Cleaner Brick Production Technologies

Financing Your Fly Ash Business

(with PMEGP subsidy)

April 2013

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Introductory Note

This is a sample Business Plan for promotion of cleaner brick technologies throughout the
country. This document should be seen as a template to guide prospective entrepreneurs to
build their own business plans. It is hoped that this document will provide general guidelines
for entrepreneurs when approaching financial institutions for loans to fund their new
ventures in cleaner bricks. Entrepreneurs can even have an idea of the profitability of the
business based on local conditions.
This Business Plan is based on a real case. Only the names and certain other details have
been changed. Most of the information is based on actual data valid at the time of
preparation of this document. Nevertheless, it is important to note that the facts and figures
contained in this example should be treated only as illustrative examples. The actual
contents of each business plan will vary depending on a host of factors.
The sample plan relates to the setting up of a fly ash production unit. The actual investment
required and the revenue generated will depend on the type of machine and the number
proposed in the project. Another factor to be considered is the amount of land required for
a new unit. A decision on quantity of land acquired will determine the investment needed
and impact on the financial projections/performance. The amount of funds to be borrowed
and the repayment schedule is another variable that will impact the financial forecasts. Once
again, the circumstances of each project will determine the loan amount and how quickly
the money can be paid back. It is, therefore, very important to understand the actual
specifics of each business plan even in terms of marketing mix and SWOT analysis since it
will vary depending on the circumstances of each entrepreneur and his or her project.
Prospective Fly Ash Brick Production Technology entrepreneurs are advised to contact the
technology provider company (please look at www.ecobrick.in) before they start developing
their business plans. The Company will provide information on equipment/technology
supply which should prove useful for entrepreneurs in planning to set up their businesses.
Prospective entrepreneurs may also consider seeking professional assistance to develop
their customised business plans.
It must be mentioned here that a bankable business plan needs to be prepared from a
registered Chartered Accountant for acceptance in any banks for finance.

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1. Executive Summary

M/S ABC is a brick making enterprise registered as a private firm in May 2013. M/S ABC is
owned by Mr. Satish Kumar, an experienced businessman with considerable knowledge of
the construction sector. M/S ABC intends to set up a fly ash brick production unit in
Bhagalpur, Bihar with a capacity to produce 15 lakhs bricks per annum. The focus of M/S
ABC will initially be on producing standard bricks (230mm x 110mm x 70mm) for
construction purposes. The main markets for M/S ABC will be the adjoining areas of
Bhagalpur city and the nearby districts of Bhagalpur and Khagaria.
M/S ABC will adopt the environment friendly fly ash technology to produce cured bricks.
This advanced technology will give M/S ABC an edge over its competitors due to several
factors. The fly ash brick making technology does not use any coal. The fly ash to be used will
be available free of charge from nearby thermal power plants. Thus the major factor will be
savings in raw material and fuel thereby increasing profitability and making it viable
compared to existing brick businesses. The unit will be less polluting than other brick
industries rendering it more acceptable to local communities. The quality of bricks will be
conforming to IS standards with more regular features. Thus there will be more acceptance
amongst users since it will reduce construction costs.
M/S ABC will target public, private and institutional customers with an aim to attain sales of
Rs. 72 lakhs in the first year. This will rise to Rs. 100.8 lakhs by the end of the fifth year of
operations. Cumulative net cash flow will rise from Rs. 17.95 lakhs in the first year to Rs.
103.6 lakhs by the end of the fifth year.
An initial fixed investment of Rs. 25.64 lakhs will be required to fund capital expenditure.
The promoter will invest Rs. 6 lakh as equity and a long term loan of Rs. 19.64 lakh will be
sought to finance the rest of the fixed investment. The initial financing pattern will result in a
Debit to Equity Ratio of 3.27 times.
The projections indicate that the long term loan will be comfortably repaid by the end of the
second quarter in the fifth year. The company's working capital will be largely funded from
internal sources from the second year onwards. Short term borrowing will not be required
from the fourth year onwards. The Project Payback is projected at 4.5 years. The average
Debt Service Coverage Ratio is projected to be very comfortable at 1.17.
The prospects for M/S XYZ are very bright in view of the increasing demand for bricks.

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2. Financial Summary

Sources of funds
The initial investment required for setting up a Fly Ash Brick Production Unit (FA-BPU) is
amounting to Rs. 24,50,000.
The equity = Rs. 2,45,000
Debt = Rs.22,05,000 (rate of interest 17%. Payback period = 5 years)

Application of funds
The funds would be utilized for purchase of assets amounting to Rs. 20,45,000. A
depreciation rate in accordance to the companies’ act 1956 would be applied on respective
assets. The balance funds would be utilized for the working capital requirement.

Working capital requirement

A work cycle of 1 month would be set up. The inventory of finished goods and raw material
would be maintained for a month. The debtors would have a credit period of 15 days.
Creditors’ payback period would be around 36 days.

