in

10 years). The market study indicated that getting skilled labors for peeling

arecanut was very difficult. This being the situation, farmers would definitely not

feel it a burden to invest Rs. 5 per kg and avail the benefit of considerable lower

charges of Rs 617 per 1000 Kg for machine peeling as against Rs 4,500 for

manual peeling. The average price received by the growers in the first five

months would not exceed Rs. 32 per kg, down by about Rs. 10, they got last year

10


(The Economics Times, 15 Jan, 2008), in such circumstances using this

equipment would be really profitable to the farmer.

2.3 The Venture

The venture consists of production and marketing of dried arecanut peeler.

Initially the equipment will be carried in mobile vans and peeling activity would be

taken up at different farms at reasonable price on hourly basis, which will as well

act as a promotional strategy. The servicing and replacement of spare parts will

also be carried out by the firm.

2.3.1 Vision

“To be the most respected and best service providing company among the

farmer community”

2.3.2 Mission

To provide mechanized products at low cost with improved quality which is

reliable, compatible and easily available. Further to emphasize on the technology

advancement with research, innovation and customization in such a way that the

productivity and social well-being of the farmer is enhanced.

2.3.3 Objectives

To build trust and position a strong brand image by the end of first year

To educate farmers about new technology and mechanized products and

build a close affinity with co-operative and agricultural societies

To achieve sales of 500 units by the end of first year

To be profitable by the end of first year

To diversify into different agricultural equipment category by the end of

second year

3. Production Strategy

11


The production plant will be located in Shimoga, reason being lower cost of

production and closer vicinity to the farmers and suppliers of components. As per

the experts’ opinion in the field, this is the best place for the plant location. The

components of equipment do not involve any high technology and high precision

(For Components required, refer Table 5.2. Estimate of Components) and hence

they are outsourced from the local contractors and the final assembly is carried

out in the plant.

3.1 The Plant

Total space required for the plant is approximately 5000 Sq ft and that would

involve the following sections

1. Warehouse

2. Tools Room

3. Work Shop

4. Front Office

Warehouse is used to store the finished assembled equipments and is also used

to finish packing. Workshop is the place of assembly and testing the equipment.

Front office is the receiving centre for customers and delivery office for finished

assembled equipment. The plant layout must involve electricity supply and power

points at appropriate places.

3.2 Labor Requirements

Two skilled labors having the knowledge of grinding and assembly with preferred

qualification of ITI Fitter or Assembly is required along with three unskilled/semi-

skilled labors to assist. The labors will be trained to assemble the components.

3.3 Vendor Management Strategies

The suppliers will be selected on the basis of geographic vicinity. If the

products of local suppliers do not fulfill the quality requirements then other

suppliers from different region will be considered

12


The suppliers will be given proper training to produce the standardized

components

Contract will be given initially on the basis of the demand to the product,

as and when the order is received the supplier is intimated to supply the

required components and later on monthly basis the components will be

ordered

Stages in Vendor Management are as follows;

1. Vendor Creation: Trial components from different vendors will be

evaluated and based on their ability to meet the specification, short term

contract will be established.

2. Vendor Maintenance: Quality is assured and good relationship is

maintained.

3. Continuous evaluation: Based on the performance, vendor will be given a

long term contract and continuous monitoring is carried out.

3.3.1 Quality Control Process

13

Component Supplier Selection Based on Quality,

Quality Assurance by Skilled Employees

Assembly

Quality Check of Finished Goods

Selling and Distribution

Components of Desired Quality

Rejected Components

Product of Desired Quality

Rejected Products


3.4 Inventory Management

Initially inventory required for two equipments will be store in warehouse, as and

when the new orders arrive the suppliers are intimated to supply the

components, but three equipments are kept ready to deliver any time. In the later

days the number of finished goods to be kept in warehouse will be decided on

the basis of market demand and trend. The co operative society which will have

the servicing facility for the equipment will be provided with two to three pairs of

components which are most likely to breakdown.

