Project

On
HASH biotech Pvt.ltd

SUBMITTED TO: SUBMITTED BY:

Ms Sarpreet Kaur Sunil Kumar
Lec. In Management studies MBA_09_14
CONTENTS

 Introduction
 Principal Suppliers
 Market Segments
 Pharma Industry in India
 Export Destination
 Feasibility Study
 Financial Analysis

Introduction – Spirulina
INTRODUCTION
Spirulina is multi cellular and filamentous blue green algae that had gained considerable
popularity in the health food industry. It gets its name from shape of plant which looks like little
spirals. The dark green colour comes from chlorophyll present in it. No one fruit, vegetable or
meat can provide everything of human demand but tiny spirulina comes so close to this ideal. It
is available in tablet, flakes and powder form. It is found in both sea and fresh water. It is
produced primarily from two species of cyanobacteria Arthrospira platensis and Arthrospira
maxima. It is produced in more than 22 countries and used in over 77 countries. It occurs
naturally in tropical and subtropical lakes, high PH and high concentration of carbonate and
bicarbonate. Arthrospira plantsis occurs in Africa, Asia and south America. Arthrospira occurs in
Central America.

Magnify view of spirulina platensis

Hash biotech ltd introduces spirulina into 4 different forms into the market:1
1) Powder form
2) Granular form
3) Tablet form
4) Capsule form
In Chandigarh company releases only , tablet and capsule form of spirulina.
Company provides the product in 2 SKU i.e, 2 botttles of packing (90 tablets
and 180 tablets)
 Price of 60 tablets packing is Rs.150
Price of 120 tablets packing is Rs.300

Four different form of the product

INDUSTRY DISCRIPTION:

The global pharmaceutical market is divided into three segments – Functional medicines,
functional beverages and dietary supplements. Spirulina is a part of the third category..The
global nutraceuticals market is poised to grow at compounded annual growth rate (CAGR) of
6.1% during 2000-2010. Sales of nutraceutical are projected to reach 187.4 billion dollars by
2011 against an estimated of 155.9 billion dollars in 2007. The Spirulina market is dominated by
U.S, INDIA, CHINA, and TAIWAN. These countries cultivate micro algae both for commercial
sale and for use in proprietary nutraceuticals. Additionally, there are large numbers of small scale
local and international distributors who sell Spirulina under their own brand name (e.g. Jarrows)
or custom packing (e.g. Whole foods). The US represents the largest market worldwide for
nutraceuticals. The US represents the 32 % of world nutraceutical market. The estimated sales
figure of US market is 50 billion dollars in 2007. The Asia pacific is also expected to witness fast
growth through 2015, reflecting rising consumer income levels, increasing per capita
consumption of nutritional product and growing investment in both bulk and end use product
industries.
PRINCIPAL SUPPLIER:
 The Global spirulina industry is dominated by U.S,
INDIA, CHINA and EUROPE. There are only a few dominant firms (for Spirulina) and a
large number of competitive fringe firms in these countries. As a result, the current
Spirulina market can be characterized as monopolistic competition. The products being
sold by all these firms are Algae based, however they are minutely different from each
other, on the basis of raw materials used. U.S is the dominating country among these
countries. U.S produces 960 tons of the spirulina while INDIA produces 810 tons and
CHINA produces 580 tons of the spirulina. Taiwan also produces 300 tons of spirulina
and Australia produces 175 tons of spirulina.
Hash Biotech. The main supplier of spirulina in the INDIA are :

Thapar group Nandanpur, Mysore

Parry India, Chennai
Hydrolina ltd, Chennai
NB Labs Pvt ltd, Nagpur
Sanat Pvt ltd, Delhi
Miscellaneous (small plants)

MARKET SEGMENTATION
The Spirulina (nutraceutical) market can be segmented in the following ways for a
supplier:
 Location: Urban & Suburban.
 The market for Spirulina distribution is primarily concentrated in urban and suburban
areas where the demand for nutritional supplements is the highest based on the need to
supplement as a result of lifestyle followed by consumers.
 Type of Market (B2C, B2B)
The business to business market would consist of retailers to whom Hash Biotech would
sell its spirulina powder under private labelling contracts. The business to consumer
market would consist of retailers like Wholefoods, to whom the company would sell its
spirulina tablets under its own brand.
 Consumer Income (Premium, Commodity Market)
Based on consumer income, the market for spirulina can be categorized into premium
(high income consumers who are quality sensitive than price) and commodity market
(relatively lower income consumers who are relatively more price sensitive). At present
the U.S. made spirulina is distributed through the premium retail segment whereas the
imported spirulina is distributed through the commodity market.