Subsidy (PMEGP)
In the following technology there is a subsidy of around 30% given by the Govt. of India
through KVIC and KVIB under the PMEGP scheme. To avail of the subsidy please follow the
required guidelines and eligibility criteria as published time to time.
In this scheme the subsidy is given on a loan undertaken by the entrepreneur below Rs.25
lakhs. Out of the total project cost (not exceeding Rs. 25 lakhs) entrepreneur contribution
would be 10% of the overall capital invested. The overall funds (capital + debt) cannot
exceed Rs. 25Lakhs. Release of the subsidy grant given on the overall funds, would be in the
third year of the business being run continuously.

Returns
The IRR achieved would be of 13% from the discounted cash flow. The payback period would
amount to approximately 3 years and 9 months. The working shows that 100% of the
earnings are retained in the business. Depending upon the situation the percentage of
retained earnings may vary.

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3. Company Introduction

The Company
M/S ABC is a company that intends to set up a production and distribution of high quality
“Fly Ash” bricks. The company is owned by Mr. Satish Kumar and is registered as a
proprietorship firm with the District Industries Centre, Bhagalpur. The firm registration
number is ABCD/345/13. Owner has also applied for No Objection Certificate (NOC) to
establish the unit to the State Pollution Control Board. It will be granted once the technology
is finalized. Owner has also applied to National Thermal Power Corporation, Kahalgaon Unit
for free availability of fly ash to his manufacturing unit. In principle consent of the same has
also been received and attached. Owner also plans to apply to Khadi Village Industries
Commission (KVIC), Bhagalpur for subsidies under the PMEGP scheme as eligible and
applicable. Permanent account number (PAN) of owner is AAAAA0000A.
In addition to the on-site sales office, the company also intends to set up a sales office in
Bhagalpur. This office will be operational by June 2013.

Product description
The fly ash brick to be produced and sold is a relatively new but well established building
material in the construction sector. It is made from a mix of fly ash and sand stabilized by
either cement or lime depending on the availability. The fly ash is available free of charge
within a radius of 100 km from any thermal power plant.
With the increased generation of fly ash in the country Ministry of Environment and Forests,
Government of India has made it mandatory to use fly ash products in both public and
private construction within a radius of 100 km from a thermal power plant throughout the
country. This has resulted in a high demand of fly ash bricks and other products for use in
construction. Since no coal is required to produce the brick, thus the entire production
process is environment friendly compared to the highly polluting burnt clay brick production
process.
The fly ash of M/S ABC has been tested at Technology and Action for Rural Advancement,
New Delhi (test report attached) and has been recommended for use. With recommended
addition of additives and proper mixing process a compressive strength of around 80 kg/cm2
can be achieved with consistent quality. The wastage will be around 2-3% making a high
yield of consistent quality bricks. In this technology since the production is done through a
hydraulic machine thus all the bricks produced are of a single class and quality. Presently the
production capacity will be around 5,000 bricks per day. On successful operation, the
production capacity will be increased to an additional 5,000 bricks per day by the installation
of another similar machine.

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4. The Industry

The construction industry contributes to about 10% of the Gross Domestic Product (GDP),
registering an annual growth of about 9%. Clay fired bricks form the backbone of the
construction industry which is valued at approximately US$ 70.8 billion. The brick sector in
India, although unorganised, is tremendous in size and spread. India is the second largest
brick producer (China dominates with 54 % share) in the world. It is continuously expanding
on account of a rapid increase in demand for bricks in infrastructure and housing industries.
In order to meet this demand, over 150,000 brick units provide direct employment to more
than 8 million workers. During the Ninth Five-year Plan period (1997-2002), the annual
demand of 170 million bricks per year was estimated to be generating revenues of over US$
4.8 billion.
Bihar needs over 7500 million bricks over the next five years just to meet the rural housing
gap of 1.1 million dwellings per year. Potential savings of 2.8 million tonnes of CO2e are
possible while creating livelihoods for 0.35 million people by introducing cleaner production
systems.

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5. Opportunity/Market Assessment