4. Market Condition and Marketing Strategy

A market survey was carried out in Shimoga, South Canara and North Canara

which accounts for 80 percent of Karnataka’s total dried arecanut production with

arecanut growing farmers accounting to about 50 percent of total target

population.

Enumerators collected data by administering questionnaire (Refer Annexure I)

which involved open and close ended questions. Sample size was 250 and was

chosen by the method of convenience sampling.

4.1 Analysis of Information

SPSS package was used in analyzing the data collected.

1. All the respondents employed labour for farm activities and peeling of

arecanut (Annexure II, Table 1). The labor availability is difficult to very

14

After Sale Service


difficult (Annexure II, Table 2) and average labour cost is Rs. 75 to 100

per day (Annexure II, Table 3).

2. Rate of peeling in majority of the cases was more than 15 Kgs (Annexure

II, Table 4).

3. The availability of electricity is good in majority of the places and average

in some places (Annexure II, Table 5).

4. The data reveals that none of the farmers are aware of any mechanized

equipment to peel dried areca nut (Annexure II, Table 6).

5. Majority of the farmers preferred to own equipment on their own and few

preferred cooperative societies and farmers associations (Annexure II,

Table 7).

6. All the farmers expected demonstration of equipment before purchasing

(Annexure II, Table 8) and the purchasing will be either by self finance or

by bank loan (Annexure II, Table 9).

4.2 Attractiveness of Target Market

1. The responses elicited from farmers reveal that no farmer is aware of any

motorized equipment for peeling arecanut which is an opportunity when

proper awareness and education of advantages of motorized equipment

over traditional method is provided.

2. The number of farmers is large in Karnataka alone.

3. More than 90 percent of the farmers preferred personal purchase of

equipment.

4. As per the experts opinion when the peeling equipment is available for

dried areca nut then there are chances that the farmers will stop

producing red type and switch to dried areca nut production that

increases the demand further.

4.3 Identification of Market Demand

There are approximately 10 lakhs of farmers producing dried areca nut which is

the total potential market spread across Karnataka. The target segment study

15


revealed that they want to own the equipment and only few preferred Co

operative societies. So the entire population is a target market.

The estimation of Demand is carried out in two methods.

1. Demand estimate by using total arecanut production in Karnataka

The total arecanut production in India is 3,50,000 tonnes/annum with

Karnataka state being the largest producer which accounts to 40%

( Source : Campco, Mangalore, Karnataka)

Therefore the production of arecanut in Karnataka is 40 % of

3,50,000 =1,40,000 tonnes/annum

For further calculations only 50 % of 1,40,000 tonnes is considered which

is 70,000 tonnes/annum (assuming only 50% will be peeled by motorized

equipment)

Assuming the Motorized dried arecanut peeler works on an average 6

hours/day , then the total dried arecanut peeled/day is

(45 kg/hour) ( 6 hours/day ) = 270 kg/day

For further calculations 250 kg/day is considered.

With a peeling rate of 250 kg/day and with quantity considered being

70,000 tonnes per annum the number of motorized equipments required

is 7,00,00,000 kg/annum / 250 kg/day = 2,80,000 equipments/annum

For further calculations only 10% of above value is considered which is

10% of 2,80,000 = 28,000 equipments.(Assuming fluctuation in Production

and other risk factors)

Assuming only 10% of 28,000 to be penetrated, the Target market is 2800

motorized dried arecanut peelers per annum which is the penetrable

demand.

Assuming in the first year of launch 20% sales, therefore for the first year

the demand is 20% of 2800 = 560 units per year.

2. Demand estimate by using the total number of arecanut producing farmers in

Karnataka

16


The total number of arecanut growers in Karnataka is more than 10 lakh

farmers. (Source: Campco, Mangalore, Karnataka)

By the Theory of Adoption Process for a new product we have Early

adopters of 2.5%

2.5 % of 10,00,000 farmers gives 2,50,000 equipments

Assuming that 10% of Early Adopters purchase the product within 1 year

of launch then

10% of 2,50,000 equipments = 25,000 equipments/year

Assuming only 10% penetration , 10% of 25,000 = 2500 equipments/year

Therefore the Target market is 2500 motorized dried arecanut peelers

which is the penetrable demand.

