FINANCIAL MANAGEMENT PLAN

Product: Coco Treat (Coconut Milk Powder)

Submitted by:
Submitted to:
Anjali Singh (p38127)
Prof. Rakesh Arrawatia
Anshu Goel (p38128)

Realy Verma (p38160)

Sakshi (p38164)

Sannidhya Sahu (p38165)

Trishula Das (p38174)

Table of Contents

EXECUTIVE SUMMARY .........................................................................................................1

GENERAL BUSINESS DESCRIPTION ....................................................................................2
PRODUCT CHARACTERISITICS ............................................................................................4
PRICING ....................................................................................................................................5
PACKAGING .............................................................................................................................6
INVESTMENT PLAN ................................................................................................................8
PRODUCTION AND SALES PLAN ..........................................................................................9
WORKING CAPITAL ESTIMATION ..................................................................................... 12
WACC CALCULATION .......................................................................................................... 14
FUTURE CASH FLOWS ......................................................................................................... 15
INVESTMENT APPRAISAL ................................................................................................... 16
EXECUTIVE SUMMARY

The brand Coco Treat under the owner named Benzene is a private company comprising of 6
people which produces Coconut Milk Powder is located in the Anand Road, Anand, Gujarat-
388110. The product Coconut Milk Powder is a product which is a spray dried form of the
coconut milk that is extracted from the coconut flesh.

With an increasing pace of life, particularly in urban centers of India people have become very
particular about the time they consume in cooking and hence they are not being able to enjoy the
traditional delicacies. As collected from the survey, it is being observed that to make a south
Indian dish at home it takes around 20-30 minutes only for preparing or extracting the coconut
powder or coconut milk from the dried coconut. This also becomes a soul reason why many of
the families avoid preparing traditional south Indian dishes as it consumes time. So here comes
the Coco Treat which is rich in taste and will also provide health when added to the food item
prepared.

The coconut milk powder market is expected to grow steadily at a CAGR of 15.4%. One of the
primary drivers for this market is the rise in the awareness levels about the health benefits of
coconut milk powder among the consumers. Also, consumers are more inclined towards quality
and taste of the product. The product “Coco Treat”, thus developed is a healthy addition which is
designed to satisfy the needs of the quality and taste of the consumers.

Selected market segment in Anand, Vadodara and Ahmedabad consists of people of who belongs
to the top three categories of the MPCE (Per Capita Monthly Consumption Expenditure) and
who can afford to spend for the processed foods. The product will be launched in Anand,
Ahmedabad and Vadodara which belongs to SEC-class A, B-1 and C respectively. On the basis
of the selected target market, we have divided our demand estimation into Gujarati and Keralite
households which is coming to be 2,04,561 households in total. From our estimated demand, we
have taken sales figures to be the 10% and 20% of the Gujarati and Keralite households which
comes under the estimated demand which comes up to be 21,090 households.

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The initial cost of investment of such a project will be 241122.The production and sales plan
would be according to the demand forecast we generated by doing market analysis of this
industry. The price of the product and cost would be inflation adjusted at current prevailing
interest rate of 4.88%. Taking all of these factors into account the internal rate of return would be
35%. The WACC of the project is calculated as per an industry standard which is 15.40%. As
IRR is greater than WACC the project could be declared profitable which is supported by the net
present value of the project. The industry for this product is growing and viability of the current
project will help us to capture new market and expand our business in Anand, Ahmedabad and
Vadodara, if we can successfully safeguard our position.

GENERAL BUSINESS DESCRIPTION

Our business will produce coconut milk powder which is a substitute for coconut milk but with a
much greater shelf life that is of 12 months. This will not only add taste to the food but will also
add nutrition to the food. Our business will strive to serve the households who prefer taste and
nutrition in their daily diets. We will produce the product by procuring coconuts from the nearby
area of Gujarat as the productivity of Gujarat is 9328 nuts per hectare; and process them with the
help of various equipments to produce the coconut milk powder.

Type of firm: Benzene Private Company comprising of 6 members.

