COMMUNITY BASED LIVELIHOODS RECOVERY PROGRAM (CBLRP)

FOR EARTHQUAKE AFFECTED AREAS OF AZAD JAMMU AND KASHMIR

AND NWFP

CBLRP-UNIDO

INVESTMENT OPPORTUNITY PROFILE

FOR
PREFABRICATED CONSTRUCTION BLOCK
IN
NWFP

SEPTEMBER 2007

SUBMITTED TO
AYESHA KHAN
CHIEF TECHNICAL ADVISOR
Community Based Livelihood Recovery Program (CBLRP)
United National industrial Development Organization (UNIDO)

BY
Sardar Shahid Farid
Chartered Accountant

Disclaimer

All material included in this document is based on data/information gathered from various sources and certain
assumption. Due care and diligence has been taken to compile this document. The document may contain
human, mechanical error or non accuracy of the information at the source. No liability for error, or omission or
unintentional misrepresentation will be accepted. We reserve the right to make correction and changes
wherever desired in this document or its subsequent versions.
1 PROJECT EXECUTIVE SUMMARY

1.1 PROJECT BRIEF

The proposed project envisages the setup of a prefabricated construction blocks

manufacturing project in Manshera. The mixture of cement, lime stone, sand together with
water will proceed through a plant to make cement blocks used in construction. These
blocks are in demand, as the conditions of living improve, the housing and construction
industry is growing at a steady rate. Working with the proposed plant and machinery, the
project will be capable of producing 4,000 blocks, at 100% capacity utilization, in 8 hours
shift. The total capital cost of the project is estimated at Rs. 42.130 million. Crushed
Stone, Sand, Cement and Water will be used as raw material for manufacturing of prefab
construction blocks. Crushed raw stone and sand could be purchased directly from the
excavator (quarry lease holder) or supplier, whereas, cement could be sourced from
manufacturers by signing a regular supply contract which would lead to a controlled cost.
Raw material to be used for the production of concrete based block is available in the local
market at reasonable prices. Availability of raw material in the region is as follows

NWFP 4,921 Million tons. Mostly available in and around Manshera 19 employees will be
employed directly on the project. The civil works and installation of plant is estimated to
complete in 3 months.

1.2 FINANCIAL SUMMARY

• Sales Rs 52.29 Million

• Gross Profit Margin 42%
• Net Profit Margin 12%
• Internal Rate of Return 26%

Foreign collaboration sought Joint – Venture Management expertise

Loan
Technical expertise
Market access
Sub contracting Marketing expertise
Buy – back arrangement
Equipment purchase Technology transfer
Joint R&D
Other :-

Studies Available Feasibility study Project description

Other Specify

Date: 25 October 2007

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2. PROJECT RATIONALE

The construction blocks industry is an important industrial sector in the country engaged
in producing blocks used as prefabricated material for various construction activities i.e.
construction of road side pave ways, garage and parking floorings, walls making, block
paved driveways, and floor coverings of commercial buildings, etc.
It is easy to make a concrete block. The successful block yard must however make blocks
of uniform quality and sell them at a price high enough to cover costs and make a
reasonable profit. This modern building material is going to replace old building material.
When all the raw material is available in one place and the product in demand this seems
to be successful project.
Construction sector has been registered with a growth rate of 7.9 percent (Source
Statistical Division). Housing and construction is one of the major drivers of growth in
more than 40 allied industries and directly adds to the PREFABRICATED
CONSTRUCTION BLOCKS industry. In addition, for the building of roads, flyovers and
bypasses there is a mass and consistent need of prefabricated blocks across the country.
Various construction and real estate development projects are in progress and are
continuously being commissioned which will have high demand of prefabricated
construction material all over the country. In order to make up the backlog and meet the
shortfall in the next 20 years, overall housing construction industry has to be raised to the
level of 500,000 housing units per annum. This is the extent of the annual housing market
in Pakistan which positively predicts a permanent growth in construction sector which
directly adds to the potential in prefabricated building blocks segment of the construction
industry. The aforementioned statistics provide enough evidences and ensure a steep and
continuous growth vis-à-vis investment opportunity in the PREFABRICATED
CONSTRUCTION BLOCKS business. Strong distribution and marketing channels will be
a strong source of success for the project. There is an easy ordering and delivery
procedure. The role of the middleman is played by building material suppliers at a
nominal margin of 1% to 2% of the order booked. Local customs and traditions, non-
availability of infrastructure facilities like roads and electricity are the major hurdles in the
development that needs to be addressed. The machinery will need to be imported as
modern machinery is not available locally.

3. MARKET INFORMATION

Prefabricated construction blocks making units across the country are working mostly as
unorganized sector (about 80%) and no reliable data is available, precisely, for the
installed capacity and the number of units working etc. However, since it is an allied
industry of the construction sector, growth in construction sector may be considered as a
close proxy for the growth in prefab construction blocks sector which is 7.9% (Economic
Survey of Pakistan 2006). The area under consideration is badly affected by the
earthquake and rehabilitation and reconstruction is in process. This process leads to
construction of roads, bridges, new houses, market, etc resultantly gear up construction
activates and more use of crushed stones. Construction of Diamir-Basha Damp and
Kohala Hydro–Electric Project are also synergic factor for this project. The
aforementioned facts and statistics provide enough evidences, assuring a steep and
continuous growth vis-a- vis investment opportunity in the Prefabricated Construction
Blocks.

