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Investment Opportunities: Packaging medium
By Ismat Sabir
Pet bottles are a packaging medium, made up of Polyethylene Terephthalate (PET). These bottles are widely used in food grade packaging and are the preferred packaging medium in this segment, due to their several advantages over other resins like Polyethylene (PE), High Density Polyethylene (HDPE) and Poly Vinyl Ethylene (PVE).Due to wide range of their uses, the demand of PET bottles is increasing as most of the food manufactures are converting the packaging of their products to PET bottles. These bottles/containers are mainly used for the packaging of mineral water, carbonated beverages, edible oil, household food containers, detergents, paints, lubricating oils, feeding bottles for babies and many other items.
As PET bottles provide better packaging, and have a lower cost than the bottles made from glass and other materials, different businesses in beverage, food and non-food industry are gradually shifting towards PET bottles.
The PET resin has superior properties; they are attractive, pure and safe. The low permeability of PET to oxygen, carbon dioxide and water means that it protects and maintains the integrity of products giving a good shelf life. It also has good chemical resistance.
PET bottles have the advantage of being lightweight, one-tenth the weight of an equivalent glass pack. Thus, PET bottles reduce shipping costs, and because of the material in the wall is thinner, shelf utilisation is improved by 25 per cent on volume as compared to glass. High strength, low weight PET bottles can be stacked as high as glass.
The other benefits are no leakage, design flexibility, containers can have all shapes, sizes, neck finish designs and colours and are recyclable. PET is made from the same three elements (carbon, oxygen, and hydrogen) as paper, and contains no toxic substances. When burned, it produces carbon dioxide gas and water, leaving no toxic residues. Being recyclable is the most important factor of success of business of PET bottles. It consumes less energy and produces less pollution than glass or metal packaging. Due to completely recyclable material, in many European and Latin American countries, PET bottles are refilled and used over and over again. In the US, more than 600,000,000 pounds of PET bottles are recycled annually.
Because of the high demand of PET bottles in Pakistan, there has been an increase in small manufacturing units of PET bottles in the main cities of Pakistan. Besides the two major players of the industry, there are around 10 small and medium units working in Lahore only. These units manufacture a variety of products, ranging from bottles for mineral water to packaging for pesticides.
To meet the growing demand in future a project with a production capacity of 5.82 million bottles per year can be set up. The estimated cost of the project may be about Rs6 million.
Market size: The majority of the businesses in Pakistan is converting from the bottle containers of traditional material to plastic substitutes for packaging of their products. The domestic manufacturing of plastic products is growing at 10 to 15 per cent annually. Carbonated beverage, edible oil and mineral water industries are good examples for the increasing demand of PET bottles. Within five years, the share of PET bottles has grown from 2 to 3 per cent to 18 to 20 per cent in the carbonated beverage market. While with every passing day, new industries are shifting to PET bottling because of lower cost and better preservation of their product. Thus, there is a big scope of setting a PET bottle plant. Here we are giving some details, which would give a rough idea about the project.
The bottles can be manufactured in the sizes of 0.5, 1.5 and 5 litre or according to the customer specifications. However, the production of 1.5 litre bottles may be the highest, as they are used in the beverage and mineral water industries, which are the two largest consumers of PET bottles. Along with this, the production of 0.5 litre bottles is also increasing because of the increasing usage in mineral water bottles. The production of 5 litre might be lower than the other two because they are mostly used in edible oil packaging.
Keeping in view the demand of the product mix can be divided as: 0.5 litre bottle 35.6 per cent, 1.5 litre bottle 57.26 per cent and 5 litre bottle 7.14 per cent. (Production ratios have been calculated from the present capacities of the machinery).
Process: PET bottles manufacturing process involves two basic stages of pre-form manufacturing and Bottle Stretch Blow Moulding. In a one-step process, the PET bottles are made directly from the resin. Both the pre-form manufacturing and stretch blow moulding is performed on a single line. (see Table-I)
TABLE-I
Machinery No. Rs.
Injection Molding Machine 1 750,000
Injection Molding Machine 1 350,000
Blow Molding Machine 1 350,000
Blow Molding Machine 2 800,000
Compressor 1 150,000
Cooling Tower 1 150,000
Chiller Unit 1 80,000
Lathe 8 ft, refurbished 1 110,000
Lathe 5.5 ft, 1 72,000
Pillar Drill 26 inches with pump 1 50,000
Facer 1 150,000
Shaper 26 inch 1 125,000
(These are indicative estimates, therefore, the intended investor must make his own calculations by market survey). Injection moulding machines of two different sizes are required as the proposed production mix depends upon different sizes. The usual machinery delivery time is 15-20 days, while import can take up to 4 months time, depending upon the availability. The stretch blow moulding machines are being manufactured locally. Lathe machines, pillar drill, facer and shaper, required for the workshop, are also manufactured locally. (see Table-II)
TABLE-II
Human Resource: No. Monthly Annual Salary
(Rs.) (Rs.)
CEO 1 30,000 360,000
Production Manager 1 16,000 192,000
Accountant 1 8,000 96,000
Injection Machine Operators 2 7,000 168,000
Blow Machine Operators 2 7,000 168,000
Pre-form Handler 1 2,500 30,000
Helpers 4 2,500 120,000
Guards 3 3,000 108,000
Land and building: An area of about 5,000 sq. ft would be required for the project. Management building 100, production Area 1,800, raw material store 300, finished goods store 500, loading area 700, workshop area 850, cooling tower/chiller 700 sq. ft.
Key assumptions: 288 days p.a. Annual production capacity 5,840,640 bottles, capacity utilisation (1st Year) 40 per cent, capacity growth rate (yearly) 2 per cent, maximum capacity utilisation 95 per cent, first year production utilisation 2,304,288 bottles. (see Table-III)
TABLE-III
Electricity growth rate 10%
Wages growth rate 10%
Office equipment growth 5%
Machine maintenance growth rate 5%
Initial approximate cost/Kg (Rs) 81, Sales Tax 15 per cent, freight cost per kg 1.22. Weighted average cost of raw material per bottle may come to Rs2.81. Other heads include administrative costs, promotional expenses, insurance, electricity and taxes. (see Table-IV)
TABLE-IV
Depreciation Rates:
Building & infrastructure 5%
Machinery & Equipment 10%
Furniture & Fixtures 10%
Project life 10 years
(after that a renovation would be required)
Debt: Equity Ratio 50:50
Interest rate on long term debt 16%
Discount rate for calculation of NPV 20%
TABLE-V
Raw Material Consumption Per Bottle
Size Weight (grams) Cost
0.5 Liter 15.5 Rs 1.46
1.5 Liter 33.3 Rs 3.13
5 Liter 74.7 Rs 7.02
Weighted average cost of raw material per bottle comes to about Rs2.81. While average sale price per bottle may be Rs6.78.