Vision

We commit to make Coco Treat an intrinsic part of daily cooking. We aim to deliver the benefits
of coconut directly from farm and reach it to the modern kitchen. Our vision is our
organization’s ultimate goal which we will try to achieve with the help of strategic and tactical
marketing plan that is in place.

Mission

Our mission is to provide the quality, texture and taste to our consumers with respect to our
competitors who provides either fine or coarse coconut milk powder at present; so we will be
providing them the mixture of fine and coarse powder to our consumers. We thrive to provide
best value for money to our stakeholders.

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Objectives

 To increase the diversity of food products in the domestic market, to expand our consumers’
options and enable them to choose from a variety of products to meet their needs in terms of
quality, taste and price.

 To meet the needs and desires of the consumer to save their precious time while making
traditional dishes.

 To create a demand for coconut milk powder.

 To expand our demand for the potential market that is the health conscious individuals in the
later stage.

Industry Description

The food processing sector is seen to be growing at the rate of 20%, accounting for around 32%
of country’s total food market. This emerging high growth and high profit sector can be tapped
to generate good profit margins. As per data of the Coconut Development Board (CDB) the
productivity of coconuts in Gujarat is 9,328 nuts per ha as compared to 7,535 nuts per ha in
Kerala. Gujarat ranks 7th in the country in terms of total coconut production (312.68 million
nuts). With the growing cultivation of coconuts in Gujarat the expectation is to see a much more
involvement of coconuts in Gujarati cuisines and people would are developing a taste for
coconut flavour at a faster rate.

Major players

KPL Shudhi coconut milk powder: It is one of the manufacturers from Kerala whose product is
available in Anand, this availability can be accounted to the fact that there are around 400
Keralite families in Anand who prefer natural tasting coconut milk powder. Survey revealed that
in a span of one month around 20-25 packets of 100grams of it is sold in Anand through Kerala
Store.

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Homemade Coconut Milk: This is coconut milk available in market that acts as the closest
substitute for coconut milk powder. It’s liquid and has milky texture; this cannot be used in
making many dishes like chutney and sweets. It is available in 200ml tetra packs. On visiting the
retail stores in Anand (Big Bazaar, D mart), it was found that on weekdays the sale was around
5-6 while on weekends the sale rose to around 10-15.

Premia Coconut Powder: This product has a powder texture and is sold mostly in variants of
200grams and 100 grams packets. It is available in D Mart in Anand.

Nestle Maggie Coconut milk powder: It is imported from Sri Lanka and is available in packets of
25grams, 100grams and 1Kg through online vendors. Also, it is occasionally sold by retailers
like Big Bazaar.

PRODUCT CHARACTERISITICS

Value proposition

Currently the market has very few brands that caters the need of readymade coconut milk
powder. Our product is not only a taste enhancer but also adds up to the nutritional value of the
food with the goodness of coconut. This product can be used for curries, soups, desserts, mock
tails (popular Pina Colada, just without the rum) etc.

Characteristics

The various characteristics of the product are:

Quality

Our product is made up by drying coconut milk cream. It is an active ingredient that is used in
different cuisines. Coconut milk powder offers multiple health benefits9 and is certainly the next
big thing in the food industry. It would be made from coconuts grown in the coastal regions of

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Gujarat to preserve the maximum nutritional content of coconuts. The shelf life of this product
would be at least 12 months and has higher micro-biological stability than milk.

Product features:

Figure 1: Health Benefits of Coco Treat

Regulates Heart Functioning

Increased Body Fittness
Anti Bacterial, Anti-viral
Benefit

PRICING
Our product substitutes are already available in the market. These substitutes are close substitutes
with not much difference between our product and their product. The strategy we will follow to
decide our price will be Going Rate Pricing Strategy. Our main competitors in the market are
Maggie and KPL. The price offerings of these two products are:

Table 1: Competitor Pricing

Table 2: Coco Treat Pricing

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PACKAGING

Function
The material that will be used will be Polyethylene terephthalate. PETE provides a good barrier
to gases (oxygen and carbon dioxgide) and moisture. It also has good resistance to heat, mineral
oils, solvents, and acids. It is adequate gas barrier for retention of carbonation, light weight, and
shatter resistance. The packaging plastic will have good strength, ductility, stiffness, and
hardness.