Assuming 20 % sales in the first year of launch, the demand in first year is

20% of 2500 = 500 units/year

In both methods employed for demand estimate the Demand per year is

approximately the same. For financial calculations demand is considered as 500

equipments per year.

4.4 Pricing Strategy

The price of the equipment is Rs.50,000 which is decided based on our market

survey that indicated the farmers were ready to accept this price. The basis for

pricing was cost plus mark up. The organization will have tie ups with the

cooperative banks for the customers who wish to buy on the basis of installment.

The organization will also have collaboration with the Department of Agriculture

Products, Government of India which provides Rs.10,000 to 15,000 subsidy for

each farmer for buying dried arecanut peeler.

4.5 Selling and Distribution Strategy

Direct Selling: Employing Marketing executives, who have the knowledge

of local market will reach individual farmers and convince them about the

product and motivate them to come for demonstration and buy the

products.

17


Selling through co-operative societies, Panchayats, Farmers Association

like NABARD association, and Self Help Groups where requisition can be

placed for the products. The marketing executives of the organization will

be in continuous touch with these groups to get the order.

Selling through sandy and village fairs because of a greater chance of the

equipment being noticed by other farmers too.

The receipt of the price of equipment will be at the time of the delivery to

the farmer. The product will be delivered to the farmer’s door step. But

before placing the order the farmer should give assurance about the mode

of payment and the payment date, time and other details.

The product will also be available in retail outlets in the centre city or the

city market where the farmers can directly buy the product and pay the

cash. The delivery and other terms will be left to the retailer.

The equipment can also be purchased from the plant directly and product

will be delivered to the farmer to their door step.

4.6 Promotion Strategy

As majority of the farmers preferred demonstration in different villages as the

best promotional strategy during market research.

Demonstration at the plant to the farmers who visit the plant

Demonstration at co-operative societies, panchayats and farmers

association at regular intervals and special demonstrations on other days

on their request

Demonstration at village sandy

Initially the company will carry the equipment in a van, peel the arecanut

and charge on hourly basis (approx. Rs. 100 per hour). This will act as a

promotional strategy as well give additional revenue

Advertisements in all the local news papers and agriculture related

magazines

Sponsoring some education programs related to farmers

Advertisements in local radio channels

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Farmers who are using the equipment are made to interact with the other

farmers

Distributing the pamphlets to the farmers.

Guarantee of one year with two year service and minor replacement of parts will

be provided, but after guarantee period the service will be viewed as revenue

source.

5.Financial Plan

5.1 Initial Investment in Fixed Assets

Particulars Amount(in Rs. Per year)

Furniture and fixture 25,000

Vehicle for Demonstration 75,000

Delivering Vehicles (two) 1,50,000

Tool Kit (five) 1,00,000

Total 3,50,000

(Depreciation is charged on straight line method expected life 4 Years)

5.2 Estimate of Components

Particulars Cost ( in Rs)

2 hp motor 6800

½ hp motor 2400

Fan Assembly 2500

Motor Couple 500

Three Barings 800

Rotatory Shaft 1000

Chassis 1500

Movable Wheel 700

Nuts and Bolts 350

Drum 6500

Feeder Assembly 800

19


Exit Way to Husk 1000

Hooper 475

Rubber Paddy 600

Welding, Threading and Painting 5900

Total 31,875

Estimate of the components is as per the guidance of the inventor. The cost of

the components is based on current price in and around the plant location.

5.3 Estimated Labor Cost

Particulars Total( in Rs. Per

year)

Per Unit(in Rs. )

Remuneration to skilled labors (2 x Rs 10,000/- pm ) 240,000 1200

Remuneration to unskilled labors (3 x Rs 5,000/-

pm)

1,80,000 900

Total 4,20,000 2100

5.4 Estimated Overheads

Sl.

