Business Plan Final

BUSINESS PLAN

ON

“CYCLE PLASTIC INC.”

SUBMITTED TO

SCHOOL OF MANAGEMENT

SRM UNIVERSITY

UNDER THE GUIDANCE OF

Prof. V.M.Ponniah

(Professor)

SUBMITTED BY

MRINAL DEO (35107176)

ABHIJEET SINHA (35107002)

MEGHA SHARMA (35107167)

1

Acknowledgements

We express our sincere thanks to Prof.V.M.Ponniah, our Mini Project guide to

have given us the opportunity to work on such a challenging project. We also

would like to thank our well wishers for their help.

We would like to also thank the ED team of various colleges for providing us

insight into entrepreneurial activity.

Mrinal

Megha

Abhijeet

\

2

CERTIFICATEThis is to certify that Mr. Mrinal Deo, Mr. Abhijeet Sinha & Ms Megha Sharma has successfully completed “Business Plan” as a part of their Entrepreneurship Development paper.

PROJECT GUIDE

Prof. V.M.Ponniah

Date:

3

PREFACE

A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.

The business goals being attempted may be for-profit or non-profit. For-profit business plans typically focus on financial goals. Non-profit and government agency business plans tend to focus on service goals, although non-profits may also focus on maximizing profit. Business plans may also target changes in perception and branding by the customer, client, tax-payer, or larger community. A business plan having changes in perception and branding as its primary goals is called a marketing plan.

In global scenario the trend has changed a lot with respect to the business opportunities. In the case of India also, we are no exception. Lots of first generation entrepreneurs of popped up on the scene and have hogged the limelight with their success stories. Our Business Plan aims at the use of recycled plastic products

4

CYCLE PLASTICS INC.

Plastics Recycling Business Plan

Executive Summary

1.0 Executive Summary

The growing utilization of plastics in industrial and consumer applications, combined with increased consumer awareness surrounding solid waste recycling, has led to an increased demand for recycled plastic resins and products. One of the fastest growing types of collected plastic materials for recycling is polyethylene terephthalate ("PET") from post-consumer beverage and water bottles. Cycle Plastics Plastics will capitalize on the opportunities in the recycled resin and packaging markets through two main divisions: a Recycling Division and a Packaging

Division.

The Company will create a PET cleaning and refining plant located in Southern Chennai. Its initial capacity will be 10 million KG, and it will utilize post-consumer bottle feed stock presently collected in Tamil Nadu, Karnataka and Kerala, which collect over 50 million KG per year. The Company will be vertically integrated, and use almost all of its recycled material in its Packaging Division. Any surplus materials (clean flake) produced will be sold to outside companies. The extruded sheet may then be sold to manufacturers, who will thermoform it into high-visibility

5

packaging or use it in other high value added manufacturing operations. The strapping will be sold to companies who ship large packages or pallets, such as the lumber milling industry.

MANAGEMENT

Abhijeet Sinha, President, is competent in compassing all aspects of Polymer Raw Material, Plastic Conversion Methods, and Venture Development. He has founded successful ventures in the plastic converting industry, and assisted in the launch of five plastic converting manufacturing plants. Mrinal Deo, Executive VP and COO, is an MBA and inventor of the primary cleaning & refining technology used in the process for this project. He has received a patent for his technology and has been directly involved in over twenty-five major post consumer plastics recycling projects. Megha Sharma, CFO, is also an MBA and she will be overseeing the financial activities of the organization.

FINANCIAL SUMMARY After a four month start-up period to build the recycling and packaging facilities, buy equipment, and incorporate the business, Cycle Plastics Plastics will begin a quick turnaround of product. Sales will begin in May, and with over Rs.15 Million in sales the first year, we will see a first year net profit of Rs.2.3 Million. The owners are investing Rs500,000 each, for a total of Rs1.5 Million, and are securing an Rs.800K long-term loan.

The Company is also seeking an investment of Rs.2,70,0000 in order to begin operations. These funds will be used for the purchase of one recycling line and one manufacturing line, for the set up of the plant facilities and for working capital. An outside investor providing this amount would receive 48% equity in Cycle Plastics, and receive an IRR of 69% from simple dividends alone over the next 5 years. At the end of that period, we will consider a public offering of stock or a buy-out by a related business. Recent information on private sales of similar industry companies has indicated that transactions under Rs.25 million have averaged 5.3 times EBITDA, while transactions in the range of Rs.25-250 million have averaged over 7 times EBITDA. Further details can be found in the Financial Plan, below.

1.1 Objectives1. Sales is passing Rs.15 lakhs in first year, Rs.31 million in year 2, growing to Rs.43 million. 2. Gross margin of 35% or more in first year, 45% in second year then 50% or more.

3. Net profit of 13% in year one, then exceeding 20% annually starting in year two.

1.2 Mission

6

Cycle Plastics is a manufacturing company dedicated to converting waste plastic materials into commercially viable products, utilizing environmentally friendly recycling and manufacturing methods. We intend to make enough profit to generate a significant return for our investors and to finance continued growth and continued development in quality products. We will also maintain a friendly, fair, and creative work environment, which respects diversity, new ideas and hard work.

