Business Plan

HIMACHAL COLD STORAGE

INTRODUCTION

India is the largest producer of fruits and second largest producer of vegetables in the world.
In spite of that per capita availability of fruits and vegetables is quite low because of post
harvest losses, which account for about 25% to 30% of production. Besides, quality of a
sizable quantity of produce also deteriorates by the time it reaches the consumer. This is
mainly because of perishable nature of the produce, which requires a cold chain arrangement
to maintain the quality and extend the shelf life if consumption is not meant immediately
after harvest. In the absence of a cold storage and related cold chain facilities, the farmers are
being forced to sell their produce immediately after harvest which results in glut situations
and low price realisation.

STATUS OF COLD STORAGE AND ITS POTENTIAL IN INDIA

The estimated annual production of fruits and vegetables in the country is about 130 million
tonnes. This accounts for 18% of our agricultural output. Due to diverse agro climatic
conditions and better availability of package of practices, the production is gradually rising.
Although, there is a vast scope for increasing the production, the lack of cold storage and cold
chain facilities are becoming major bottlenecks in tapping the potential. The cold storage
facilities now available are mostly for a single commodity like potato, orange, apple, grapes,
pomegranates, flowers, etc. which results in poor capacity utilisation.

Normally the capacity of a cold storage unit is expressed in terms of its storage volume. This
capacity is related to the product to be stored and the plant capacity is measured in terms of
its tonnage. The normal products considered for this purpose are potatoes and tamarind.
Depending on the bulk density of the product this capacity varies for storing other items.
Besides, huge potential exists for storing fresh vegetables even for shorter periods. Thus, the
present gap in demand and existing facility offers scope for encouraging units. According to
statistics available, cold chain market in India stands at $3 billion and is estimated to be $8
billion by 2015.

Commodity wise distribution of major cold chains in India:

Commodity Percent of cold storage

Potato 92.82
Multi purpose 7.63
Fruit & vegetable 1.07
Fish 0.73
Meat 0.15
Dairy & milk 0.68
Others 0.36
STORAGE OF FOODS AND STORAGE CONDITIONS

Foods and many other commodities can be preserved by storage at low temperature, which
retards the activities of micro organisms. Micro organisms are the spoilage agents and consist
of bacteria, yeasts and molds. Low temperature does not destroy those spoilage agents as
does high temperature, but greatly reduces their activities, providing a practical way of
preserving perishable foods in their natural state which otherwise is not possible through
heating. The low temperature necessary for preservation depends on the storage time required
often referred to as short or long term shortage and the type of product.

The promoters can be individuals, group of individuals, cooperative societies, proprietary/

partnership concerns and joint sector companies in public or private sector. While
formulating a project, complete details of the promoter(s), their experience in the activity and
net worth, etc. have to be incorporated.

ECONOMIC SIZE OF UNIT AND LAND REQUIREMENTS

Cold storage units can be used to store either a single commodity or multiple commodities.
Depending upon the entrepreneur's financial health; it can be planned to store the produce
entirely owned by him or on rental basis or in combination of the two. NABARD usually
encourages cold storages where 70% of the capacity is available to farmers for storage on
rentals. Financial viability of a unit depends upon the intended pattern of use and rental rate
prevalent in an area. However, units entirely to be used by the owners are also considered for
sanction. Considering 70:30 utilisation of the capacity for rentals and own use, a 5000 MT
capacity unit is considered as.

TECHNOLOGY

A cold storage unit incorporates a refrigeration system to maintain the desired room
environment for the commodities to be stored. A refrigeration system works on two
principles:
Vapour absorption system (VAS), Vapour compression system (VCS) VAS, although
comparatively costlier, is quite economical in operation and adequately compensates the
higher initial investment.

VCS is comparatively cheaper than VAS. There are three types of VCS systems available
depending upon the cooling arrangements in the storage rooms i.e., diffuser type, bunker type
and fin coil type. Diffuser type is comparatively costlier and is selected only when the storage
room heights are low.
GOVERNMENT POLICIES & INITIATIVES

 As a part of the farm to market initiative, External Commercial Borrowings will

henceforth be available for cold storage or cold room facility, including for farm level
pre-cooling, for preservation or storage of agricultural and allied produce, marine
products and meat. Changes in the definition of infrastructure under the ECB policy
are being made.

 Project import status at a concessional customs duty of 5 per cent with full exemption
from service tax to the initial setting up and expansion of

» Cold storage, cold room including farm pre-coolers for preservation or storage of
agriculture and related sectors produce and
» Processing units for such produce.

 Full exemption from customs duty to refrigeration units required for the manufacture
of refrigerated vans or trucks.