No.

Particulars Amount(in

Rs. Per year)

Works overhead

1 Electricity 5,000

2 Depreciation 75,000

3 Lease rent of the building 3,00,000

Administrative overhead

1 Telephone expenses 15,000

2 Research and development activities 50,000

3 Training expenses 25,000

4 Contingencies 10,000

5 Salaries (Administrative staff 1 x Rs 5000/- pm.) 60,000

Selling and Distribution

20


Demonstration expenses 30,000

2 Advertisement expenses 20,000

3 Delivery Vehicles running and maintenance (for 3

vehicles)

1,50,000

4 Remuneration to Marketing executives (fixed and variable) (3 x Rs15,000/- pm)

5,40,000

Total 12,80,000

5.5 Estimated Cost of Sales

ParticularsAmount (in Rs.)

(for 500 units)

Per unit

(rounded

off)

Materials (given in 5.2) 1,59,37,500 31,875

Direct Labor (given in 5.3) 10,50,000 2100

Fixed Cost (given in 5.1) 3,50,000 700

Royalty (Rs. 2000 per unit) 10,00,000 2000

Prime Cost 1,83,37,500 36,675

Works Overhead 3,80,000 760

Works Cost 1,87,17,500 37,435

Administrative overhead 2,20,000 440

Cost of Production 1,89,37,500 37,875

Selling & Distribution overhead 12,80,000 2560

Cost of Sales 2,02,17,500 40,435

5.6 Estimated Working Capital

Particulars Amount

(in Rs. Per month)

Finished Goods Inventory (for 3 machines) 1,12,305

Raw Material Inventory (for 2 machines) 63,750

Work in process (for 2 machines per day for 11,17,950

21


15 days i.e., Rs 74,530/- x 15 )

Payment of Salaries 80,000

Payment Telephone and Electricity bill 1667

Cash 25,000

Total 14,00,672

Note: For Work in process the capital required is for 15 days because when once the sales is

initiated the remaining working capital is rotated by the revenue generated from sales.

(Values are considered at cost of production, for W.I.P at 100 % material cost is considered and

other cost at 50 percent)

5.7 Projected Income Statement for five years

Particulars Year I Year II Year III Year IV

Sales ( in units ) 500600

( 40% penetration of

remaining Market )

720

( 20% penetration of

remaining Market )

800

( new penetration

of Market )

Revenue (A) 2,50,00,000 3,00,00,000 3,60,00,000 4,00,00,000

Less:

Cost(including

sales and

distribution)

2,02,17,500 2,42,61,000 2,91,13,200 3,23,48,000

Profit before

interest and taxes47,82,500 57,39,000 68,86,800 76,52,000

Less:

Interest at 14% 1,47,000 1,47,000 Nil Nil

Profit before tax

(A-B)46,35,500 55,92,000 68,86,800 76,52,000

Less :

Tax at 34%15,76,070 19,01,280 23,41,512 26,01,680

22


Profit after tax 30,59,430 36,90,720 45,45,288 50,50,320

Note: Selling price for the product is Rs. 50,000 including the delivery charges.

5.8 Breakeven analysis

Fixed Cost per annum Rs Variable Cost per unit Rs

Building lease 3,00,000 Material 31,875

Salaries (except marketing

executives)

4,80,000 Works OH 760

Initial investment (depreciation) 75,000 Administration OH 440

Sales and distribution

OH

2,560

Total 8,55,000 Total 35,635

At BEP,TR = TCTR = TFC + TVC(SP / unit) Q = TFC + (VC /unit) Q

Where Q is no of units sold at BEP

Q = TFC / (SP per unit – VC per unit)Q = 8,55,000 / ( 50000 – 35,635 )Q = 59.45 = 60 units approx