1.3 Keys to Success

The main keys to the success of the Company are:

Secure Supply- Contract for supply of post-consumer bottles and post-industrial manufacturing waste for PET raw material feed stock.

Marketing - Contractual arrangements for the sale of virtually all initial production.

Management - Strong senior management with extensive, broad-based, industry-specific experience.

Highlights

7

1.4 Potential Risks

Unavailable or scarce raw material feed stock for production

Cycle Plastics is confident that it has secured good availability of low cost post-consumer PET bottles (feed stock) derived from post-consumer beverage bottles from Chennai based recycling collectors, and has back up sources identified.

Technology employed may be unreliable or unproven

Cycle Plastics will use a proven, patented technology that was developed by one of its principals for the cleaning and recycling phase. The extrusion division will employ commercially proven technology - the industry is employing unique recycled PET technology which is used by prominent eastern Indian manufacturers of PET extrusions.

There may not be a market for the Company's products

The Industry-wide experience of the Management Team has allowed them to identify markets for the Company's products. Their expertise and reputations have allowed them to obtain commitments for virtually all of the planned initial production.

The location may not be near enough to markets

The markets that have been identified are primarily in the Noida (Delhi), which will provide a distinct advantage to the Company because of freight costs and delivery timing.

8

Company may not meet environmental standards

This environmentally-favorable venture provides for the development of technically feasible and economically viable solutions to PET plastic beverage bottle recycling, as well as environmentally aware in-house re-use practices which filter and return nearly all of the process water to the production lines.

The Company may not be able to sell all of its production capability

Through the Senior Management's industry-wide contacts, the Company has identified potential customers and received commitments for all of the production potential of the initial facility.

Company Summary

2.0 Company Summary The Company will capitalize on the opportunities in the recycled resin and packaging

markets through two main divisions: a Recycling Division and a Packaging Division.

Recycling Division Using a patented process, the Company will create a PET cleaning and refining plant

located in the western Noida (Delhi); we have chosen this region because all 16 major North American PET recycling plants are currently located in the eastern United States or Canada, despite western states' favorable recycling attitudes among consumers. Its initial annual capacity will be 46 million kgs and it will utilize bottle feed stock from California, Oregon and Washington States, which collect over 200,000,000 kgs per year. The Company will become totally vertically integrated, and use all or almost all of its recycled material in its Packaging Division. Any surplus material produced will be sold to outside companies.

Packaging Division We will create a plant (actual facilities to be shared with the Recycling Division) to

manufacture extruded plastic roll stock sheet or high-strength strapping, employing state-of-the-art technology developed to utilize recycled PET resin.

The extruded sheet will be primarily sold to thermo formers who will convert it into high visibility packaging, as well as laminators and fabricators. The strapping will be sold to commercial users for use as package or pallet strapping.The Company currently has commitments from customers to purchase all of the initial production capacity. Excess flake will be sold to outside customers.

9

2.2 Start-up Summary Our start-up expenses are budgeted at Rs.2,10,000, which is mostly for on-site

contractor services during facility preparation. Rs.50,000 has been set aside for legal and accounting, Rs.25,000 for special consulting that may be required during start up and Rs.50,000 each for local engineering and lab equipment and supplies. Rs.30,000 has been set aside as a contingency for the start up period.

Our largest Start-up Requirement is the building of the recycling and extrusion facility. Its final value at completion is listed below as a long-term asset of Rs.3,620,000 (excluding expensed items like consultants and engineering listed above). Aside from the building itself, we need Rs.25,000 in machinery and fixtures, Rs.500,000 of inventory (plastic bottle feed stock) and cash to cover us through the initial year.

Start-up

Start-up

Requirements

Start-up Expenses

Legal & Accounting 50,000

Stationery etc. 5,000

Consultants 25,000

Lab Equipment 50,000

Local Engineering 50,000

Misc Start up 30,000

Other 0

Total Start-up Expenses 210,000

10

Start-up assets

Cash Required 645,000

Start-up Inventory 500,000

Other Current Assets 25,000

Long-term Assets 3,620,000

Total Assets 4,790,000

Total Requirements 5,000,000

Start-up Funding

Start-up fundingStart-up expenses to fund

Rs.210,000

Start-up assets to fundTotal funding required

Rs.4790000 Rs.5000000

Assets

Non-cash assets from start-upCash Requirements from start-upAdditional Cash Raised Cash Balance on starting Date

Rs.41,45,000 Rs.6,45,000 Rs.0 Rs.6,45,000

Total Assets Rs.4,790,000

LIABILITIES AND CAPITALLiabilities

Current BorrowingLong-term LiabilitiesAccounts Payable (Outstanding Bills)Other Current Liabilities (interest-free)

Rs.0 Rs.800,000 Rs.0 Rs.0

Total Liabilities Rs.800,000

11

CapitalPlanned InvestmentFounderInvestors

Additional Investment RequirementTotal Planned InvestmentLoss at Start-up (Start-up Expenses)Total Capital

Rs.1,500,000 Rs.2,700,000

Rs.0 Rs.4,200,000 Rs. (Rs210,000) Rs.3,990,000

Total Capital and Liabilities Rs.4,790,000Total Funding Rs .5,00,000

Start-up

Products

3.0 Products

Cycle Plastics Plastics will utilize two processes in the same facility to produce:

12

Cleaned and recycled plastic PET flake (RPET), recovered from post-consumer beverage bottles and manufacturing waste produced by its sheet customers

Extruded roll stock sheet PET.