 Spirulina Application (Nutraceutical, Cosmetic, Medical Diagnostics)

Spirulina can be commercially used for multiple applications like as a nutritional
supplement for consumption by humans. It can further be used in the cosmetic industry as
a bio-ingredient in the preparation of various skin care products. Spirulina can also be
used for the purpose of cancer diagnostics, in place of radioactive isotopes.

EXPORT DESTINATION
Hash biotech pvt ltd exports the spirulina to different countries in the whole world. Hash biotech
exports spirulina to:

MEXICO,
THAILAND,
U.S.A,
CHILE,
P.R.CHINA ,
SPAIN,
MYANMAR,
ISREAL.

FEASIBILITY STUDY:

The feasibility study of any project is concerned with five kinds of analysis, which are:
(a) Market analysis
(b) Technical analysis
(c) Economic analysis
(d) Ecological analysis
(e) Financial analysis

Market analysis:
In 2007, the US spirulina (Nutraceutical) industry was estimated to be worth $ 29.7
million with a demand of 11,000 tons. The supply was however 8000 tons. Further, the
combined demand for spirulina in California, Oregon and Washington was 1,200 tons1.
The demand is expected to grow rapidly because of successful blending of Spirulina with
1
 snack foods. The distribution channels and retail supply of Spirulina is dominated by
Earthrise, LLC and Cyanotech, Inc, who jointly are the market leaders with more than
50% market share and the rest is supplied by fringe forms who act purely as importers
and distributors.

TECHNICAL ANALYSIS:
Important points related to technical feasibility are briefed as under:
Raw material: It is produced primarily from two species of cyanobacteria Arthrospira platensis
and Arthrospira maxima. It is produced in more than 22 countries and used in over 77 countries.
It occurs naturally in tropical and subtropical lakes, high PH and high concentration of carbonate
and bicarbonate. Arthrospira plantsis occurs in Africa, Asia and south America. Arthrospira
occurs in Central America. Raw spirulina is produced from the fresh lakes , ponds and ocean.
Raw spirulina is purified and cleaned within few days. Cost of raw spirulina production varies
from countries to countries.

 Research - The major research factors which help create a competitive advantage for a
spirulina manufacturer include identification of the spirulina strain (from about 3000
available spirulina strains), best sui3ted for commercial production in terms of current
climatic, environmental and water quality conditions and subsequent strain improvement,
identification of algal flora, design and development of photo-bioreactors, development
of micro propagation method and pigment production method from micro algae.
 Production - The major production factors which help create a competitive advantage for
a spirulina manufacturer include hydro phoning, irrigation scheduling, agitation of
spirulina culture, extrusion, drying, purification and characterization of spirulina for
commercial use.
 Packaging and Transportation - Packaging and transportation are one of the most
critical aspects of technological innovation. At present in India companies namely New
Quest and Parry India Chennai, Hydrolina ltd, Chennai, Sanat product, Hash biotech ltd
have their indigenously developed technological know how, regarding commercially
packaging and transportation of spirulina while optimally maintaining its complete
nutrient value. The nutrient value of spirulina is a major leveraging factor used by
companies while marketing their product.
ECONOMIC ANALYSIS