23


Fig: Break Even Point

5.9 Sensitivity Analysis With Respect to Demand

Particulars

Demand

decreases by

10%

Demand

decreases by

10%

Demand

decreases by

20%

Total Fixed Cost8,55,000 8,55,000 8,55,000

Selling Price per unit 50000 50000 50000

Variable price per

unit

Material 31,875 31,875 31,875

Works OH 800 844.4 950

Administration OH 463.16 488.8 550

Sales and

Distribution OH2694.74 2,844.4 3,200

Total 35,832.9 36,052.6 36,575

BEP (units) 60 62 64

24

VC

FC

TC

8,55,000

TRTR/ TC

UNITS60

BEP


5.10 Sensitivity Analysis With Respect to Price

ParticularsPrice decreases

by 5%

Price decreases

by 10%

Price decreases

by 20%

Total Fixed Cost8,55,000 8,55,000 8,55,000

Selling Price per

unit

47,500 45,000 40,000

Variable price per

unit

Material 31,875 31,875 31,875

Works OH 760 760 760

Administration OH 440 440 440

Sales and

Distribution OH

2,560 2,560 2,560

Total 35,635 35,635 35,635

BEP (units) 72 91 196

5.11 Return on investment

= (Total revenue-Cost of Borrowing)/ Cost of Borrowing

= (2,50,00,000-1,47,000)/1,47,000

=169%

25


5.12 Cash Cycle

Fig 5: Cash Cycle

5.13 Financing Requirements and Deal Structure

The total capital required is Rs. 18,35,000. The total fixed capital required is

Rs.3,50,000 and working capital is Rs.14,00,000 and Rs. 85,000 which is the

investment in R&D and training. Each managing partner will contribute Rs. 2

lakhs which will account for Rs. 8 lakhs. The total capital required from the

external source is Rs.10,50,000 (57.2% of the total capital required) This amount

will be borrowed from Commercial banks. In the next year the loan amount will

be repaid back and the significant portion of the profit will be invested in research

and development and diversification process. Continuous effort will be made to

establish contact with the agricultural development departments of the

government to get the possible benefits and to build in the trust of the farmers.

The preliminary expenses incurred for establishment and registration will be

26

Purchase of Components Rs 31875

Sales and Shipping Rs. 1500

Cash Assembly Collect Cash from Customer Rs. 50,000

2 Days

1 Day 1 Day

Overhead Rs. 10

Overhead Rs. 13

Overhead Rs. 19

Overhead Rs. 2000


borne by the entrepreneurs. Research and development activities will be carried

out by having MoU with the inventor.

5.14 Repayment of Loan

Year EAT EAT after retaining 5 units revenue

LoanRepayment

Remarks

Year I 30,59,430 Major earnings is retained as in the second year the demand estimate is higher and the plant capacity to be increased

Year IIQuarter I

9,00,000 approx by sale of 150 units

8,70,000 8,50,000From last year earnings

The Revenue of 10 units sale is retained which amounts to Rs 4,50,00

IIQuarter II

9,00,000approx by sale of 150 units

8,70,000 4,50,000 From last quarter earnings

The revenue of 10 units earnings is retained which amounts to Rs 4,50,000

IIQuarter III

9,00,000 4,50,000 From last quarter earnings

Full loan repayment with Payback period of 1.6 years

5.15 Financial Policies

No credit will be expected from the suppliers, the payment will be made as

and when the components are delivered to the plant.

No credit will be given to the farmers; the equipment will be delivered only

after receiving the payment.

In case of purchase through bank loan, the banks will be asked to pay the

amount as and when the product is delivered to the customer.

The royalty to be paid to the inventor is deposited in the account of the

inventor on every 20th day.

27


Cash balance of minimum one lakh is maintained at every point of time.

6. Organization Structure

The activities of the organization will be shared by the partners each

handling one department (See Fig 6).

Fig 6: Organization Structure

6.1 Legal Requirements

The following legal requirements are to be fulfilled before starting this business.