Economic growth is directly related to the level and efficiency of fixed capital formation. In
developing countries like India, the share of such fixed capital formation in construction is
often about 50% of the total but can be as high as 80% also (UNCHS, 1996). Thus the
construction sector is regarded as one of the backbones of the development process mainly
because of its multiplier effect in other sectors of economy. Building materials form the
single largest input in construction, accounting for almost 50%-80% of the total value of
construction. However in India the annual growth rate in construction has far outstripped
the supply of walling materials resulting in a huge shortfall and creating an impediment to
the development of the country.
Bihar is India’s new miracle economy. In the five year period between 2004-2005 to 2008-
2009, Bihar’s GDP has grown by 11.03%. This has been possible with investment in various
sectors, including the construction sector. If this growth rate needs to be sustained, the
demand growth for quality building materials will be increasing manifold. Manifestation of
the same is already been felt from the acute mismatch between demand and supply of
walling materials. In Indira Awas Yojana (a popular rural housing scheme for weaker
sections) alone there is shortfall of around 5489 million bricks.
Presently there are around 4210 registered brick producing units producing around 10,525
million bricks per year. In an average in Bihar around 45 million tonnes of agricultural top
soil is lost every year for producing bricks. Moreover the brick industry with the present
production consumes around 2 million tonnes of coal thereby releasing around 4-6 million
tonnes of CO2 each and every year. The amount of suspended particulate matter (SPM) and
particulate matter less than 10 microns (PM10) resulting from the same are also beyond
tolerable limits higher than WHO guidelines. Use of low quality imported coal from North
East India e.g. Assam, Meghalaya etc. (>1% Sulphur content) leads to high CO2 and SO2
emissions contributing to anthropogenic climate change. Particulate matters and SO2 cause
serious health problems, predominantly in the respiratory system. Of late interest is the
measurement of black carbon or soot also which is also considered to be a major source of
global warming.
Thus there is a high market and opportunity of introducing fly ash based brick production
and resultant products in the state.

Buyer Behaviour/ Market Characteristics:

Individual brick buyers in Patna are quality and price conscious. Buyers prefer bricks that are
red in colour. A long ringing sound obtained by banging two bricks together is thought to be
a sign of good quality. Private buyers contact brick kilns through sales depots. There is a
feeling in the area that larger sized bricks are cost-effective as less labour and cement is
consumed during construction.
Bulk buyers such as contractors and projects consider quality, price and reliability in making
purchase decisions. Large buyers expect special pricing when bricks are bought in large
quantities.

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6. Competition/Industry Analysis

The construction industry contributes to about 10% of the Gross Domestic Product (GDP),
registering an annual growth of about 9%. Clay fired bricks form the backbone of the
construction industry which is valued at approximately US$ 70.8 billion. The brick sector in
India, although unorganised, is tremendous in size and spread. India is the second largest
brick producer (China dominates with 54 % share) in the world. It is continuously expanding
on account of a rapid increase in demand for bricks in infrastructure and housing industries.
In order to meet this demand, over 150,000 brick units provide direct employment to more
than 8 million workers. During the Ninth Five-year Plan period (1997-2002), the annual
demand of 170 million bricks per year was estimated to be generating revenues of over US$
4.8 billion.
Compared to the conventional burnt clay brick industry, the advantages of a fly ash brick
production technology are as follows:
 Use of industrial waste materials available free of charge from thermal power
plants
 Reduced production cost due to savings in energy consumption
 Reduced pollution due to minimal emission and discharge of pollutants
 Brick property as specified in IS standards and construction requirements.
 Lower construction costs due to low mortar consumption since all bricks are eqal
in size, shape and dimensional tolerances.
Despite the comparative advantages of Fly Ash Brick Technology, entrepreneurs still use the
less efficient Fixed Chimney kilns in large numbers. This is mainly due to a lack of
understanding of Fly Ash technology.

Analysis of Influences on the Industry

Compared to most industries, the impact of external influences on brick industries is
relatively high.

Economic Influences
This industry is susceptible to economic performance and conditions. However, as discussed
earlier, the brick sub-sectors' prospects continue to remain attractive despite stagnant
macro-economic conditions. Furthermore, the increased interest showed by financial
institutions in housing finance points to a continuing boom in construction activities.

Social Influences
The making of conventional bricks involves extraction of soil and the firing process consumes
fossil fuel (coal). The brick industry is a labour intensive industry. Labourers moulding green-
bricks are exposed to the harsh conditions of the summer. Kiln operators work in and
around kilns where the temperatures can exceed 1,000OC. The promoters are aware of
these issues and thus have taken to adopt fly ash brick making technology to create local job
opportunities.
There have been cases of local communities opposing the operation of polluting kilns in their
areas. Some kilns have been forced shut or have had to relocate as a result of local
resistance. It is increasingly clear that the twin issues of environment and social responsibly
will play an increasingly important role in shaping of this industry in recent years.

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Political and Legal Influences

The Government has taken steps in response to the growing concerns regarding the adverse
impact of brick industries. New restrictions and regulations have been introduced on the
setting up and operation of kilns. Fly ash brick making has been given the topmost priority
by the Central Government and all State Governments. Movable BTKs have been banned
and no incentives are being provided to existing brick technologies like fixed chimney. The
requirements for Fly Ash technology is less stringent, the government is offering different
schemes for its promotion. This shows the Government's support for this technology.

