4.

PROFILE ON GRANITE CUTTING

4-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

4-3

II.

PRODUCT DESCRIPTION & APPLICATION

4-3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

4-4 4-4 4-5

IV.

MATERIALS AND INPUTS A. RAW MATERIALS B. UTILITIES

4-6 4-6 4-6

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

4-7 4-7 4-8

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

4-9 4-9 4-10

VII.

FINANCIAL ANLYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS

4-10 4-10 4-11 4-12 4-12

4-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of granite with a capacity of 300,000 m2 per annum. The present demand for the proposed product is estimated at 192,098 m2 per annum. The demand is expected to reach at 442,404 m2 by the year 2017.

The plant will create employment opportunities for 58 persons.

The total investment requirement is estimated at Birr 29.43 million, out of which Birr 19.13 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 20 % and a net present value (NPV) of Birr 13.07 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Granite is a natural igneous rock composed of granular limestone or dolomite, which is crystallized by the influence of heat, pressure and aqueous solutions. This Metamorphic rock can be found in nature with different attractive colors and variegated varieties as well as quality.

Cutting granite has got wide application in the building construction sector and can be processed in industries to produce various kinds of dimension stones. The products of

dimension stone processing industries can be used for monuments, interiors decoration, statuary, table tops and novelties. But the principal application of granite is for exterior building works to provide a lasting endurance to walls.

4-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Granite is a common type of hardest affordable natural stone. Although available in a wide variety of colors it is usually white. Its massive, hard and tough nature makes a wide spread use as construction stone. Its application includes floor, tiles, bathrooms, gardens, steps and many more. The extensive usage of granite as a dimension stone as well as flooring and tiles for public and commercial buildings and monuments constitute the top demand sectors of the granite market. Recently, application of natural stone in the rapidly developing urban areas has increased.

Supply of granite is met mainly from the domestic producers.

Although the expanding

building and construction sector has given rise to granite cutting opportunities and it is a well known fact that more granite is produced, official statistics is not available. Failing to assess the demand for granite based on the supply, end use approach is applied.

The demand for granite primarily is concerned with the construction sector. According to a study conducted on Problems and Prospects of Housing Development in Ethiopia with particular emphasis on the city of Addis Ababa, the annual new dwelling units required is 29,272. Assuming a minimum average consumption of 5.5m2 granite per housing unit, the current effective demand for granite at Addis Ababa is estimated to be 153,678m2. Further assuming this volume to cover 80% of the national consumption of granite, the current effective demand for granite is estimated at 192,098m2.

2.

Projected Demand

The rapid development of urban areas, high-rise buildings, housing complexes, malls, governmental and non governmental buildings make use of granite for both their interiors and exteriors. Once limited to the wealthy, granite has now become a part of the common peoples use because of the supply of granite from the new granite industries.

4-5 The demand for granite is directly related with the growth in the construction sector which in turn depends on the overall economic development of the country. Therefore, demand is projected at the annual GDP growth rate achieved in 2004/5 or 8.7%. Projected demand is presented in Table 3.1. Table 3.1 PROJECTED DEMAND FOR GRANITE Year Projected Demand (M2) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 208,811 226,977 246,724 268,189 291,521 316,884 344,453 374,420 406,995 442,404

3.

Pricing and Distribution

Considering the current retail price of the product and margin for distributors and transportation cost a factory-gate price of Birr 150 per m2 is recommended for the envisaged plant. The product can be distributed through direct delivery to construction companies as well as through the existing building material shops.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

Based on the market study indicated above, the envisaged plant for manufacturing of granite cutting plant with a capacity of 300,000 sq. meters per annum.

4-6 2. Production Programme

The plant is expected to operate in 3 shifts of 8 hours per shift for a total of 300 working days a year. Its anticipated that the plant will run at 70%, 85% and 100% in the first, second and third years, respectively.

IV.

MATERIALS AND INPUTS

A.

RAW MATERIALS

The raw materials used for dimension stone cutting are granite rock. The annual requirement of granite or other dimension stones is indicated in the Table 4.1.

Table 4.1 RAW MATERIAL REQUIREMENT

Description Marble or dimension stones (Tons) Total

Qty 18,000

Cost 000 Birr 36,000 36,000

B.

UTILITIES

The major utilities required by the plant are electricity and water. The estimated annual requirement of utilities of the plant at 100% capacity utilization rate and their estimated costs are given in Table 4.2.

Table 4.2 UTILITIES REQUIREMENT AND COST

Description Electricity , kWh Water, m3 Total

Qty 750,000 25,000

Cost 000 Birr 355.20 250.00 355.45

V. A. 1.

4-7 TECHNOLOGY AND ENGINEERING TECHNOLOGY Process Description

The processing of granite dimension stones essentially involves the following major operations: quarry opening; blasting; cutting; polishing and ornamenting. Quarrying for dimension stone requires a specialized method of extraction. Normal quarrying methods use large quantities of explosives to move huge volumes for breaking down into aggregate. This creates cracking throughout the stone, which renders it unsuitable for this purpose. Many a dimension stone quarry has been rendered useless by the over use of explosives. Wire sawing is used for primary block extraction. The system consists of a long stranded wire or diamond tipped wire fed through a series of pulleys and assisted by abrasives. Stranded wire has been used for many years in marble and sandstone, whilst improvements in diamond technology, has seen the recent introduction of wire sawing in granite quarries. The yield from wire sawing is much higher and gives a semi finished surface which allows a close examination of the material before further working. Cutting is performed by a gang-saw for producing granite slabs. Gang sawing uses a reciprocating frame with up to 120 steel blades working theirs way through the block. It can take up to one week to saw each block. Surface finishing or polishing of shaped marble blocks by rubbing beds and polishing machines in order to attain attractive color and uniform texture, 2. Source of Technology