Licensing from Karnataka Industrial Areas Development Board

Department of factories and Boilers

License from Karnataka State Pollution Control Board

Environment clearance from MOEF/GOI,SECC

License from Town Pachayat, Simogga

Permission from Karnataka Power Transmission Corporation Limited and

Electrical Inspectorate

28

Managing Partners

Marketing Administration Production Finance

Sales and Distribution

Promotion

Record maintenance

Vendor Management

Inventory Management

Working Capital Management

Assembly

Servicing

Remuneration

R&D (Outsourced)

Collaboration with Co-operatives and Govt. Agencies

Fund Flow


Registration for commercial tax

Department of Labour welfare, Karnataka

Registration of company and the Partnership

7.Competitive Business Strategy

7.1 Analysis of Industry Structure (Porter's Five Forces)

Threat of New Entrants:

i. There are no entry barriers as the business does not require large

investment.

ii. Due to the need for Mechanization of peeling process of dried

Arecanut, several grass root farmers are being motivated and several

inventions (See Table ii) have occurred and many are being patentized but

none of them are commercialized.

The following table depicts the major inventions.

Name of the Inventor Place Remarks

1. MR. Vishvanath Shimoga

Cost Rs 50,000,

Maintenance cost

Rs.300/annum

Capacity of 45 Kg/ hour

Not yet commercialized

2. MR. Ramamurthy Shimoga

Handed over to Malnad

Arecanut Marketing Society,

Shimoga.

Still prototype testing

3. MR. Narasimha Bhatt South Canara Still prototype testing

4. MR. Govinda Prasad Vittal Still prototype testing

5. MR. Mahabaleshwara

AcharyaSirsi

Cost Rs.65,000 Seeking

Commercialization

(Table ii: Major Inventions of Motorized Equipments)

29


Threat of Substitute Products: This equipment is only motorized and

hence modern hi-tech equipments may replace this product. There is also

chance of entry of new product of similar technology with lower price.

Power of Buyers: The buyers have higher bargaining power both in terms

of product (preference to use one equipment for a group of farmers,

bringing down the demand) and price.

Power of suppliers: As all the components are outsourced, the suppliers

have bargaining power in terms of price and specifications related to

delivery of components.

Rivalry amongst Existing Players: As of now there are no competitors in

the industry, but in future there may be new players leading to price wars

and competition in gaining market share.

7.2SWOT Analysis

STRENGTHS OPPORTUNITIES

Professional Management

Continuous Innovation

Strong Collaboration with Vendors

Low Production Lead times

Low Capital Consumption

Support from Government and Co-operatives

Knowledge of local market

Large untapped market

No existence of competitor

Existence of global market

Scope to diversify into other agricultural equipment

Government policies in favor of farmers like provision of subsidies and so on

WEAKNESSES THREATS

Low resources

Lack of market experience

Dependence on contractors

Threat of new entrants

Government regulations

regarding the consumption of

arecanut in the form of Gutka,

Supari and so on

Obsolescence of technology

Contract producer could change terms

30


7.3 Risk As Perceived by Investor

This equipment is devoid of latest technology and works on obsolete

mechanical components, so an innovation with superior technology can be

a risk

Competitors with reduced price and better features

Product acceptance by the farmers as this is completely a new concept

Unanticipated and untimely breakdown of equipment

The future of arecanut itself is a question mark because of growing health

consciousness and government regulations

Strategies to be adopted to counter if the perceived risks become a reality:

An R&D department to be established and the inventor to be incharge

of carrying out trials and testing new technology, upgradation of the

existing equipment and there by continuously striving for capacity

improvement and cost reduction

Interaction with farmers and demonstration

Appointing a Service engineer who periodically monitors the

performance of the equipment after sales.

Diversify into other agricultural equipments

8. The Way Ahead…

Research and development centre will be established near the plant and

customization and commercialization of other products which are innovated by

grass root innovators will be done from the second year. The same innovator has

innovated many other types of equipment needed for different farming activities

and that gives a back support to the R&D of the organization. In the coming

31


years ahead there is a scope to diversify into different agriculture equipment

category.