Environmental
With growing environmental consciousness at all levels of society, the pollution caused by
the brick industry is under the scrutiny of environmentalists and the government.
The Government of India took a step towards controlling environmental (air) pollution
from brick kilns by issuing a notification on emission standards for brick kilns in April 1996.
The standard laid by the Government also provides regulations on ‘stack height’
corresponding to kiln capacity in order to control emissions.
Keeping in line with the rising emphasis on climate change related concerns nationally and
internationally, the National Action Plan on Climate Change (NAPCC) was introduced in
2008 and outlines the existing and future policies and programs addressing climate
mitigation and adaptation. Two out of eight missions could be relevant to the brick sector -
The National Mission for Sustainable Habitat which aims to make habitat sustainable
through improvements in energy efficiency in buildings among other measures. The
Recycling of Material and Urban Waste Management will be another area of focus.
However building materials are not part of their focus. The National Mission on Energy
Efficiency has initiatives to promote energy efficiency through market based mechanisms
and fiscal instruments in energy intensive industries. Based on the National Action Plan,
individual States are preparing State Action Plans for Climate Change to set priorities to
tackle climate change.

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7. The Fly Ash Brick Production Technology

What is fly Ash?

Fly ash is one of the residues generated in the combustion of coal. Fly ash is generally
captured from the chimneys of coal-fired power plants, and is one of two types of ash that
jointly are known as coal ash; the other, bottom ash, is removed from the bottom of coal
furnaces. Fly ash material solidifies while suspended in the exhaust gases and is collected by
electrostatic precipitators or filter bags. Since the particles solidify while suspended in the
exhaust gases, fly ash particles are generally spherical in shape and range in size from 0.5 μm
to 100 μm.

What are fly ash bricks?

Fly ash bricks are made up of fly ash, sand, lime and gypsum. In these bricks fly ash is used as
primary filler and sand is added as secondary filler. Lime and gypsum is used as binder which
helps in holding all the raw material together.

Why fly ash bricks?

In India, coal being the principal source of electricity, the problem of fly ash disposal and
utilization has assumed enormous proportion as the annual production of fly ash in India has
surpassed 150 million tones. Its increasing accumulation every year, causes severe
environmental and health hazards around the thermal power plants. Fly ash is a versatile
material and its pozzolanic properties, permit its use in various construction applications.

Advantages of fly ash bricks

 Compact construction & Consistent quality
 Better thermal insulation properties
 Availability throughout the year.
 Better shape & finish
 Rationalization of Mortar with optional need of Plaster
 With ageing the strength of the bricks goes on increasing as lime is used in bricks.
 Absorb less water and also seepage is less.
 Saving the natural resource and environment
 More resistant to salinity and water.
 More lighten than conventional bricks

Uses of fly ash blocks

Fly ash blocks can be used as substitute of burnt clay bricks. The application of fly ash blocks
is almost same as like burnt clay bricks. It can be used as masonry units in:
 Housing
 Residence/shop
 Factories/Workshop
 Institutional building
 Commercial building
 Frame structure
 Compound boundary wall

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Technology
Fly ash brick (FAB) technology is a process of converting industrial waste materials into
quality building materials. At present, the technology is well established in converting
thermal power plant waste into quality bricks.
FAB technology uses dry ash (fly ash collected from ESP or silos of thermal power plants);
filler materials (usually coarse sand); and additives (lime, gypsum or cement). Various
technologies exist of commercial service providers. Essentially they use the same process
but at different machines and mix designs. The present technology to be used has been
developed based on scientific analysis and understanding of the waste materials; fly ash and
lime with optimum utilization of sand and gypsum or cement. The desired strength of fly ash
bricks can be engineered by varying compositions.

Equipment and machineries

The requisite machinery and production system are designed to achieve the desired level of
production and will be procured from M/S TARA Machines and Tech Services Pvt. Ltd. TARA
Machines and Tech Services Pvt. Ltd. offers technology packages with daily production
capacity of 2500, 5000 and 10000 bricks. The TARA MechRam is suited for daily production
of 5000 and 10000 bricks; the TARA Balram is suited for daily production of 2500 bricks. M/S
ABC will procure and use the TARA MechRam MV technology of the following
characteristics:

TARA MechRam-MV
• Production rate of 600 bricks per hour.
• Electrically operated Hydraulic Power Pack with 5 HP 3-phase motor.

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8. Marketing Plan

Market Segmentation and Positioning

Brick is a commodity product purchased by a broad section of consumers. Fly ash bricks will
be of a superior finish and shape, and M/S ABC will target the upper segment of the market.
These buyers tend to be less price-sensitive and are also likely to be more conscious of
quality.
The company's principal target segments will be:
 high value private residences
 builders/contractors executing large projects

Marketing Mix
Product
M/S ABC will initially produce and sell bricks of one type/quality only. However, the
possibility of introducing brick tiles and hollow bricks will also be looked into in the later
years. The following features of M/S ABC’s Fly Ash bricks will be instrumental in attracting
customers:
 Uniformity in shape and size of the bricks; this will mean that the Fly Ash bricks will
consume less cement
 Strength of the bricks will be as per IS Codes and those specified by construction
agencies
 Bricks will be produced in an environmentally friendly facility.