Extruded PET high-strength strapping for securing large packages or pallet loads; each using 100% RPET produced in-house

3.1 Product Description

Roll stock sheet will be sold to custom thermoformers primarily to be used to produce high-visibility packaging. It will also be sold to manufacturers of laminates and fabricated plastic products.

High strength PET packaging strapping is used to secure packages or pallets in such industries as lumber milling and corrugated and other paper production.

Both products will be extruded from post-consumer polyethylene terephthalate (PET) bottles. The recycling programs in California, Washington and Oregon collect in excess of 200,000 kg of PET bottles per annum. Cycle Plastics' initial capacity will be 46,000 kgs.

Using a patented process, Cycle Plastics will clean and refine the PET material from the post-consumer bottle stock and post-industrial manufacturing waste. The PET flake resin produced will be extruded into roll stock sheet or high-strength strapping.

Although the Company expects to convert all of its bottle feed stock into extruded products, any surplus flake will be sold to outside manufacturers.

3.2 Competitive Comparison

While quality and delivery are important factors to our potential clients, price is most often the determining factor in a buying decision. Good-quality packaging products manufactured from recycled (less expensive) resins, as close as practical to the end customer's operations, will be most competitive and achieve a significant market share. These factors have helped to determine the business parameters of Cycle Plastics Plastics.

3.3 Sourcing

13

In excess of 200,000 kgs of post-consumer PET beverage bottles are collected and available as feed stock for manufacturers who can re-process this material into commercial products. The Company has excellent relations with the firms and associations that collect and distribute these materials and has been assured that its requirements will be available for the foreseeable future.

The Company has entered negotiations with a Hyderabad based source of post-consumer bottles and is confident that sufficient volumes are available on a contract basis from this source to satisfy its requirements. In addition, the Company intends to purchase production waste from its sheet customers and blend it into its feed stock.

Currently, the majority of the post-consumer PET bottles collected in Chennai, Salem and Bangalore

3.4 Technology

On the manufacturing side, Management has been an integral part of the advancement of industry practices over the last twenty years or so, and includes in their knowledge base most, if not all, of the state-of-the-art available equipment and manufacturing techniques.

Market Analysis Summary

4.0 Market Analysis Summary

Strong demand for recycled plastics is working in the industry's favor. Major users of plastic packaging, apparently responding to consumer desires, have begun incorporating at least some recycled plastic content in their products as part of the growing interest in recycling. Recycled resin demand is on the rise as prices for the two major recycled resins, PET and HDPE, continue to hold value or appreciate against their virgin counterparts.

In volume, PET is currently the number one recycled resin. Supply of recycled PET is in excess of 800,000 kgs per year. This figure is expected to grow, reaching over 1000000 kgs during the next few years. The plastics industry has developed new markets and applications for recycled resins from both post-consumer and post-industrial sources.

PET leads the recycled recovered resins as the most visible and valuable, and its use is increasing. Of the total 3.7 billion kgs of PET consumed in 1997, just 16% was from recycled sources. Of the more than 90 billion kgs of plastics produced annually in the India, less than 5% is from recycled sources. Plastics, after aluminium, represent the second highest value material in the waste stream and have the highest projected growth rate.

14

Markets and uses for recycled plastics are rapidly expanding. Plastic containers are being collected at the curb for recycling in nearly 500 communities, representing more than 4 million households. Indian demand for recycled plastic will continue to expand and new markets will develop as technologies permit the efficient segregation and reprocessing of high-purity resins. Improved quality of resins, environmental issues and higher prices for virgin resin will contribute to growth.

Packaging is expected to be the largest market segment for recycled plastics, with sheet and lumber following. Surveys indicate that Indians are increasingly willing to collect and separate discarded packages, foregoing a degree of convenience to make products more disposable, and even paying a premium for a recycled item.

Increasingly, communities are refusing to consider incineration until every effort is made first to recycle; public sentiment is strongly in favor of products that can be recycled or are made of recycled materials. In recent years, the household recycling rate of PET bottles has more than doubled to 30% of all PET soft drink bottles sold. In fact, PET's recycling rate is the fastest growing among all beverage containers. The future of PET recycling is even brighter than it has been in the past. PET intrinsic scrap value is second only to aluminium among container materials. The plastics industry has launched a research and development program aimed at increasing PET recycling. According to the India, Environmental Protection Agency (EPA), plastic soft drink bottles account for approximately 2% of the solid waste discarded in India. The EPA has set a national goal to recycle 25% of the municipal solid waste stream and the industry is committed to achieving its share of that important goal.