9. Conclusion

The ‘Commercialization of Dried Arecanut Peeler’ is in line with the development

of the nation as it helps the farmers. This will be an effort to bring farmers close

to technology, but it is only beginning. This project does not displace labors as

there is high scarcity of labors in peeling arecanut. The same labors can perform

other farming activities. Hence this project is an absolute benefit to the farmer

and to the country.

We. The team Vikinger would like to thank, IIM-Indore and NIF for giving such a

wonderful opportunity. We are grateful to Mr. Narasimha Bandari for all his

guidance and support. We also thank CAMPCO, Mangalore and TSS, Sirsi,

GKVK Agriculture University, Bangalore, all our mentors and parents for their

support and all the farmers who participated in market research and gave

valuable feed back.

Annexure I

Dear Sir,

32


We are students of Acharya Institute of Management and Sciences, Bangalore , pursing MBA in Marketing and presently carrying out a Survey on Arecanut Business and we would be privileged your presence in our survey by filling up the following questionnaire.

1. Name (Optional):……………………………………………………2. District:……………………………………………………………..

3. Land owned for arecanut a. Less than 1 acre [ ] b. 1 – 5 acre s [ ]c. 5 – 10 acre [ ] d. More than 10 acre [ ]

4. How long are you in arecanut business?a. One generation [ ] b. Two generation [ ]c. Three and more generations [ ]

5. What is the annual yield?a. Less than 1 quintal [ ] b. 1 – 10 quintal [ ]

c. 10 – 25 quintal [ ] d. 25 – 50 quintal[ ]e. More than 50 quintal [ ]

6. What is yield in terms of dried arecanut?a. Less than 1 quintal [ ] b. 1 – 10 quintal [ ]c. 10 – 25 quintal [ ] d. 25 – 50 quintal[ ]e. More than 50 quintal[ ]

7. Which is the season for peeling dried arecanut?a. January to March [ ] b. March to June

[ ]c. June to September [ ] d. September to December [ ]

8. I carry out arecanut business by a. Owning the farm [ ] b. Contracting the yield [ ]

9. Do you employ labour,a. YES [ ] b. NO [ ]

33


If YES, Please tick relevantly for the activities where you employ laboursi. Household work [ ]ii. Farm activities ( Tilling, cultivation, maintenance of crops,

etc., ) [ ]iii. Peeling of arecanut [ ]iv. Please specify if others

………………………………………………

10. The availability of labour for peeling the dried arecanut is , a. Very easy [ ] b. Easy [ ]

c. Difficult [ ] d. Very difficult [ ]

11. What is the average labour cost?a. Per labour per day

………………………………………………b. Per labour ( in terms of any other units used Please specify and

Quote ) ……………………………………………..

12. What is the rate of peeling of a labour per day ?a. 1 – 5 kg [ ] b. 5 – 10 kg [ ]

c. 10 – 15 kg [ ] d. more than 15 kg [ ]

13. The Availability of electricity for using any motorised equipment is

a. Good [ ] b. Average [ ] c. Bad [ ]

14. Are you aware of any motorised equipments available for peeling the dried arecanut?

a. YES [ ] b. NO [ ]

If YES, please mention relevantlyi. Name of the

equipment/equipments…………………………….. ii. Cost of the

equipment/equipments……………………………….

34


iii. Rate of peeling per hour ………………………………………….

