Read Profile on Geranium oil text version

125. PROFILE ON GERANIUM OIL

125-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

125-3

II.

PRODUCT DESCRIPTION & APPLICATION

125-3

III.

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

125-4 125-4 125-7

IV.

RAW MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

125-8 125-8 125-9

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

125-10 125-10 125-11

VI.

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

125-12 125-12 125-13

VII.

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

125-13 125-13 125-14 1225-15 125-16

125-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of with a capacity of 10.5 tonnes per annum.

geranium oil

The present demand for the proposed product is estimated at 58 tonnes per annum. The demand is expected to reach at 200 tonnes by the year 2020.

The plant will create employment opportunities for 24 persons.

The total investment requirement is estimated at about Birr 9.05 million, out of which Birr 6.23 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 16 % and a net present value (NPV) of Birr 2.17 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Geranium is a bushy aromatic plant and the immature aerial parts are required for essential oil production. The main constituents of the oil are geraniol and 1-citronellol. These two accounts for about 70% of oil. The minium commercially acceptable content of geranium is 40%.

Essential oil geranium is used in toilet soaps, perfumes and cosmetics.

125-4 III. MAKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Supply and Present Demand

Geranium is a bushy aromatic plant, which thrives best in well-drained porous soils. It can grow in temperate, subtropical and tropical climates. However, it grows best in areas with a mild climate with low humidity, warm winters and mild summers, and an annual rainfall ranging from 1000-1500 mm. The study (observation) made so far indicates that the crop can grow well at an altitude of 1600 to 2300.

Geranium, Pelargonium graveolens, P. roseum are sources of essential oils, called oil of geranium. Its wide application makes it one of the most important essential oils in perfumery and cosmetic industries. The oil is widely employed in the soap, perfumery and cosmetic industries.

The local end users industry is at an early stage of development. Therefore, the market for the envisaged product is assumed to be only export.

In the international market the largest exporters of the essential oils of geranium were China (share 37 percent), Egypt (26 percent), and France (17 percent). According to FAO world exports exhibits an average growth of 10 % during the period 2000 ­ 2005. Two countries with the largest growth rates were Italy and Singapore. The two most important African exporters were South Africa and Madagascar.

125-5 Table 3.1 TOP EXPORTERS GERANIUM OIL IN YEAR 2005

Total / Major Exporting Countries World total China Egypt France UK Switzerland Others

Value ( USD 000) 13,448 4,637 3,573 2,485 700 443 1,610

Quantity ( TON) 316 118 82 55 25 8 28

Quantity % Share 100 37 26 17 8 3 9

Source: ITC calculations based on COMTRADE statistics.

The major markets for geranium oil are the, France, India, the United Kingdom, U.S.A and Germany. France is a major re exporter of geranium oil, often further distilled and reblended there to client specifications. (See Table 3.2)

Table 3.2 TOP IMPORTERS GERANIUM OIL IN YEAR 2005

Total / Major Importing Countries World total France India UK U.S.A Germany Others

Value ( USD 000) 13,465 2,168 1,699 1,674 1,508 1,390 5,026

Quantity Quantity ( TON) 316 48 41 63 30 31 103 % Share 100 15 13 20 9 10 33

125-6 Accordingly, assuming that the average growth rate of geranium oil export recorded during the years 2000 ­ 2005 continue in the near future and taking the year 2005 export as a base the current (2007) global demand for the product is estimated at 386 tones.

Assuming that the envisaged project will produce quality products and undertakes aggressive promotional activity the market share it could possibly capture is assumed to be 15%. Accordingly, the current demand for locally produced geranium oil is estimated at 58 tones per annum.

2.

Demand Projection

In projecting the future demand for geranium oil a 10% growth rate which is equivalent to the average growth rate of the product's export during resent years is used. Accordingly taking the estimated present demand for the product and applying a 10% growth rate the projected demand for geranium oil is shown in Table 3.3. Table 3.3 PROJECTED DEMAND Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Projected Demand 425 467 514 565 622 684 752 827 910 1,001 1,101 1,211 1,333 Local Product Share 64 70 77 85 93 103 113 124 137 150 165 182 200

125-7 3. Pricing and Distribution

Geranium prices vary widely. Chinese product was listed at USD65/kg in June 2004, increasing to USD75/kg in April 2005, before falling to USD72/kg in December 2005 and to USD 70/ kg in May 2005. The price recovered to USD 75/kg in October 2006.

Chinese product mostly received prices in the lower range, while Egyptian product (considered higher quality) was in the higher range.

The market for essential oils can display considerable price volatility, both between and within years. This is largely influenced by assessments of global supply levels and the pricing policy of key suppliers.

Local exporters should expect to receive USD 65 (Birr 595) to USD 70 (Birr 641) per kilogram of product (CIF). Prices may actually be higher depending on the production situations in China and Egypt, and on the final quality and odor characteristics.

The product can be distributed through agents in importing countries.

B.

PLANT CAPACITY AND PRODUCTION PROGRAM

1.

Plant Capacity

The minimum available capacity is recommended.

The annual distillation capacity of

the proposed plant is 10.5 tonnes in three shifts operation, based on 300 working days.

2.

Production Program

An the initial stage of the production period, the plant requires some years to penetrate the market. Therefore, in the first and second year of production, the capacity utilization

125-8 rate will be 70% and 85%, respectively. In the third year and then after, full capacity production can be attained. The production program is shown in Table 3.4 below.