Attraction

The material will help us access easy printability which will be catchy to the customer. The
package17 will contain the following:
• Logo

• Vegetarian mark

• Weight of the pack

• Expiry date

• Price

• FSSAI certification

• Nutritional composition which will help in facilitating the purchase decision.

• Bar code

• Ingredients

• Name of the dishes that can be prepared using coconut milk

• A link to the site where there will be description of those recipes plus additional recopies.

• Best before 12 months from manufacturing.

• Nutritional information

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Figure 2: Packaging of Coco Treat Coconut Milk Powder

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INVESTMENT PLAN

1. We are assuming the plant to be set up in the commercial area of Anand road and according
to that we have estimated the rent of the land that is being shown in the project cost estimates
2. The cost of building the project is incurred before the initiation of the business
3. All the goods produced in a year are sold in the same year
4. Lifetime of the plant and machinery is 15 years (as calculated from the depreciation of the
equipments given in the table)
Table 3: Investment Plan (refer to the excel sheet)

Estimated Investment Plan

Equipment COST year dep rate(%)(SLM)

Coconut milk storage tank 320132 15.5 8.50%

Additive mixing tank 352145 15.5 8.50%
Batch Pasteutizer 165000 15.5 8.50%
Extracter 35000 12.5 10.50%
agro waste vertical(5000 litres) 60000 12.5 10.50%
Volumetric filling machine 400000 15.5 8.50%
horizontal rotary retort 250000 25 6%
Sterilization tank 352145 15.5 8.50%
coconut residue mixer 40800 15.5 8.50%
Homogenizer 120000 12.5 19.20%
Spray drier 156000 15.5 8.50%
Coconut residue storage bins 150000 25 6%
Packing machine 10000 10 8%

Total Cost 2411222

Depreciation 8.69%

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PRODUCTION AND SALES PLAN

Demand Forecast

Figure 3: Percentage of people spending above average on processed foods

Source: ‘Nutraceuticals: Critical Supplement for Building a Healthy India’, Ernst & Young and
FICCI, 2009

The total population of India is 1.324 billion and out of that the urban population stands out to be
31.16% that counts to be around 0.418 billion (418 million). As given in Figure 3 , it is being
observed that the top three percentages of urban population have sufficient disposable income
who can afford to spend for processed foods. Now, the total population comes out to be 92.6
million who have the ability to spend above average for the processed food. Thus we have the
estimate of 92.6 million of the Indian population who can afford to spend their income for the
processed foods.

Now coming to the target demand for Coco Treat, we have calculated the percentage about how
we will be approaching for choosing the target demand. From our calculations, it has arrived at
around 22.5%. So, 22.5% of the urban population residing in Anand, Ahmedabad and Vadodara
respectively has the ability to spend for the processed food items. The same has been shown in
the table below.

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 Table 4: Demand estimation for Gujarati families

City Anand Vadodara Ahmedabad Total

Population
Urban 734016 2390388 7226899 10351303
Population
%Population 22.50% 35139 114433 345968 495541
who can spend
on processed
foods
Total Number 4.7 (Average
of Households number of
members in
the
household)
%Who gave 81%
positive reply
for our
product
%Who will be 40% 14055 45773 138387 198216
loyal to buy
our product

Table 5: Demand estimation for Keralite families

City Ahmedabad Vadodara Anand Total

Population
Urban 7226899 239088 734016 10351303
Population
Average 4.7
household
size of
Keralite
family
Factor 0.00288 20833 6887 2115 29835
Number of 4430 1465 450
households
Total Demand 6345

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 Total demand is the sum of demand from Gujarati and Keralite households (198216+6345).
From here, our sales target will be 10% of Gujarati families and 20% of Keralite families.