15. Have used any of the motorised equipments for peeling dried arecanut?

a. YES [ ] b. NO [ ]

If YES, Please mention relevantlyi. Cost incurred for peeling per

hour…………………………………ii. Cost incurred for peeling per Kg

…………………………………..iii. Advantages

………………………………………………………...iv. Disadvantages……………………………………………………

16. If you prefer to use motorised equipment for peeling dried arecanut where do you prefer it, please tick relevantly

a. Own / personal [ ] b. Retail outlets [ ]c. Farmer’s Associations [ ] d. Co-operative society

[ ]e. Market [ ]

f. If others, Please specify………………………………

17. Which method do you feel is more effective in creating awareness for using motorised equipment for peeling dried arecanut?

a. Demonstration [ ] b. Sandy [ ]c. Newspaper [ ] d. Radio / TV [ ]e. If others, Please specify………………………………

18. If the motorised equipment costs approximately Rs. 50,000/- , How would you prefer to buy?

a. Self financed [ ] b. Through bank loan [ ]c. Instalment [ ] d. Rental [ ]d. If others, Please specify………………………………

Annexure II

35


Table 1: Activities for which labors employed

Activities for which labors employed

100.0 100.0 100.0Farm activitiesand peeling

ValidPercent Valid Percent

CumulativePercent

Bar Chart representing the above data

Table 2: Availability of Labor

Availability of labour

36.7 36.7 36.7

63.3 63.3 100.0

100.0 100.0

Difficult

Very Difficult

Total


CumulativePercent


36


Table 3: Average Labour Cost/Day

Avg labor cost/day/labor

28.0 28.0 28.0

12.0 12.0 40.0

8.0 8.0 48.0

8.0 8.0 56.0

2.0 2.0 58.0

42.0 42.0 100.0

100.0 100.0

75

80

85

90

95

100

Total


CumulativePercent


37


Table 4: Rate of Peeling/Labor/DayRate of peeling/labor/day

.7 .7 .7

.7 .7 1.3

98.7 98.7 100.0

100.0 100.0

1-5 Kgs

5-10 Kgs

More than 15 Kgs

Total


CumulativePercent


Table 5: Availability of Electricity

Availability of electricity

55.3 55.3 55.3

44.0 44.0 99.3

.7 .7 100.0

100.0 100.0

Good

Average

Bad

Total


CumulativePercent


38


Table 6: Awareness about Motorized Equipment for Peeling

Awareness about motorized equipment

100.0 100.0 100.0NoValidPercent Valid Percent

CumulativePercent


39


Table 7: Preference of Place for Using Motorized Equipment

Place for machine if used

79.3 79.3 79.3

9.3 9.3 88.7

11.3 11.3 100.0

100.0 100.0

Own/personal

Farmer associations

Co-operative societies

Total


CumulativePercent


Table 8: Method of Creating Awareness about the Equipment

Method for creating awareness

100.0 100.0 100.0DemonstrationValidPercent Valid Percent

CumulativePercent


40


Table 9: Purchasing mode of equipment

Finance to buy

77.3 77.3 77.3

22.7 22.7 100.0

100.0 100.0

Self financed

Through bank loan

Total


CumulativePercent


41


Annexure-III

Entrepreneur’s Background

1. Name Suneeta Bhat

Educational

Qualification

BDS, MBA(HR & Marketing), Diploma in Business

Entrepreneurship

Family

Background

Father is having areca nut farms and involved in areca nut

farming from three generations and is a social

entrepreneur, mother is a house wife

Income and work

experience Nil

2. Name Vidhya Damodharan

Educational

Qualification

BCA, MBA(HR & Marketing), Diploma in Business

Entrepreneurship

Family

Background

Father is a government employee, mother is a house wife

Income and work

experience Nil

3. Name Gautam K P

Educational

Qualification BE(Mechanical), MBA(Marketing and Finance)

Family

Background

Father is a government employee and mother is a house

wife

Income and work

experience Three years of work experience as a mechanical engineer

4. Name Pramod Kumar

Educational

42


Qualification BBM, MBA(Finance & Marketing)

Family

Background

Father is an areca nut farmer and involved in areca nut

production from two generations, mother is a house wife

Income and work

experience Nil

43

arcea nut

Documents

bar chart

dried arecanut

total capital

agriculture

peeling dried

personal farmer

unit material

unit variable