The recycling industry intends to accelerate the rate of plastic recycling as part of its commitment to develop solutions to the solid waste problem. Industry analysts have projected that 50% of all PET containers will be recycled by the year 2009. More plastics will be recycled annually than any other recyclable material. Cycle Plastics believes a significant answer to Indian`s waste problem lies in creating high value, recycled thermoformable sheet and other extruded products for the packaging market.

Although more than 200 million kgs of PET post-consumer materials are collected in the western United States each year, there is presently no local cleaning and refining facility converting the bottles into resins suitable for re-manufacturing. Originally, recycled PET (RPET) was used primarily in the carpet fiber industry, which is located along the eastern seaboard. There is currently no independent extrusion plant of recycled polyterephthalate (PET) sheet in the western United States or Canada that services the roll stock requirements of major custom and proprietary formers. With the development of the recycling industry for PET starting in the eastern part of the country, and the preponderance of consumers of sheet there as well, development of independent extrusion facilities using RPET has been slow to develop. It

15

appears that in order to attract such companies, local sources of RPET would have to available. While there are customers in the West for the products, contracting a supply and shipping it from the East makes the venture unattractive.

Our founders recognize that an opportunity exists and propose a vertically integrated conversion facility that will employ state-of-the-art technologies to produce extruded sheet and high strength strapping from 100% recycled PET post-consumer bottle stock, cleaned and refined in our own facility.

4.1 Market Segmentation

The primary market can be broken down as follows.

Consumers of PET in:

Chennai: 62 Salem: 8

Bangalore: 9

All information is based on industry research, and data provided by the All India Federation of Plastic Industries (AIFPI)Market Analysis

Market Analysis2005 2006 2007 2008 2009

Potential Customers

Growth CAGR

1% 79 80 81 82 83 1.24%Western HDPE Buyers

1% 95 95 95 95 95 0.00%

Total 0.57% 174 175 176 177 178 0.57%

Market Analysis (Pie)

16

4.2 Target Market Segment Strategy

The Company has chosen its target markets because recycled PET (RPET) is in high demand as flake resin by converters, as roll stock sheet used to produce high visibility packaging and as high strength strapping for the lumber industry. Sales are price-sensitive, so that proximity to markets and feed stock source provide a competitive edge. Cycle Plastics Plastics identified an opportunity to take advantage of both circumstances in the western United States.

RPET Flake

Total market demand is reported as 1.2 billion kgs per year. Since only 800 million kgs are processed in the INDIA, consumers are forced to look at wide spec virgin PET (virgin resin that is outside of spec but still usable) which is normally sold at a discount to virgin prices, but still higher than recycled (RPET) pricing. Some manufacturers are also forced to import materials from Mexico, India and South America. Some converters are being forced to use more expensive virgin resin.

The current pricing for virgin resin is Rs0.65-0.73 per lb. and Rs0.42-.53 for RPET flake. The spread between the two has traditionally been maintained at approximately Rs0.20 per lb.

PET Film & Sheet

The total reported market of extruded film and sheet is 872 million kgs, of which identified industry usage of RPET is 160 million kgs.

The reported market demand (to replace virgin PS, PVC and PET) if RPET was available is estimated at 1 billion kgs.

Current pricing for RPET sheet is Rs0.70-0.79 per lb.

17

RPET Strapping

The total reported domestic plastic strapping market is 240 million kgs. Of this market, industry usage of virgin polypropylene is 132 million kgs and of PET is 108 million kgs.

It is generally accepted in the industry that less expensive strapping made from RPET could not only take over the polypropylene strapping market, but convert as much of the much larger and more expensive steel strapping market as RPET strapping was available.

Current pricing for RPET strapping is Rs0.90 -1.08 per lb.

4.3 Industry Analysis

Currently there is no direct competition in Southern India for either of the two divisions of the Company. Any production in the trading area remains captive and not available to our target market.

The ability of the Company to obtain a source of post-consumer bottle stock is an integral component of the strategy to vertically integrate operations and manufacture products in demand by Plastic consuming industries. Without the cleaning and refining division, it would be difficult to source sufficient RPET flake resin at costs that would allow the Company to be competitive.

4.3.1 Barriers to Entry

Limited Supply of raw materialRecycled PET (RPET) resins are in high demand, and demand is currently under-supplied. Many manufacturers are delaying expansion because of uncertainty of supply. Entrants would have to consider sourcing post-consumer or post-industrial waste and clean and refine it rather than attempting to purchase flake on the open market. Even at that, there is not an over-abundance of post-consumer or post industrial material in the marketplace.

Equipment costs are high and industry specific, resulting in a high exit cost.Because of the scarcity of RPET flake, entrants may be forced to establish cleaning and refining facilities for post-consumer bottles. The equipment required is costly and very industry specific. It would not easily be re-sold as a system.