 Demand and Supply - The current demand for

Spirulina exceeds supply (e.g. in 2007, the demand for industrial grade Spirulina was
11,000 tons and supply was 8000 tons). Demand is set to rapidly grow in the next five
years. The catalysts for the increase in demand are growing public awareness about the
benefits of consumption of Spirulina, growing consumer trend towards health foods,
lowering of prices because of entry of foreign Spirulina distributors and breakthrough in
R&D enabling the blending with snack foods.
 Substitutes - Substitutes like multi-vitamins,
concentrated health foods pose a strong challenge to Spirulina in the Gobal market.
However the USP (unique selling proposition) for Spirulina is that it is 100% organic and
natural product. It has no proven harmful effects, unlike other concentrated foods.
 Price Elasticity – Based on the retail pricing
survey, it can be said that the consumer demand for Spirulina is more quality sensitive
than price sensitive.
Market Power - The two dominant Spirulina companies in the U.S., namely Earthrise and
Cyanotech and in India Parry India, Hash Biotech Pvt Labs, New Quest corp., Sanat ltd
and Hydrolina Chennai have considerable market power and have been the market (price)
leaders, whereas the fringe firms have primarily been the followers. However, as a result
of rapidly decreasing demand-supply gap, it is expected that the market power of these
dominant firms would be considerably reduced.

ECOLOGICAL ANALYSIS
 100% organic and natural - According to a recent research study, competition for
natural and Organic Nutraceuticals is heating up and the number of natural and organic
product introductions to the nutraceutical market is up by 57% than in 2003. The
consumers have shown a gradual shift towards natural and organic foods and this trend is
also evident in the nutraceutical industry.
  Aging Population - The aging of the national population is also seen as a major social
catalyst for increased demand for Spirulina. Between 1996 and 2006, there was an
increase of 11% in doctor visits by patients aged 55 and over. It is estimated that there are
75 million baby boomers. The aging population and its need for enhanced nutritional
foods to extend functionality in the later years have more than ever necessitated and
catalyzed the economic viability of the nutraceutical industry.
 Environmental Benefits - Conventional crops have hidden costs like depletion of
rainforests, fresh water resources, fertile topsoil, pollution from pesticides, herbicides and
climate change. Since Spirulina is 60% to 70% protein, which is higher than any other
natural food, its rapid growth means it yields 20 times more protein per acre than
soybeans, 40 times more than corn, and over 200 times more than beef.

FINANCIAL ANALYSIS:
PROJECTED INCOME STATEMENT

1st year 2nd year 3rd year 4th year 5th year
SALES 10000000 12500000 17280000 19200000 20883200

PRODUCTION COST 4000000 5500000 9700000 11000000 12500000

Gross Profit 6000000 7000000 7580000 8200000 8383200
Operating expenses
Salary of workers 2400000 2400000 2400000 2400000 2400000
Rent of Building 24000 24300 24600 24900 25200
Electricity Bill
-Fixed 15000 15000 15000 15000 15000
-Variable 21600 22800 24000 25200 26400
Telephone charges
-Fixed 2400 2400 2400 2400 2400
-Variable 12000 13200 14400 15600 16800
Insurance charges 5000 5000 5000 5000 5000
Transportation charges 500000 550000 600000 700000 800000
Municipal Charges 36000 39000 42000 45000 48000
Operating Profits 2984000 3928300 4452600 4966900 5044400
Dep.On 75000 60000 50300 43870 27683
machine/Maintenance
Profits before Interest & 2909000 3868300 4402300 4923030 5016717
taxes
Interest on loan 225000 180000 135000 90000 45000
Profit before Tax 2784000 3688300 4267300 4833030 4971717
Tax @ 35% 974400 1290905 1493555 1691560 1740100
Profit after tax 1809600 2397395 2773745 3141470 3231617

 Administrative expenses: 40 workers @ Rs. 5000 Per month

 Rent of Building: Rs. 24000 per month. After 1 year there is increase in Rent
charges i.e. Rs. 300 per month.
 Telephone Bill: Fixed – Rs. 200 per month i.e. Rs. 2400 per year.
 Insurance: Fixed premium amount of Rs. 5000 per year.

 SCHEDULE OF DEPRECIATION

Year Opening Balance Dep. @ 10% W.D.V. basis Closing

 s Balance
1st 3000000 300000 2700000
2nd 2700000 270000 2430000
3rd 2430000 243000 2187000
4th 2187000 218700 1968300
5th 1968300 196830 1771470

SCHEDULE OF INTEREST ON LOAN @9%

Year Loan amount Interest amount

s
1st 2500000 225000
2nd 2000000 180000
3rd 1500000 135000
4th 1000000 90000
5th 5000000 45000