The address of machinery supplier is given below:Laxmi Engineers Address: G-588 (B), 2nd Phase, M.I.A., Basni Jodhpur-342 005, (INDIA) Tel:+(91)-(291)-2740588/2740589 Fax:+(91)-(291)-2741692 Mobile:9829027588 Email:[email protected]

4-8 B. ENGINEERING

1.

Machinery and Equipment

Plant machinery and equipment required for granite cutting plant is presented in Table 5.1. The total investment cost of plant machinery and equipment is estimated at Birr 19.9 million.

Table 5.1. MACHINERY AND EQUIPMENT REQUIREMENT AND COST

Sr. No. 1 2 3 4 5 6. 7 7 8 Gang Saw

Description

Qty. (No.) 2 2 2 1 2 2 L.S L.S L.S LC

Cost (Birr) FC 940,000 350,000 390,000 750,000 185,000 150,000 11,500,000 1,425,000 250,000 3,188,000 3,188,000 15,940,000 15,940,000 Total 940,000 350,000 390,000 750,000 185,000 150,000 11,500,000 1,425,000 250,000 15,940,000 3,188,000 19,128,000

Slide Cutting Machine Circular Cutting Machine Polishing Machine Chamfering & Trimming Machine Polishing Machine (Hand Operated) Mining Equipment Quarry Equipment Tools Total

INSURANCE, CUSTOMS DUTY, INLAND TRANSPORT, BANK CHARGE, ETC. Grand Total

2. Land, Building and Civil Works Total land space required is about 5,000 m2 and at the lease rate of Birr 0.625 per square meter. The total land lease value for 80 years of land holding will be Birr 250,000.00. A built up area of about 1,000 square meter will be required for production, storage of space parts and office rooms. The construction cost of the built-up area at a rate of Birr 2,300.00 per m2 is estimated to be Birr 2,300,000.

4-9 3. Proposed Location

The main factors of selecting the location for granite cutting plant are: availability of raw material and easy to get utilities. Hence, it is proposed to establish the plant in Banatsemay woreda Kayafer town which can fulfill the above requirement.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The plant requires a total of 58 persons and the details of their position along with the annual labour cost are indicated in the Table 6.1. Table 6.1 MANPOWER REQUIREMENT AND ESTIMATED LABOUR COST Sr. No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Job Title General Manager Secretary Production & Technical Head Commercial Head Finance & Administration Head Personnel Accountant Accounts Clerk Cashier Sales person Purchaser Store Keeper Quality Controller Shift Leader Operator Assistant Operation Laborer Mechanic Electrician Driver Guard Sub Total Employees Benefit 25% basic salary Grand Total No. of Persons 1 1 1 1 1 1 1 1 1 1 1 1 1 3 9 9 10 3 3 4 4 58 Salary (Birr) Monthly Annual 2,000 24,000 800 9,600 1,700 20,400 1,600 19,200 1,600 19,200 800 9,600 750 9,000 400 4,800 500 6,000 500 6,000 500 6,000 500 6,000 800 9,600 750x3 27,000 400x9 43,200 250x9 27,000 150x10 18,000 700x3 25,200 700x3 25,200 400x4 19,200 200x4 9,600 413,800.00 103,450.00 517,250.00

4-10 B. TRAINING REQUIREMENT

Training of production worker is required. It can be conducted during the erection period and the cost is embodied in the machinery cost as the training will be provided by the supplier

VII.

FINANCIAL ANALYSIS

The financial analysis of the granite cutting

project is based on the data presented in the

previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable

3 years 8% 8.5% 30 days 60days 3 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 29.43 million, of which 19 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

4-11 Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (000 Birr) 250 2300 19128 125 250 1578.73 5801.9 29433.63 19

* N.B Pre-production expenditure includes interest during construction ( Birr 1.43 million ) and Birr 150 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 40.62 million (see Table 7.2). The material and utility cost accounts for 89.50 per cent, while repair and maintenance take 0.47 per cent of the production cost. Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 36,000.00 355.45 191.28 206.9 103.45 310.35 37,167.43 2120.3 1333.94 40,621.67

% 88.62 0.88 0.47 0.51 0.25 0.76 91.50 5.22 3.28 100

4-12 C. FINANCIAL EVALUATION

1.

Profitability

According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity

(Return on equity) and net profit plus interest on total investment (return on total investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

2.

Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full capacity (year 3) is estimated by using income statement projection.

BE =

Fixed Cost Sales Variable Cost

= 16 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 5 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 20 % and the net present value at 8.5% discount rate is Birr 13.07 million.

D.

ECONOMIC BENEFITS

The project can create employment for 58 persons. In addition to supply of the domestic needs, the project will generate Birr 10.72 million in terms of tax revenue. The establishment of such factory will enable the country to earn foreign currency by exporting its products.