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The following extracts from the handbook Technology of Indian Milk Products would be of interest to people associated with Financial Institutions like Banks.


Section 4.1 - Production Planning and Implementation

Investment Opportunities (Pg 219)

A project for factory-scale production of traditional milk products becomes viable with the milk processing capacity of at least 20,000 litres per day (lpd).
For products manufacture, procurement of good quality raw milk in desired quantity should be assured. The milk collection has to be in tune with the products' manufacture schedule.

An integrated milk products plant should have a minimum milk handling capacity of 20,000 litres per day. It will entail a capital investment of about Rs 50 million. Its annual turnover would range between RS 150 and 200 million, depending on the product mix. The estimated capital investment on plant and equipment would be about RS 41 million and on the building RS 13 million, taking the total investment to RS 54 million. However, it could be brought down to RS 38 million or increased to RS 81 million, depending on the type of packaging machines installed in the plant, and whether it is an independent entity or extension of an existing liquid milk plant. For example, an imported cup-filling machine of capacity 2,400 to 3,000 cups/hour costs RS 7.5 million. On the other hand, a locally manufactured filling machine of capacity 1,500 cups/hour costs about RS 700,000. An imported form-fill-and-seal (FFS) machine costs around RS 36 million. Thus, the packaging machinery can alone cost as much as 50 per cent of the cost of the plant and equipment. Reconditioned machines are now allowed to be imported in the country and their cost could be less than 50 per cent of the cost of new machines.


Fixed Cost (Pg 219)

The fixed financial cost components are interest and depreciation. The interest has been assumed at 14 per cent on the capital investment of RS 54 million, amounting to RS 7.56 million per year. The depreciation has been calculated on the straight line basis: (i) @10% on plant and equipment cost of RS 41 million or RS 4.10 million per year; and, (ii) @ 5% on the building cost of RS 13 million or RS 650,000 per year. Thus, the annual fixed financial cost works out to:
Interest: RS 7.56 million
Depreciation: RS 4.75 million (RS 4.1 million on plant equipment + RS 650,000 on building)
Total: RS 12.31 million/year
The average fixed cost on milk handling of 20,000 litres per day or 6 million litres per year works out to RS 2.00 per litre of liquid milk processed.


Working Capital (Pg 219)

Its amount will depend on the product mix, supply policies relating to the stock of raw materials and products, sales realization, inventory at the plant and the stockists' levels, as well as credit policies.


Product Mix
(Pg 219)

There are some local preferences of products in each region. Keeping this in view, a suitable product mix can be worked out. While deciding it, the seasonal and festival demands have also to be given due consideration, so also the operating margins of the selected products. Products that have a low margin but high turnover should be given preference. Some products like gulabjamun, kheer, pal payasam, basundi, rasogolla, sandesh and lassi have a good potential for industrial production and give attractive operating margins.


Raw Material Costs (Pg 219)

Milk of varying fat percentage is a major cost component, while other minor cost items are milk powder, sugar and other ingredients (condiments and flavours).


Overhead Costs (Pg 219)

These are given under the following headings: Services; Packaging; Marketing; Salaries & Wages; and, Fixed costs.


Services
(Pg 219)

The cost of services includes: power, steam, water, and consumables like chemicals apart from maintenance cost


Packaging (Pg 220)

It accounts for the second largest component of the production cost. It varies according to the packaging system selected-manual or mechanical, packaging material, and the size of packages.


Marketing (Sales Promotion, Storage and Distribution)
(Pg 220)

The marketing cost usually works out to 1 to 2 per cent of the sales realization.


Salaries and Wages
(Pg 220)

The staffing pattern of the proposed plant is indicated in Table 4.1.11.


Sales Realization
(Pg 220)

This has been calculated on ex-factory price basis (Tables 4.1.1 to 4.1.8). It does not take into account the sales realization to the distributor/wholesaler/retailer.


Table 4.1.4 A summary of parameters of the proposed dairy plant in any of India's four regions

Items
Northern region
Western region
Southern region
Eastern region
Quantity of milk processed (tonnes)
6,060
6,000
6,050
6,070
Quantity of products manufactured (tonnes)
3,300
3,290
4,520
3,790
Total production cost
(RS million)
130
128
135
152
Operating surplus
(RS million)
47
45
50
46
Net profit (RS million)
35
33
38
38
Net profit (as percentage of sales)
20
19
23
18
Capital investment
(RS million)
54
54
54
54
Annual turnover
(RS million)
177
172
166
209
Turnover to capital ratio
3.3
3.2
3.1
3.9



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"The handbook is an illustrated sourcebook providing essential information in an easily accessible format, on traditional and technological aspects of mithais and other indigenous milk products of Indian origin. It also highlights opportunities for emerging markets and investment prospects."
- AAFFexions, Mysore
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