There is a market for used extrusion equipment, which normally sees 60-70% of new value being realized.

18

Vertical integration is an important consideration and difficult to accomplish successfully.Because of the scarcity of RPET resin, and to maximize profit potential, entrants must consider a two-stage production facility. Cleaning and refining post-consumer bottles and extruding the resulting flake into commercial products requires a management team such as Cycle Plastics has, with a broad range of expertise, experience, industry contacts and knowledge in both areas.

Firm contracts for supply and sales.Cycle Plastics Management's industry contacts will allow us to secure contracts for both supply of feed stock and sale of finished goods.

Freight is a major cost of operations; proximity to source of supply and markets is crucial.Hauling plastic materials is expensive so entrants will have to consider establishing facilities close to materials and markets. Entrants with existing operations would have to consider new separate facilities in many cases, reducing economies of scale and making management more difficult.

4.3.2 Competition and Buying Patterns

There has been a strong demand (sellers' market) for our products for several years. Traditional buying patterns in this industry are based on quality, price, reputation of manufacturer, freight costs, delivery times and proximity to markets. During such a sellers' market, buying patterns are often more influenced by availability.

5.0 Strategy and Implementation Summary

Cycle Plastics Plastics will utilize its strong industry-wide relationships to obtain significant contracts for its production. Some business will be obtained directly by Management, while some amount of product will be sold by sales agents well known to the Company who have proven their effectiveness.

These industry-wide relationships will also provide the Company the ability to secure contracts for the supply of its raw material at competitive pricing.

5.1 Value Proposition

19

In a vertically integrated environment, Cycle Plastics will apply state-of-the-art recycling and extrusion technology managed by decades of industry specific expertise to create a competitive advantage for its clients. These processes will produce clean, cost-efficient, recycled raw material for manufacturers of thermoform, laminate and other high value-added products, and high strength packaging strapping for shippers of large products and pallets, thereby reducing costs and creating a clear pricing edge among their competitors.

5.2 Competitive Edge

Cycle Plastics Plastics' competitive edge rests with its proximity to its target markets, as well as the industry knowledge, reputation and contacts of its senior management. Their many years of direct experience have led them to identify this unique opportunity and put together the technology and sources to take advantage of it. Their reputation in the specific market segment will result in the achievement of long-term commitments for our production.

5.3 Marketing Strategy

The Company has chosen to focus on the production of plastic packaging materials from recycled post-consumer beverage bottles. Because of the industry experience and expertise of the management, we have identified a significant available market in Southern India. All of our initial marketing strategy will be to secure contracts in that segment, and after reaching full planned capacity, look to grow in concert with that segment and related markets. We see little need at present for further market research and development, and will focus on continually updating our production technology in an effort to remain in the forefront of our chosen marketplace.

5.4 Sales Strategy

Because of the unique extensive experience and reputation of our Management in the Company's chosen industry segment, we are able to identify all of the potential customers for each of the products we will produce in our facility. While most of the production of flake is ultimately intended to be used internally, we are confident that any developed surplus will be sold immediately.

All of the production of the initial facility is committed for, and should there be any capacity not consumed by these commitments, once again we are confident that the contacts of our senior management will allow for the rapid sale of any such capacity.

20

To market the products, the Company will use a number of sales agents/brokers well known to the founders from business transactions over more than 10 years. All of these seasoned veterans have a customer base of their own, having developed successful relationships with their clientele over the years. Their customer base is currently demanding product so they can expand upon their current base. Of course, they will expand that to new customers when product is available from Cycle Plastics. Those agents are located in:

Chennai Salem

Bangalore

Trichy

Ernakulam

Hyderabad

5.4.1 Sales Forecast

The sales forecast is based on the assumption that we will sell all of the highest value extruded products that we can produce. In addition, it is expected that there will be amounts of refined flake surplus to our extrusion capacity. This flake will be sold to other manufacturing companies. There is a continuing strong demand for flake and extruded products made from recycled PET.

Cost of raw materials includes 24% allowance for price variation and 15% non-recoverable waste.