PROJECTED BALANCE SHEET

1st year 2nd year 3rd year 4th year 5th year
CURRENT ASSETS
Cash in hand and at 6931250 6658400 7919500 9073240 9754230

bank
Inventories 1000000 1500000 1800000 2300000 2500000
Total Current Assets 7931250 8158400 9719500 11373240 12254230
Fixed Assets
Machine 270000 243000 218700 196830 177147
Total Fixed Assets 270000 243000 218700 196830 177147
TOTAL ASSETS 8201250 8401400 9938200 11570070 12431377
LIABILITIES & CAPITAL
Owner’s Capital 5000000 5000000 5000000 5000000 5000000
Reserves & Surplus 1451250 1951400 3688200 5520070 6581377
9% Secured Loan 1500000 1200000 1000000 800000 600000
Creditors 250000 250000 250000 250000 250000
 Total 8131250 8401400 9938200 11570070 12431377

PRESENT VALUE OF CASH INFLOWS

Years Cash inflows P.V.@ 10% Present Value Cumulative

Value
st
1 1809600 .909 1644926 1644926
2nd 2397395 .826 1980248 3625174
3rd 2773745 .751 2083082 5708256
4th 3141470 .683 2145624 7853880
5th 3231617 .621 2006834 9860714

Present value of Cash inflows = Rs. 9860714

PRESENT VALUE OF CASH OUTFLOWS

Years Cash outflows P.V. @ 10% Present Value

Initial 5000000 1 5000000
1st 1000000 .909 909000
2nd 1000000 .826 826000
3rd 1000000 .751 751000
4th 1000000 .683 683000
5th 1000000 .621 621000

Present value of Cash outflows = Rs.8790000

NET PRESENT VALUE: It is the difference between cash inflows and cash outflows.
Therefore NPV of Project comes to Rs.9860714-Rs. 8790000 = Rs.1070714

Therefore the project gives positive NPV and hence is acceptable.

DISCOUNTED PAY BACK PERIOD:

Pay back period represents the period in which the total investment pays back itself. The
present value of all cash outflows and inflows are computed at which the cumulative present
value of cash inflows equals the present value of cash outflows is the discounted pay back
period.

The cumulative present value of cash inflows at the end of 4th year is Rs7853880
and it is Rs. 9860714 at the end of 5 th year. Hence discounted pay back period falls between
4 and 5 years. To be exact,
Discounted pay back period =4 years & 936120/2006834

=4 years and 4 months

INTERNAL RATE OF RETURN OF THE PROJECT

The cash inflows of the project are discounted at a suitable rate by hit and trial method,
which equates the net present value so calculated to the amount of the investment. It is the
rate at which the present value of cash inflows is equal to the present value of cash outflows.

Year Cash inflows PV @12%D.F. P.V. PV @15%D.F. P.V.

s
1st 1809600 .892 1614163 .869 1572542
2nd 2397395 .797 1910723 .756 1812430
3rd 2773745 .712 1974904 .653 1974904
4th 3141470 .635 1994833 .567 1781213
5th 3231617 .567 1832326 .494 1596418
9326949 8737507
The present value of net cash inflows at 12% rate of discount is Rs. 9326949 and at 15% rate
of discount, it is Rs. 8737507 and present value of cash outflows is Rs. 879000. It means IRR
falls between these two discount rates:
= 12% +879000/(9326949-8737507)*3
=12% + 4.4
=16.4%
LIQUIDITY RATIOS

 CURRENT RATIO: It may be defined as the relationship between current assets and
current liabilities. A relative high current ratio is an indication that the firm is liquid
and has ability to pay its current liabilities in time.

Years 1st 2nd 3rd 4th 5th

Current Assets 793125 8158400 971950 11373240 12254230

0 0
Current liabilities 250000 250000 250000 250000 250000
Current Ratio 31.2 32.63 38.87 45.49 49.01

 LIQUID RATIO: It shows the ability to pay short-term obligations as and when they
become due. Cash in hand and at bank are more liquid assets. Inventories cannot be
termed into liquid asset, as they cannot be converted into cash immediately without
sufficient loss of value.

Years 1st 2nd 3rd 4th 5th

Liquid assets 6931250 6658400 7919500 9073240 9754230

Current liabilities 250000 250000 250000 250000 250000
Liquid Ratio 27.7 26.63 31.67 36.29 39.1

PROFITABILITY RATIOS
 OPERATING PROFIT RATIO: It establishes the relationship between operating
profits and sales.