 NCDC Vide letter No.NCDC:9-1/98-P(F&V) dated 7.3.200 has circulated details of

Capital Investment Subsidy Scheme for construction /expansion / modernization of
cold storages and storages for horticulture produce. The cost of 5000 MT capacity
for new cold storage and expansion of existing capacity would not exceed to Rs.2.00
crores. Back-Ended Subsidy @ 25% would not exceed Rs.50.00 lakh per project,
including for the CA/MA Stores and Projects of higher capacity. However, for the
projects in the North-Eastern States@ 33.33%. However, maximum subsidy
admissible would be Rs.60.00 lakhs. For modernisation and rehabilitation BES @
Rs.1000/ton and for storage like onions @ Rs.2000/ton capacity created/to be created
is also available under the scheme.

 Initially, the amount of subsidy would also be sanctioned as loan to the State Govt. for
which a separate account would be maintained by the State Govt. No interest on such
loan would be charged by NCDC till the completion of the unit in stipulated period of
18 months. On completion, this loan will be converted into subsidy.

BUSINESS PLAN

The business plan is to set up a cold storage plant in Kullu district of Himachal Pradesh as
HP it accounts for % of fruit production in India. The cold storage capacity in Himachal
Pradesh as a % of total capacity is only % which offers a huge potential.

FINANCIALS

Assumptions
 1. Plant capacity is 4000 tons per annum.
2. The annual cost at 100% utilisation will be Rs. 9,00,000
3. An average rent of Rs. 1700/- per ton is assumed for first two years and 5% increase
per annum thereafter.
4. Depreciation on building @8%/annum
5. Depreciation on machinery @10%/annum
6. Depreciation on furniture @20%/annum
7. Interest on debt@12% for capital and 18% for working capital.
8. Interest on term loan is calculated @ 12% per annum assuming bullet repayment at end
of 5 years.

Period (in
IMPLEMENTATION SCHEDULE months)
Application and sanction of loan 2
Site selection and commencement of civil work 1
Completion of civil work and placement of orders for
machinery 4
Erection, installation and trial runs 1

CAPEX
Land (5000 sq mtrs @ Rs 300 per sq mtr) Rs. 15,00,000.00
Building (3500 sq mtrs@Rs 1000 per sq mtr) Rs. 35,00,000.00
Plant & Machinery Rs. 50,00,000.00
Furniture & Fixtures Rs. 3,00,000.00
Contingencies @ 5% on Land and Building & Plant &
Machinery Rs. 10,00,000.00
Rs.
Total 1,13,00,000.00

Working Capital Year 1 Year 2 Year 3 Year 4 Year 5

Personnel Rs. Rs. Rs.
Salaries 60,000.00 Rs. 63,000.00 Rs. 66,150.00 69,460.00 72,930.00
Rs. Rs. Rs. Rs. Rs.
Utilities 5,40,000.00 6,75,000.00 7,20,000.00 7,20,000.00 7,20,000.00
Rs. Rs. Rs. Rs. Rs.
Other expenses 1,00,000.00 1,06,000.00 1,12,360.00 1,19,100.00 1,26,250.00
Total Working Rs. Rs. Rs. Rs. Rs.
Capital 7,00,000.00 8,44,000.00 8,98,510.00 9,08,560.00 9,19,180.00

Sources of Finance
Debt Equity Ratio 2:1
Promoters' Contribution (25%) Rs. 30,00,000
 Term Loan from Bank (50%) Rs. 60,00,000
Subsidy (25%) Rs. 30,00,000
Total Rs. 1,20,00,000.00

Cost of Capital
Cost of Debt 12%
Cost of Equity 15%
WACC 13%

Profit & Loss Account

(Rs)
Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Installed Capacity 4000 Tonnes
Capacity Utilisation 60% 75% 80% 80% 80%
4 51 57 59 62
Sales Realisation 0,80,000 ,00,000 ,12,000 ,97,600 ,97,480
Cost of Production

Utilities 5,40,000 6,75,000 7,20,000 7,20,000 7,20,000

Salaries 65,000 68,250 71,660 75,240 79,000

Stores and Spares 50,000 60,000 72,000 86,400 1,03,680

Repairs &
Maintenance 40,000 48,000 57,600 69,120 82,944
Selling &
Administrative
Expenses 1,00,000 1,10,000 1,21,000 1,33,100 1,46,410
10 10 11
Total 7,95,000 9,61,250 ,42,260 ,83,860 ,32,034
Profit before
Interest & 3 41 46 49 51
Depreciation 2,85,000 ,38,750 ,69,740 ,13,740 ,65,446

Depreciation 8,51,667 8,51,667 8,51,667 8,51,667 8,51,667

Interest on Term Loan 7,47,160 7,64,267 7,70,743 7,71,937 7,73,199

1 25 30 32 35
Profit before Tax 6,86,173 ,22,816 ,47,330 ,90,136 ,40,581
10 11 12
Income-tax @ 33.9% 5,71,613 8,55,235 ,33,045 ,15,356 ,00,257
1 16 20 21 23
Profit after Tax 1,14,561 ,67,581 ,14,285 ,74,780 ,40,324
Operating Cash (85,10,0 2 32 36 37 39
Flow 00) 7,13,387 ,83,515 ,36,695 ,98,384 ,65,189
30,66,
NPV 265