Pricing strategy
The Fly Ash brick will be of a superior shape, size and finish compared to other products in
the market. Being also CLEAN and GREEN, Fly Ash bricks will enjoy a premium of around
10%. Despite this fact, M/S ABC will initially price its product at Rs. 5.00/piece compared to
the prevalent price of Rs. 6/piece. This penetrating pricing strategy will enable Fly Ash to
rapidly acquire market-share and help it gain acceptability in the market.

Distribution strategy
Logistics and distribution arrangements will play a key role in success. In order to ensure
control over the market and to gauge customer feedback, M/S ABC will handle the
distribution aspect itself. Owner will be entering into contract with tractor and truck owners
into transportation of finished goods to the customers on priority basis with a guarantee of
reduced damage as possible.

Promotional strategy
The company will sell its products under its own brand name. The communications and
selling efforts will project 'quality' as the key attribute of the brand.
There will be two aspects to the promotion of Fly Ash bricks produced by M/S ABC. The
planned Sales Office will act as a point of contact with the market, retail customers will be
serviced from this location. A second element of the promotional strategy will be personal
selling to large institutional buyers. Initially the Owner will mainly handle this task. Later he
will also appoint two Sales Representatives. These sales representatives will mainly focus on
retail sales and smaller projects. The agents will be retained on a commission basis only; the
commission rate initially is planned at 0.20 paisa/piece on the ex-factory price.

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9. Organisation and Management

The construction sector still remains relatively unorganised. A number of large firms have
been in existence for years, mainly catering to large infrastructure projects. Informally
organised contractors and builders largely still undertake construction of residences and
buildings. However, this trend is slowly changing and a few professionally managed building
and contracting firms have emerged in recent years, especially in the housing sector.
However, brick industries in India continue to operate with a traditional outlook and
practices. M/S ABC intends to organise itself as an eco-friendly, modern brick making
company. This should enable it to integrate into the supply chain of organised builders and
contractors of green buildings.
A priority of M/S ABC will be to operate as a professionally managed firm. The sophisticated
Fly Ash technology makes it mandatory for planning and operation of the unit and
production system to be undertaken in systematic manner.

Brick making
Raw materials will be transported and stored in designated places. Special care (e.g. water
sprinklers) would be taken to ensure that fly ash does not create air pollution. Each raw
material will be added as per pre-determined proportion and mechanically mixed in a pan
mixer. Required quantities of water will be added with additives to give a press-able mix.
The mix is then transported manually or through a conveyer belt to the hydraulically
operated machines. Four bricks are made at a time. After the required pressing the bricks
are stacked manually on wooden pallets. The wooden pallets are shifted by mechanical
trolleys to the place of curing.
Freshly made bricks are dry cured for 24 hours before they are water cured. Bricks are water
cured for a period of 14 days before they are stacked and further water cured for another 7
days. After 28 days they are ready for despatch.

Marketing and Management

At present Owner will play the role of Manager and Marketing Specialist. In the future a
specialist Marketing Manager will be recruited. This person will be assigned a sales target
and compensation will be linked to performance.

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10. Financial Analysis & Projections

Importance of Financial Projections

Projected Financial Statements are an important tool in determining the overall
performance of a company. Projected financial statements have the balance sheet, income
statement and cash flow statements to indicate the company performance. The Income
Statement captures profit performance, demonstrates immediate capability to service debt
for banks or real potential for growth in returns for capital. This is often expressed in terms
of sales volume, or compared to industry benchmarks.
The Balance Sheet shows assets, liabilities and equity at a particular point of time. It is
basically a snapshot of financial position. The basic accounting formula is assets equal
liabilities plus owner’s equity. The asset section of the balance sheet should be presented in
order of liquidity starting with the most liquid assets such as cash, accounts receivable and
inventory. The liabilities section should be presented in order of maturity starting with
liabilities that are payable over the next year such as a demand note payable and accounts
payable.
The Statement of Cash Flows is the most critical forecast since it reflects viability rather than
profitability. It can also be the most uncertain statement as projections extend into the
future.

Detailed Project Cost

M/S TARA Machines will provide the technology and equipment and help M/S ABC to set up
a fly ash brick production facility to attain the objectives outlined in the detailed project
report. The facility will employ the TARA MechRam-MV equipment and accessories. The
financial analysis given below reflects that the proprietor will be able to repay the loan
within 4.5 years.
Proprietor owns the land and 10% of own investment and 90% is being raised through long
term and short term loan. The project will entail an initial investment of Rs. 24,50,000 to
cover preoperative and capital investment. Out of the total project cost, 10% will be
invested by the entrepreneur who holds to Rs. 2,45,000 and the rest Rs. 22,05,000 will be
raised in terms of long term loan from financial institutions by the entrepreneur. The debt
equity ratio is projected to 9:1.