Years 1st 2nd 3rd 4th 5th

Operating profits 2984000 3928300 4452600 4966900 5044400
Net sales 10000000 1250000 1728000 1920000 20883200
0 0 0
Ratio 29.84% 31.42% 25.76% 25.86% 24.15%

 NET` PROFIT RATIO: It establishes the relationship between net profit after taxes
and sales. It indicates the efficiency, higher the ratio, the better is the profitability
position.

Years 1st 2nd 3rd 4th 5th

1809600 2397395 2773745 3141470 3231617
Net profit after
tax
Net Sales 10000000 1250000 17280000 19200000 20883200
0
 Ratio 18.09% 19.17% 16.05% 16.36% 15.47%

 RETURN ON INVESTMENT: It shows the relationship between net profit after

interest and taxes and the net worth of the owner.

Years 1st 2nd 3rd 4th 5th

Net profit after interest & tax 1809600 2397395 2773745 3141470 3231617
Net worth 2909000 3868300 4402300 4923030 5016717
Ratio 62.2% 61.97% 63% 63.81% 64.41%

 FINANCIAL LEVERAGE: It is calculated as:

Years 1st 2nd 3rd 4th 5th

 EBIT 2909000 3868300 4402300 4923030 5016717
EBIT-Interest 2784000 3688300 4267300 4833030 4971717
Financial leverage 1.04 1.04 1.03 1.01 1.009

 COST OF DEBT: The cost of debt is the rate of interest payable on the debt.
Kd = Interest/Principal*(1-Tax rate)

Years 1st 2nd 3rd 4th 5th

Interest 225000 180000 135000 90000 45000
Principal 2500000 2000000 1500000 1000000 5000000
9% 9% 9% 9% 9%

OPERATING LEVERAGE: It is obtained by dividing contribution i.e.

sales minus variable cost, by the EBIT.

Years 1st 2nd 3rd 4th 5th

Sales 10000000 1250000 17280000 1920000 20883200
0 0
Less: variable cost
Cost 4000000 5500000 9700000 1100000 12500000
0
Electricity Bill 21600 22800 24000 25200 26400
 Telephone charges 12000 13200 14400 15600 16800
Transportation charges 500000 55000 60000 70000 80000
Municipal expenses 36000 39000 42000 45000 48000
Contribution 5880400 6870000 7439600 8044200 8212000
EBIT 2909000 3868300 4402300 4923030 5016717
Operating leverage 2.02 1.75 1.66 1.60 1.64
Financial 1.04 1.04 1.03 1.01 1.009

leverage
Composite leverage 3.06 2.79 2.69 2.61 1.65

BREAK EVEN POINT: It may be defined, as that point of sales volume at

w3hich total revenue is equal to total cost. It is a point of no profit, no loss.
Sales revenue at break-even point= Fixed costs+ Variable costs.
B.E.P.= Total fixed cost/ P/V Ratio
P/V Ratio= Contribution/Sales * 100

Years 1st 2nd 3rd 4th 5th

 Sales 1000000 1250000 1728000 1920000 20883200
0 0 0 0

Variable
Cost
COSTS 4000000 5500000 9700000 1100000 12500000
0
Electricity Bill 21600 22800 24000 25200 26400
Telephone charges 12000 13200 14400 15600 16800
Transportation charges 50000 55000 60000 70000 80000
Municipal expenses 36000 39000 42000 45000 48000
Contribution 5880400 6870000 7439600 8044200 8212000
Fixed Cost
Administrative expenses 2400000 2400000 2400000 2400000 2400000
Rent 24000 24300 24600 24900 25200
Electricity Bill 15000 15000 15000 15000 15000
Telephone charges 2400 2400 2400 2400 2400
Insurance 5000 5000 5000 5000 5000
Dep. On machines 75000 60000 50300 43520 27683
Interest on Loan 225000 180000 1350000 90000 45000
Total fixed cost 2746400 2686700 3847300 2580820 2520283

P/V RATIO = Total Contribution/ Total Sales *100

= 36446200/79863200*100
=45.63%
TOTAL FIXED COST = Rs.14381503
BREAK EVEN POINT= Rs. 14381503/45.63%
= Rs. 31517648