Sales Forecast

Sales Forecast

2009 2010 2011 2012 2013

Unit Sales

Recycled Flake PET

20,533,600 12,833,900 0 0 0

Extruded Roll Stock Sheet

8,341,400 28,874,600 30,800,000 30,800,000 30,800,000

Extruded Strapping

0 4,491,500 15,400,000 15,400,000 15,400,000

Total Unit Sales 28,875,000 46,200,000 46,200,000 46,200,000 46,200,000

Unit Prices 2005 2006 2007 2008 2009

Recycled Flake Rs0.45 Rs0.47 Rs0.50 Rs0.52 Rs0.55

21

PET

Extruded Roll Stock Sheet

Rs0.70 Rs0.74 Rs0.77 Rs0.81 Rs0.85

Extruded Strapping

Rs0.00 Rs0.95 Rs1.00 Rs1.05 Rs1.10

Sales

Recycled Flake PET

Rs9,240,120 Rs6,064,018 Rs0 Rs0 Rs0

Extruded Roll Stock Sheet

Rs5,838,980 Rs21,222,831 Rs23,769,900 Rs24,958,395 Rs26,206,315

Extruded Strapping

Rs0 Rs4,266,925 Rs15,400,000 Rs16,170,000 Rs16,940,000

Total Sales Rs15,079,100 Rs31,553,774 Rs39,169,900 Rs41,128,395 Rs43,146,315

Direct Unit Costs 2005 2006 2007 2008 2009

Recycled Flake PET

Rs0.27 Rs0.28 Rs0.29 Rs0.31 Rs0.32

Extruded Roll Stock Sheet

Rs0.27 Rs0.28 Rs0.29 Rs0.31 Rs0.32

Extruded Strapping

Rs0.00 Rs0.28 Rs0.30 Rs0.31 Rs0.33

Direct Cost of Sales

Recycled Flake PET

Rs5,441,404 Rs3,571,033 Rs0 Rs0 Rs0

Extruded Roll Stock Sheet

Rs2,210,471 Rs8,034,357 Rs8,998,605 Rs9,448,535 Rs9,920,962

Extruded Strapping

Rs0 Rs1,257,620 Rs4,620,000 Rs4,774,000 Rs5,082,000

Subtotal Direct Cost of Sales

Rs7,651,875 Rs12,863,010 Rs13,618,605 Rs14,222,535 Rs15,002,962

Sales Monthly

22

Sales by Year

5.5 Milestones

Because the Company is a start-up, our milestones will surround the establishment of continuing facilities, confirmation of sourcing and sales contracts, equipment acquisition and installation, staffing and training, and initiating production.

Milestones

Milestones

Milestone Start Date End Date Budget Manager Department

Order Equipment 1/2/2005 1/31/2005 n/a Senior Mgmnt n/a

Secure Location 1/2/2005 1/31/2005 n/a Senior Mgmnt n/a

Secure Orders/Contracts

1/2/2005 1/31/2005 n/a Senior Mgmnt n/a

Site Preparation 2/1/2005 2/25/2005 n/a Senior Mgmnt n/a

Hire Plant Manager

2/28/2005 3/15/2005 n/a Senior Mgmnt n/a

Receive Equipment

2/28/2005 3/31/2005 n/a Senior Mgmnt n/a

Hire & Train Skilled Labor

4/15/2005 4/30/2005 n/a Senior Mgmnt n/a

Begin Production 5/1/2005 5/1/2005 Rs0 Senior Mgmnt Department

Hire & Train Unskilled Labor

4/30/2005 5/15/2005 n/a Senior Mgmnt n/a

Install Equipment 4/1/2005 4/30/2005 n/a Senior Mgmnt n/a

Totals Rs0

Milestones

23

6.0 Management Summary

The three founders form the senior management group. Several qualified candidates have been identified for the position of plant manager. The balance of the employees will be hired and trained during the equipment purchase and installation phase (first five months after funding).

6.0 Organizational Structure

The Organizational Structure of Cycle Plastics Plastics is planned to be a simple and traditional one. All recycling and manufacturing operations will report to the COO. All administrative and finance functions will report to the CFO. Both the COO and CFO will report to the CEO, who will also have the responsibility for Sales and Marketing.

7.0 Financial Plan

Once the equipment arrives and is installed, production ramps up rather quickly, with sales beginning in the sixth month after funding. Positive cash flow and net profit are achieved within the first year.

Investment AnalysisInvestment Analysis

Start 2009 2010 2011 2012

Initial Investment

24

Investment Rs2,700,000 Rs0 Rs0 Rs0 Rs0

Dividends Rs0 Rs3,000,000 Rs8,000,000 Rs10,000,000 Rs10,000,000

Ending Valuation Rs0 Rs0 Rs0 Rs0 Rs61,430,400

Combination as Income Stream

(Rs2,700,00) Rs3,000,00 Rs8,000,00 Rs10,000,00 Rs71,430,4

Percent Equity Acquired

48%

Net Present Value (NPV)

Rs5,263,507

Internal Rate of Return (IRR)

69%

Assumptions

Discount Rate 10.00%

Valuation Earnings Multiple

10 10 10 10

Valuation Sales Multiple

2 2 2 2

Investment (calculated)

Rs4,200,000 Rs0 Rs0 Rs0 Rs0

Dividends Rs3,000,000 Rs8,000,000 Rs10,000,000 Rs10,000,000

Calculated Earnings-based Valuation

Rs79,080,000 Rs116,890,000 Rs122,930,000 Rs127,980,000

Calculated Sales-based Valuation

Rs63,110,000 Rs78,340,000 Rs82,260,000 Rs86,290,000

Calculated Average Valuation

Rs71,095,00 Rs97,615,00 Rs102,595,00 Rs107,135,00

7.1 Important Assumptions Cycle Plastics has allowed for 30 days to collect receivables due to knowledge and

experience with customers in the industry. Inventory turnover is predicted at 12 times, which is extremely conservative.