Detailed Summary of Operations

Production Process
The machine will be under operation for 300 days a year with an average daily production of
5,000 bricks. The annual production is assumed to be 15,00,000 with an assumption of 4%
wastage due to breakage/damage or other factors. The selling price per brick is Rs. 5, which
is projected to be increased by 10% every year.

Expenses
All those costs or expenses which are capable or not capable of being attributed directly to a
particular products or services or cost centre are expenses. Expenses are basically direct and
indirect expenses.
 Direct expenses
These are the expenses which are capable of being attributed directly. These expenses are
raw material costs, labour charges, logistic expenses and power consumption. The expenses

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are projected to proportionately increment each year according to the production. The total
expenses amounted to direct an expense is Rs. 60,00,000.

 Indirect expenses
Indirect expenses are basically those expenses which are not attributed directly to particular
products or services. The expenses incurred in indirect expenses are manger, supervisor,
watchman salaries and overhead expenses. The expenses are projected to increment
proportionately each year .The total expenses amounted is Rs. 3,96,000.

Depreciation & Amortisation

The financial projection includes depreciation and amortization on a written down basis over
the estimated useful life of the fixed assets. The projected depreciation rate is in accordance
with the Companies’ act 1956. Any business or income producing activity using tangible
assets may incur costs related to those assets. Where the assets produce benefit in future
periods, the costs must be deferred rather than treated as a current expense. The business
then records depreciation expense as an allocation of such costs for financial reporting. The
costs are allocated in a rational and systematic manner as depreciation expense to each
period in which the asset is used, beginning when the asset is placed in service. The total
depreciation charges are Rs. 4,99,730 in the initial year and decreases on written down
basis. The gross value of the asset amounts to Rs. 20,45,000.

Long Term and Short Term Loans

A loan from a bank for a specific amount has a specified repayment schedule and a floating
interest rate. Term loans mature within 5 years. The total amount raised from bank is 77% of
investment i.e. Rs. 22,05,000 with an interest rate of 17% paid an EMI of Rs. 54,800.

Subsidy
A subsidy is a sum of money granted by the government or a public body to assist an
industry or business. In this case a subsidy would be given on a loan undertaken by the
entrepreneur below Rs.25lakhs and he brings in 10% of the overall capital invested. The
overall funds(capital + debt) cannot exceed Rs.25Lakhs. a 30% grant would be given on the
overall funds, the release of which would be in the third year of the business.

Working Capital
It reveals more about the financial condition of a business. The more working capital, the
less financial strain a company experiences. Even a business that has billions of dollars in
fixed assets will quickly find itself in bankruptcy if it can't pay its monthly bills. Under the
best circumstances, poor working capital leads to financial pressure on a company,
increased borrowing, and late payments to creditor - all of which result in a lower credit
rating. A lower credit rating means banks charge a higher interest rate, which can cost a
company a lot of money over time. The average working capital needed is Rs. 9,60,000. With
an initial investment of approx. Rs.6,00,000 for stock maintenance.

VAT
The company accounts for VAT in accordance with statement of financial accounting
standards for taxes. The tax rate charge is 4%. The government has given an exemption on
VAT for the first 7 years of production.

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Detail Summary of Revenue

Gross Profit
The gross profit is the total revenue subtracted by the cost of generating that revenue. In
other words, gross profit is sales minus cost of goods sold. It tells you how much money a
business would have made if it didn’t pay any other expenses such as salary, income taxes,
office supplies, electricity etc. The total gross profit is Rs. 25,88,400 which increment each
year with increase in sales.

Net profit after interest and tax

The amount of profit realized from a business's operations after taking out operating
expenses - such as cost of goods sold (COGS) or wages - and depreciation. Operating income
takes the gross income (revenue minus COGS) and subtracts other operating expenses and
then removes depreciation. These operating expenses are costs which are incurred from
operating activities and include things such as office supplies and heat and power. Operating
Income is typically a synonym for earnings before interest and taxes (EBIT) and is also
commonly referred to as "operating profit" or "recurring profit". The net profit after interest
and tax is Rs.13,10,925 for the initial year and increases in the subsequent years.

Net profit before interest and tax

Earnings after Tax or Net Profit After Tax equals sales revenue after deducting all expenses,
including taxes (unless some distinction about the treatment of extraordinary expenses is
made). The total net profit before tax and interest amounts to Rs.16,62,670 which
increments in successive years.