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 Prefabricated construction blocks or other products are heavy; hence there are limited
opportunities for export due to high cost of transportation. The market scope for prefab
construction blocks is found to be encouraging in local market with the increased demand
from construction industry. There is also a sufficient demand from Govt. Contractors for
lying of roads and construction of industries.

4. BUSINESS PLAN

The demand in the local market will be targeted. The improvement in living standards
and the boom in the construction sector imply that the demand of the prefabricated
construction material will increase. Maximum capacity of the unit will be utilized.
Appropriate commission will be given to the salesmen who bring in the orders.

4.1 PRODUCT SALES

For the revenue projections, prefab construction blocks are assumed to be produced.
Working with the proposed plant and machinery, the project will be capable of producing
4,000 sq.ft of concrete blocks at 100% capacity utilization with single shift of 8 hours a
day. All projections are based on 8 working hrs a day with 26 days a month.
Total Value of Blocks Produced per Day Rs. 167,600
312 Days production
Gross Annual Sales. Rs. 52,291,200

4.2 RAW MATERIALS

Crushed Stone, Sand, Cement and Water will be used as raw material for manufacturing
prefab construction blocks. Crushed raw stone and sand could be purchased directly from
the excavator (quarry lease holder) or supplier, whereas, cement could be sourced from
manufacturers by signing a regular supply contract which would lead to a controlled cost.
Raw material to be used for the production of concrete based block is readily available in
the local market at reasonable price. Total raw material cost of 4000 blocks is Rs 23,200/-

4.3 PRODUCTION PROCESS

The production of concrete blocks consists of four basic processes: mixing, molding,
curing, and cubing. The process is shown in diagram below and described in detail.

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4.4 MARKETING CHANNELS

In the manufacturing industry, marketing is considered to be of significant importance. In

the Prefab construction blocks industry, marketing parameters are very limited and largely
associated with the construction sector’s performance. Some of the marketing promotion
activities which should duly be rendered are given below: Developing contacts with the
building material suppliers, well known builders and contractors. Keep up to date
information on civil and construction works initiated by local, provincial and central
governments. Draw linkages with material suppliers to the housing industry at town level.
Emphasis on image development and building acquaintances across individual contractors
who are serving private sector. Establish contacts with local civil engineering firms,
individuals and professionals.

4.5 HUMAN RESOURCE REQUIREMENT

Construction and allied industry is a labor intensive industry; therefore, a total 18 persons
will be required to handle the production operations of a prefab construction blocks
making unit. The business unit will work on one shift basis (8 hours daily). Technical staff
with relevant experience will be required for operating the production plant. The staff will
be provided training by the plant & machinery supplier. Total approximate manpower
required for the business operations along with the respective salaries are given in the
table below:

4
One to two years of experience on mechanized block making plant would be necessary for
the person who will operate the prefab construction blocks plant. It is also suggested that
preference should be given to literate persons so that they could understand the
significance of undertaking health and safety measures.

5. PROJECT FINANCIALS

5.1 OPERATIONAL DATA

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

OPERTIONAL CAPACITY 70% 80% 90% 100% 100%

BLOCKS PRODUCED 7,862,400 998,400 1,123,200 1,248,000 1,248,000

5.2 RAW MATERIAL COSTS

The main materials required and there cost is as follows.

RAW MATERIAL
5,900 sq.ft.
Description Raw Material Required/Block Quantity Cost

Water 16.5 66000 2,700 Rs.

Cement 0.6 50 bags 12,500 Rs.
Sand (Bajri) 1.18 4720 45,00 Rs.
Crushed stone 0.295 1180 3,500 Rs.
Total Raw Material Cost 23,200
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5.3 FIXED COST

A total of Rs. 42.13 million is estimated to be the capital cost of the project.

(RUPEES)

Land 2,000,000

Concrete Blocks Making Plant (Imported) 30,000,000

Transportation Machinery/Vehicles 5,200,000

Plant & machinery Installation & trial run expenses 100,000

Vehicle for support & maintenance services - One light vehicle 400,000

Site/Office Construction 4,070,000

Factory / Office Furniture 60,000

Preliminary Expenses 300,000

Total Fixed Capital 42,130,000

5.3 WORKING CAPITAL

Description Amount in Rs.

Electricity - 01 Month 58240

Oil, Lubricants & Other consumables - 01 Month 5000

Water - 07 days 18900

5. Telephone - 01 Month 5,000 5,000

Salaries - Three Months (Production Staff) 213,000

Raw Material Inventories (Cement & Sand/Crushed Stone) - 07 Days 238,380

Cement - 26 Days 325,000

Sand and Crushed Stone - 07 Days 31,500

Misc. Expenses - Three months (@ 5000 /month) 15,000

Cash balance required 40,000

Total 950,200

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5.4 OVERHEAD COSTS

Following Overheads are assumed to occur in the first year of production.

Expense Year amount

Utilities 120,000

Depreciation 3,383,000

Maintenance 1,059,000

Selling and Distribution 604,668

Miscellaneous 60,000

TOTAL 5,226,668