The personnel burden includes contribution by the Company to employee health care.

We have allowed for Accounts Receivable financing of 70% at an interest rate of 12% per annum.

It is assumed that additional extrusion lines will be added in the second year, with down payments of 33% at time of order and balance paid at time of shipment (see Cash Flow for details). These will be purchased as long-term assets out of the cash flows of the business.

General annual growth rates of 5% have been assumed on all sales prices and material and labor costs.

General Assumptions

25

General Assumptions

2006 2007 2008 2009

Plan Month 2 3 4 5

Current Interest Rate 12.00% 12.00% 12.00% 12.00%

Long-term Interest Rate

8.00% 8.00% 8.00% 8.00%

Tax Rate 30.00% 30.00% 30.00% 30.00%

Other 0 0 0 0

7.2 Break-even Analysis

With fixed costs of about Rs.184,000 per month in the first year, and variable unit costs at roughly 52% of prices, we need to produce and sell 715,963 units per month to break even. We will far exceed the break-even point in our first full month of sales.

Break-even Analysis

Break-even Analysis

Monthly Units Break-even 715,963

Monthly Revenue Break-even Rs373,890

Assumptions:

Average Per-Unit Revenue Rs0.52

Average Per-Unit Variable Cost Rs0.27

Estimated Monthly Fixed Cost Rs184,160

Break-even Analysis

26

7.3 Projected Profit and Loss

The rapid growth of sales in year one and two is due primarily to increase in capacity over that period, as we add new extrusion equipment. The plan assumes the sale of all production capacity as it is added. The favorable gross margin projections are in part due to the vertical integration of the two processes. Our Managements' ability to handle all initial sales and marketing allows us to predict virtually no sales or marketing expense.

Profit and LossPro Forma Profit and Loss

2006 2007 2008 2009

Sales Rs31,553,774 Rs39,169,900 Rs41,128,395 Rs43,146,315

Direct Costs of Goods Rs12,863,010 Rs13,618,605 Rs14,222,535 Rs15,002,962

Production Payroll Rs1,713,013 Rs1,963,829 Rs2,062,020 Rs2,165,121

Packaging Rs315,538 Rs391,699 Rs411,284 Rs431,463

Sales Commission Rs1,501,893 Rs1,871,678 Rs1,965,261 Rs2,063,524

------------ ------------ ------------ ------------

Cost of Goods Sold Rs16,393,454 Rs17,845,811 Rs18,661,100 Rs19,663,071

Gross Margin Rs15,160,320 Rs21,324,090 Rs22,467,295 Rs23,483,244

Gross Margin % 48.05% 54.44% 54.63% 54.43%

Operating Expenses

Sales and Marketing Expenses

Sales and Marketing Payroll

Rs0 Rs0 Rs0 Rs0

Advertising/Promotion Rs50,000 Rs100,000 Rs150,000 Rs200,000

27

Travel Rs0 Rs0 Rs0 Rs0

------------ ------------ ------------ ------------

Total Sales and Marketing Expenses

Rs50,000 Rs100,000 Rs150,000 Rs200,000

Sales and Marketing %

0.16% 0.26% 0.36% 0.46%

General and Administrative Expenses

General and Administrative Payroll

Rs585,417 Rs630,189 Rs678,747 Rs731,440

Sales and Marketing and Other Expenses

Rs0 Rs0 Rs0 Rs0

Depreciation Rs405,922 Rs562,908 Rs562,908 Rs562,908

Payroll Burden Rs689,529 Rs778,205 Rs822,230 Rs868,968

Office Equipment Rent Rs6,000 Rs8,000 Rs8,000 Rs8,000

Office Supplies/Expense

Rs15,000 Rs20,000 Rs22,500 Rs25,000

Travel & Entertainment

Rs30,000 Rs35,000 Rs40,000 Rs45,000

Leased Vehicles Rs25,000 Rs30,000 Rs30,000 Rs30,000

Utilities Rs1,419,920 Rs1,762,646 Rs1,850,778 Rs1,941,584

Insurance Rs25,000 Rs25,000 Rs25,000 Rs25,000

Misc Plant & Maintainence Supplies

Rs63,000 Rs66,150 Rs69,458 Rs72,930

Other Rs0 Rs0 Rs0 Rs0

------------ ------------ ------------ ------------

Total General and Administrative Expenses

Rs3,264,788 Rs3,918,098 Rs4,109,621 Rs4,310,831

General and Administrative %

10.35% 10.00% 9.99% 9.99%

Other Expenses:

Other Payroll Rs0 Rs0 Rs0 Rs0

Misc (contingency) Rs163,239 Rs195,905 Rs205,481 Rs215,542

Prof Fees ( Includ legal & accounting)