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Annex 1
Financial Projections
INCOME STATEMENT
Particulars year 0 year 1 year 2 year 3 year 4 year 5
Number of units 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000
Selling Price Per unit 5 5.5 6 6.5 7
TOTAL SALES 7,200,000 7,920,000 8,640,000 9,360,000 10,080,000
Closing Stock 1,158,000 1,186,950 1,208,925 1,281,825 1,368,675
breakage (less) 230,400 246,000 249,000 261,000 279,000
operating cost/Cost of goods sold 0 0 0
opening stock 0 1,158,000 1186950 1208925 1281825
Raw materials 4,650,000 4,766,250 4,824,375 5,056,875 5,405,625
Direct labor 555,000 568,875 575,813 603,563 645,188
Power 355,000 363,875 368,313 386,063 412,688
carriage 286,000 293,150 296,725 311,025 332,475
other factory and storage expenses 154,000 157,850 159,775 167,475 179,025
COGS 6,000,000 6,150,000 6,225,000 6,525,000 6,975,000
GROSS PROFIT 2,588,400 2,044,950 2,685,975 3,168,900 3,470,850
Gross Margin 35.95 25.82 31.09 33.86 34.43
Indirect labour 240,000 492,000 498,000 522,000 558,000
Selling/Admin/General Expenses 156,000 369,000 373,500 391,500 418,500
Depreciation 499,730 249,960 208,620 174,257 145,671
Pre operating expenses 30,000 30,000 30,000 30,000 30,000
PBIT 1,662,670 903,990 1,575,855 2,051,143 2,318,679
Interest on term loan (EMI) 351,745 295,501 228,914 150,082 56,754

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0 0 0 0 0
Net Profit 1,310,925 608,489 1,346,941 1,901,061 2,261,925
0 0 0 0
Net profit ratio % 18.21 7.68 15.59 20.31 22.44

BALANCE SHEET
Sources of Funds construction period 0 Year end 1 Year end 2 Year end 3 Year end 4 Year end 5

Capital 245,000 245,000 245,000 245,000 245,000 245,000

Profit 1,310,925 1,919,414 3,266,355 5,167,416 7,429,341

Term Loan 2,205,000 2,205,000 1,899,146 1,537,048 1,108,363 600,846

Less: repayment 305,854 362,098 183,685 262,517 355,845
Subsidy 245000 245000 245000
Term Loan O/S 1,899,146 1,537,048 1,108,363 600,846 0

Current Liability
Creditors 558,000 571,950 578,925 606,825 648,675

Total 2450000 4,013,071 4,273,412 5,198,643 6,620,087 8,323,016

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Application of Funds construction period 0 Year end 1 Year end 2 Year end 3 Year end 4 Year end 5

fixed assets 1,845,000 1,845,000 1,595,040 1,386,420 1,212,163 1,066,492

less- depreciation 299,730 249,960 208620 174257 145671
net balance 1,545,270 1345081 1177800 1037905 920821
current assets
Inventory 1,158,000 1,186,950 1,208,925 1,281,825 1,368,675
Debtors 360,000 324,000 360,000 396,000 432,000
workshed 200,000 200,000
less- depreciation -200,000
Cash and bank/ (OD) 255,000 799,801 1,245,152 2,321,028 3,807,829 5,533,580
net current assets 2,317,801 2,756,102 3,889,953 5,485,654 7,334,255
EXPENDITURE
pre operative expenses 150,000 150,000 120,000 90,000 60,000 30,000
miscellaneous expenses 52,230 40,890 36,527 37,941

Total 2450000 4,013,071 4,273,413 5,198,643 6,620,086 8,323,017

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CASH FLOW STATEMENT

Particulars year1 year2 year3 year4 year5
Cash Inflow from
Profit Before Interest/Tax 1,662,670 903,990 1,575,855 2,051,143 2,318,679
Add: Depreciation/Amortisation 499,730 249,960 208,620 174,257 145,671
Net Cash Flow from Ops 2,162,400 1,153,950 1,784,475 2,225,400 2,464,350

Incr/(Decr) in Working Capital

Decr/(Incr) in Current Assets -1,718,000 -64,950 -57,975 -108,900 -122,850

Incr/(Decr) in Current Liabilities 558,000 13,950 6,975 27,900 41,850
DECR/(INCR) in Working Capital -1,160,000 -51,000 -51,000 -81,000 -81,000

Cash Payments to

Payment of Interest 351,745 295,501 228,914 150,082 56,754

Outflow from Operations -1,511,745 -346,501 -279,914 -231,082 -137,754

Net Cash from Operating Activities 650,655 807,449 1,504,561 1,994,318 2,326,596

Cash Flow: Investment Activities

Preliminary Expenses -150,000 0 0 0 0

Fixed Assets -1,845,000 0 0 0 0
Net Cash Used in Investing 0 0 0 0 0
Net Cash from financing Activities -1,995,000 0 0 0 0

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Cash from Financing Activities