Sales projections

Table 6: Sales Forecast

SALE
Projections
Particulars Year 1 Year 2 Year 3 Year 4 Year 5

Sales Revenue
25gm pack 1982200 2286824.496 2638263.685 3043712.048 3511469.715
50gm pack 5827668 6723264.018 7756495.233 8948513.42 10323720.96
100gm pack 4971730 5735785.466 6617260.977 7634201.644 8807425.752
Total 12781598 14745873.98 17012019.89 19626427.11 22642616.43

Figure 4: Graph depicting the increase in sales forecast

25000000

S Sales Projections
a
20000000
l
e
s
15000000
f
o
r 10000000
e
c
a 5000000
s
t
0
0 1 2 3 4 5 6
Number of years

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WORKING CAPITAL ESTIMATION

Assumptions in calculation ordering cost

1) Transportation cost is calculated for truck movement from south Gujarat to Anand
2) Loading and Unloading require 2 workers
3) .5 percent of total Administrative cost will be incurred during ordering

Assumptions in calculation of holding cost

1) Cost of coconut is increasing by inflation rate every year

2) Losses is 1.5 percent of total coconut procured
3) Warehouse rent is increasing by 1.5 percent every year

Table 7: Ordering cost and holding cost (refer to excel sheet)

Shelf life of coconut is 1 month with the use of freezer. Hence we will be ordering 12 times in a
year. Total inventory ordered per month with its cost is given in the table below:

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We have assumed that RCP (Receivable conversion ratio) is 60 days in starting and will decrease
by 1 days in the consecutive year as our brand will gain trust. PDP( Payment deferred period )
will start from 15 days as in starting it is difficult to push suppliers to extend days. After that
PDP will increase by 1 days in consecutive years. Cash that we are keeping with us is the amount
that we will be needing for next 2 inventories expense.

Now CCC will be calculated as = ICP + RCP –PDP

Now, net operating working capital = CA – CL – Short term investment

As short term investment is zero hence Net operating working capital is given below.

Working capital reflects the capital of a business which is used in its day-to-day trading
operations.

Table 8: Calculation of working capital

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WACC CALCULATION
Table 9: Calculation of WACC

Wacc Calculation
Wd we
0.09 0.91
Risk free rate 8.50%
Equity risk premium 7%
Cost of debt 12.00%
Tax rate 33%
beta unleverd (industry) 1.08
Bl (levered) 1.15156484
ke 16.13%
WACC 15.41%

We have use the CAPM model for calculating WACC. This model is used to describe the
relationship between systematic and expected return for assets. The time value of money is
represented by the risk free rate. CAPM is widely used throughout finance for the pricing of
risky securities, generating expected returns for assets given the risk of those assets and
calculating cost of capital.

Weight of debt is 9% and weight of equity is 91%. The weight of the debt reflects the sector
average (processed food sector). Tax is 33% which includes 25% direct tax, 5% is added because
we are estimating that our turnover will be more than 1 crore and 3% educational cess. Cost of
debt is 12% which reflects our country risk premium and sector specific cost of borrowing. We
have considered the risk free rate to be 8.50% which is depends upon the investment and
investors reference market. Equity risk premium is 7%.This is based on the historical distribution
of the industry. Unlevered beta is 1.08. As our firm is small, we are considering small cap of
beta.

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FUTURE CASH FLOWS

Table 9: Calculation of future cash flows (refer to the excel sheet)

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INVESTMENT APPRAISAL

Initial equipment cost includes the set-up cost of all the machinery. Our machinery details
including cost of total investment included plant set-up cost, building rent and working capital.
Debt is 9% total investment. Depreciation rate is calculated by taking SUMPRODUCT of cost of
all the machinery and depreciation of individual machinery. We have used WDV method for the
depreciation method. As per industry average the salvage value is 10%, we have assumed the
same salvage value. Inflation rate is 4.88% which is the country prevailing rate for 2018-2022.
Fixed cost includes the building rent. It is growing at the inflation rate. Variable cost includes
promotional cost, administrative cost, wholesaler margin, retailer margin, raw material cost,
manufacturing cost w.r.t revenues. This variable cost is growing at inflation rate. The NPV of the
firm is 6124321.11 which show that the firm is profitable in the operations. Also the value of
IRR is 35% which is greater than the discount rate that is 15.4% which also confirms the
profitability of the firm.

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