Rs330,000 Rs363,000 Rs399,300 Rs439,230

------------ ------------ ------------ ------------

Total Other Expenses Rs493,239 Rs558,905 Rs604,781 Rs654,772

Other % 1.56% 1.43% 1.47% 1.52%

------------ ------------ ------------ ------------

Total Operating Expenses

Rs3,808,027 Rs4,577,003 Rs4,864,402 Rs5,165,602

Profit Before Interest and Taxes

Rs11,352,293 Rs16,747,087 Rs17,602,893 Rs18,317,642

EBITDA Rs11,758,215 Rs17,309,995 Rs18,165,801 Rs18,880,550

Interest Expense Rs54,464 Rs48,064 Rs41,664 Rs35,264

28

Taxes Incurred Rs3,389,349 Rs5,009,707 Rs5,268,369 Rs5,484,713

Net Profit Rs7,908,480 Rs11,689,316 Rs12,292,860 Rs12,797,664

Net Profit/Sales 25.06% 29.84% 29.89% 29.66%

Profit Monthly

7.5 Projected Balance Sheet

The vertical integration, immediate sales contracts and rapid ramp up of production combine to project a Net Worth at the end of year one in excess of the total invested capital. By staying on plan, the Company will achieve rapid growth compared to invested capital.

Balance Sheet

Pro Forma Balance Sheet

2006 2007 2008 2009

Assets

Current Assets

Cash Rs784,104 Rs4,157,053 Rs6,728,521 Rs9,808,374

Accounts Receivable Rs4,153,463 Rs5,155,983 Rs5,413,782 Rs5,679,403

Inventory Rs857,534 Rs907,907 Rs953,302 Rs1,000,075

Other Current Assets Rs25,000 Rs25,000 Rs25,000 Rs25,000

Total Current Assets Rs5,820,101 Rs10,245,943 Rs13,120,606 Rs16,512,852

Long-term Assets

29

Long-term Assets Rs8,440,000 Rs8,440,000 Rs8,440,000 Rs8,440,000

Accumulated Depreciation

Rs647,662 Rs1,210,570 Rs1,773,478 Rs2,336,386

Total Long-term Assets

Rs7,792,338 Rs7,229,430 Rs6,666,522 Rs6,103,614

Total Assets Rs13,612,439 Rs17,475,373 Rs19,787,128 Rs22,616,466

Liabilities and Capital 2006 2007 2008 2009

Current Liabilities

Accounts Payable Rs1,749,727 Rs2,003,345 Rs2,102,240 Rs2,213,914

Current Borrowing Rs0 Rs0 Rs0 Rs0

Other Current Liabilities

Rs0 Rs0 Rs0 Rs0

Subtotal Current Liabilities

Rs1,749,727 Rs2,003,345 Rs2,102,240 Rs2,213,914

Long-term Liabilities Rs640,800 Rs560,800 Rs480,800 Rs400,800

Total Liabilities Rs2,390,527 Rs2,564,145 Rs2,583,040 Rs2,614,714

Paid-in Capital Rs4,200,000 Rs4,200,000 Rs4,200,000 Rs4,200,000

Retained Earnings (Rs886,568) (Rs978,088) Rs711,228 Rs3,004,088

Earnings Rs7,908,480 Rs11,689,316 Rs12,292,860 Rs12,797,664

Total Capital Rs11,221,912 Rs14,911,228 Rs17,204,088 Rs20,001,752

Total Liabilities and Capital

Rs13,612,439 Rs17,475,373 Rs19,787,128 Rs22,616,466

Net Worth Rs11,221,912 Rs14,911,228 Rs17,204,088 Rs20,001,752

7.7 Long-term Plan

The plan calls for maximum production rate for flake in the sixth month from funding. Approximately one third of that production will be converted into extruded sheet beginning approximately at the same time. A second sheet extruder, which will also consume one third of the flake produced, is planned to be added at the end of year one, coming on line mid year two. A third extruder, which is planned to produce high-strength strapping, is expected to come on line late in year two. By the beginning of year three, it is expected that all of the 46,200,000 lbs. of RPET cleaned & recycled annually will be converted into extruded products. Up until this time, excess flake produced will be sold to other extruder companies.

The plan assumes a 5% increase in the sales price of all products and a 5% increase in the cost of raw materials and labor in each of years 2 through 5.

The result of the above is rapid growth in revenue and profit through year three, and moderate growth in years four and five, assuming no expansion of capacity during that time.

30

7.8 Cycle Plastics's Exit Strategy

Management is indifferent as to the question of looking to sell the Company after 4-5 years or retaining ownership and the resulting annual cash flow. They will look to the investors for their direction and will generally support their wishes.

Recent information on private sales of similar industry companies has indicated that transactions under Rs25 million have averaged 5.3 times EBITDA, while transactions in the range of Rs25-250 million have averaged over 7 times EBITDA.

Such multiples would put the potential sales price of Cycle Plastics, after 4-5 years of operation, in excess of Rs100 million based on current projections.

BIBLIOGRAPHY

www.google.com

Manual of All India Plastic manufacturers Federation

en.wikipedia.org

thetimesofindia.com

31