Proceeds from:
Owner's Equity 245,000 0 0 0 0
Term Loan from Bank 2,205,000 0 0 0 0
Less: Repayment of Term Loan 305,854 362,098 428,685 507,517 600,845
0 0 0 0 0
Net Cash from Financing Activities 2,144,146 -362,098 -428,685 -507,517 -600,845
Net (Decr)/Incr in Cash 799,801 445,351 1,075,876 1,486,801 1,725,751
opening balance 0 799,801 1245152 2321028 3807829.0
closing balance 799,801 1,245,152 2321028 3807829 5533580
IRR 9%
Cash outflow -2,546,000
Discounted Cash inflow in 4 years 2,474,102
2 months 132,239
Payback period 4 years 2 months

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WORKING CAPITAL REQUIREMENT

Inventory Qty time YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

PD
Stock of fly ash( 30 days) 7500 30 135,000 138,375 140062.5 146812.5 156937.5
days
Stock of sand ( 30 days) 7500 30 225,000 230,625 233437.5 244687.5 261562.5
days
Stock of virgin lime ( 30 days) 1200 30 144,000 147,600 149400 156600 167400
days
Stock of gypsum ( 30 days) 450 30 54,000 55,350 56025 58725 62775
days
Stock of finished goods (30 days) 600,000 615000 630000 675000 720000
CLOSING STOCK 1,158,000 1186950 1208925 1281825 1368675
COGS 6000000 6150000 6225000 6525000 6975000
Debtors -Due from institutional buyers (15 days sale) 360,000 396000 432000 468000 504000
CREDIT SALES 7,200,000 7,920,000 8640000 9360000 10080000
GROSS WORKING CAPITAL 1,518,000 1582950 1640925 1749825 1872675

Creditors - Credit on raw material supply (36 days) 558,000 571950 578925 606825 648675
CREDIT PURCHASES 4650000 4,766,250 4824375 5056875 5405625
NET WORKING CAPITAL 960,000 1011000 1062000 1143000 1224000

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TERM-LOAN

AMOUNT 2205000
INTEREST 17%
TIME 5 YEARS

EMI WORKING
Per Month amount 54800

Per Quarter 164400

Per year 657600

Five Years 3287996

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11. SWOT Analysis & Critical Success Factors

This final section of this Business Plan contains some of the more important considerations
that have been carefully taken into account by the promoters in deciding to undertake the
project.

Strengths Weaknesses
 Proven/superior Fly Ash technology  Lack of Fly Ash brick production
 Technical support from established experience in the area
service providers  Unwillingness of entrepreneurs to
 Experienced promoters who change from conventional brick
understand the construction sector making to Environmental friendly
methods.
 Quality product

Opportunities Threats
 Rising cost of fuel for firing bricks  Economic slowdown and negative
 Growing demand for bricks in the growth in the construction sector
target market  Unstable framework conditions
 Year-round operations

M/S ABC is confident that the strengths and opportunities far outweigh the weaknesses and
threats associated with the proposal. The following factors are particularly important:
 In any brick firing technology the cost of coal accounts for 50% of the total
production cost. The prices of fuel are ever increasing and will continue to do so in
the coming years. In the future there will even be no good quality coal available
for brick firing since it will be used in power generation and other utility projects.
 A reputed and well established commercial service provider will ensure that the
technical aspects related to kiln set up and production will be undertaken
successfully.
 The promoter is an experienced and proven businessman with an established
network within the region's construction sector. The promoter's commercial
acumen and business skills will also contribute to the project's success.

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Annex 2
CV of Mr. Satish Kumar, Proprietor of M/S ABC
Curriculum Vitae
1. Name: Satish Kumar
3. Date of Birth: 14th December, 1972
4. Nationality: Indian
5. Civil Status: Married
6. Education:
Institution: Patna University
Date: 1990-1993
Degree: Bachelor of Commerce (B.Com.)

7. Professional Experience
Date: 12/2005 – present
Company: M/S ABC
Position: Proprietor
Description: Promoter of a new brick-making unit using Fly Ash technology

Date: Date: 6/1995 – present

Company: ABC Enterprises
Position: Partner and co-owner
Description: Partner in a hardware and construction materials shop located on Main
Road, Patna.

8. Language Skills:
Language Reading Speaking Writing
Bhojpuri native tongue
English Good Good Good
Hindi Satisfactory Good Satisfactory

9. Membership of Professional Bodies:

Executive Member, Patna Merchant's Association

10. Others:
Attended the training Programme "Growing Your Small Business" organised by the District
Industries Centre under the Entrepreneurship Development Programme at Bhagalpur, July,
1996.

11. Contact Details:

XXXXXXXXXXXXXXXXXXX
xxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxx

Tel: xxxxxxxxxxxxxx
email: xxxxxxxxxxxxxxxxxxx

3 Sample Business Plan