Table 3.4 PRODUCTION PROGRAM

Description

Production Year 1 2 8.93 85 3-10 10.5 100

Geranium oil (ton) Capacity utilization rate (%)

7.35 70

IV.

RAW MATERIAL AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

A plantation of geranium has a lifecycle of 5 years and its annual yield ranges between 25 and 30 kg/ha with two crops per year. The ratio of oil to leaves is about 0.2%.

At full capacity production , the annual raw material (geranium") requirement and its cost is estimated to be 5250 tonnes and Birr 2.888 million, respectively. The total annual cost of raw and auxiliary material is indicated in Table 4.1.

125-9 Table 4.1 RAW AND AUXILIARY MATERIAL REQUIREMENT AND COST (AT FULL CAPACITY PRODUCTION)

Raw Material 1 2 Geranium (ton) Tin-plated drums (200 kg capacity ) (pcs) Total

Qty 5250 53

Cost (`000 Birr) 2888 6.36

2894.36

B.

UTILITY

Electricity, furnace oil and water are utilities of the project.

Table 4.2 indicates the

annual utility cost and consumption of the proposed steam distillation plant.

The total annual utility cost is estimated to be Birr 1,473,700.

Table 4.2 ANNUAL UTILITY REQUIREMENT & COST

Utility

Unit

Qty

Cost (`000 Birr)

1 2 3

Electricity Furnace oil Water Total

kWh Lt M3

50,000 262,477 3000

23.7 1,420 30 1473.7

125-10 V. TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Steam distillation is the preferred method for geranium oil produced in large quantities. The steam, produced in a boiler, is introduced into a vessel which contains the leaves and water. The leaves are located on a grid placed at a certain distance above the level of the water which fills the bottom of the vessel. The water is vaporized indirectly by steam

flowing in a pipe coil submerged in the water. The water vapor plus the distilled oil coming from the evaporator vessel is recovered in a separate water cooled condenser.

The mixture flowing out of the condenser is separated by decantation in a Florentine flask. The distilled water is separated from the upper oil layer and, as it still contains some soluble parts of the oil, sent back to the evaporator vessel to recover the soluble alcohols by means of a second distillation.

2.

Source of Technology

Different suppliers could be requested for their offer. company is interested to supply the turn-key plant.

For example, the following

B/R Instrument Corporation E-mail: [email protected] Fax: 4108208141

125-11 B. ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment is indicated in Table 5.1. The total cost of the turnkey plant is estimated at Birr 6,237,000, out of which Birr 5,197,500 is in foreign currency.

Table 5.1 LIST OF MACHINERY

Description 1 2 3 4 5 6 7 Evaporator vessel Condenser Florentine flask Steam boiler Pump (condensate return pump) Pump (cooling water pump) Cooling tower

Qty 10 5 5 2 2 2 1

2.

Land, Building and Civil Work

The total area of the project is 2500 m3 of which 500 m2 is a built-up area. The cost of building is estimated at Birr 750,000. The lease value of land, at a rate of 1 Birr per m2 for 80 years, is about Birr 200,000.

3.

Location and Site

Alcho weriro town is selected as the best location of the proposed project because of its proximity to major raw material sources.

125-12

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The list of manpower and labor cost are indicated in Table 6.1. The total annual cost of labor is estimated at Birr 321,000.

Table 6.1 MANPOWER REQUIREMENT & COST

Manpower

No.

Monthly Salary (Birr)

Annual Salary (Birr) 36,000 9,600 24,000 30,000 18,000 18,000 9,600 50,400 25,200 25,200 10,800 256,800 64200 321,000

1 2 3 4 5 6 7 8 9 10 11

General manager Secretary Accountant Production and technic head Mechanic Quality control Store keeper Operators (distillation plant) Boiler operators Ass. Operators Guards Subtotal Benefit (25% BS) Ground total

1 1 1 1 1 1 1 6 3 6 3 24

3000 800 2000 2500 1500 1500 800 4200 2100 2100 900 21,400 5250 26750

125-13 B. TRAINING REQUIREMENT

On-the-job training is carried out during plant erection and commissioning by the experts of machinery suppliers. The cost of training is estimated at Birr 20,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the geranium oil 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 Raw material, import Work in progress Finished products Cash in hand Accounts payable

years 8% 8.5% 30 days 30 days 90 days 5 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 9.05 million, of which 46 per cent will be required in foreign currency.

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

125-14 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) 200.0 750.0 6,237.0 100.0 250.0 625.0 896.0 9,058.0 46

* N.B Pre-production expenditure includes interest during construction ( Birr 475.04 thousand ) training (Birr 20 thousand ) and Birr 130 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 5.95 million (see Table 7.2). The material and utility cost accounts for 73.33 per cent, while repair and maintenance take 2.52 per cent of the production cost.

125-15 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 2,894.36 1473.7 150 154.08 51.36 102.72 4,826.22 751.2 378.99 5,956.41

% 48.59 24.74 2.52 2.59 0.86 1.72 81.03 12.61 6.36 100

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.

125-16

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 project's initial investment will be fully recovered within 6 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 16 % and the net present value at 8.5% discount rate is Birr 2.17 million.

D.

ECONOMIC BENEFITS

The project can create employment for 24 persons. In addition to supply of the domestic needs, the project will generate Birr 2.23 million in terms of tax revenue.

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