46.

PROFILE ON PRODUCTION OF

CORRUGATED IRON SHEET

 46 -2

TABLE OF CONTENTS

PAGE

I. SUMMARY 46 -3

II. PRODUCT DESCRIPTION & APPLICATION 46 - 3

III. MARKET STUDY AND PLANT CAPACITY 46 - 4

A. MARKET STUDY 46 - 4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 46 - 7

IV. MATERIALS AND INPUTS 46 - 8

A. RAW & AUXILIARY MATERIALS 46 - 8
B. UTILITIES 46 - 8

V. TECHNOLOGY & ENGINEERING 46 - 9

A. TECHNOLOGY 46 - 9
B. ENGINEERING 46 - 10

VI. MANPOWER & TRAINING REQUIREMENT 46 - 12

A. MANPOWER REQUIREMENT 46 - 12
B. TRAINING REQUIREMENT 46 - 12

VII. FINANCIAL ANLYSIS 46 - 14

A. TOTAL INITIAL INVESTMENT COST 46 - 14
B. PRODUCTION COST 46 - 15
C. FINANCIAL EVALUATION 46 - 16
D. ECONOMIC BENEFITS 46 - 17
 46 -3
I. SUMMARY

This profile envisages the establishment of corrugated iron sheet plant with a capacity of
15,000 kg per annum.

The present demand for the proposed product is estimated at 2.43 million pcs per annum. The
demand is expected to reach at 2.94 million pcs by the year 2025.

The plant will create employment opportunities for 28 persons.

The total investment requirement is estimated at Birr 23.31 million, out of which Birr 5.41
million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 37 % and a net present
value (NPV) of Birr 41.05 million, discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Corrugated iron sheet is used for roofing of houses and other construction. Corrugated iron
sheets are classified according to their thickness and surface area. Standard gauge sizes are
28,30 and 32. It is usually manufactured 2 metres in length and 1.2 meters in width.
Corrugated iron sheets are mostly used for roofing and fencing. The current sources of market
supply are importers and domestic manufacturers.

Corrugation is a process of deforming plain sheets in the uniform way or zigzag shapes pattern
by rolling mills across their entire width.

The raw material required for producing corrugated iron sheets is galvanized steel sheet, which
has to be imported.

The process does not have negative environmental impact.

The project requires medium capital investment and will create employment opportunity for
medium number of employees.

The project has forward linkage effect with the construction sector.
 46 -4
III. MARKET AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Corrugated iron sheets are used for roofing of housing units and other building constructions.
The demand for the product is, therefore, influenced by developments in the building
construction sector. The sources of supply to the domestic market are domestic production and
imports. In the absence of reliable and comprehensive data on imports of corrugated iron
sheets, this study relies on housing data in determining the demand for the product.

The distribution of housing units by roofing material in DDPA based on the 1994 populating
and housing census, is presented in Table 3.1. A look into the data depicted in Table 3.1
reveals that corrugated iron sheets constitute the most common roof types in the Administration
covering 72.45 per cent of all the housing units in the area. Housing units with roofing material
of wood and mud, and thatch, respectively, constituted 14.02 and 9.34 per cent of the housing
units in DDPA.

Table 3.1
DISTRIBUTION OF HOUSING UNITS BY ROOFING MATERIAL
DIRE DAWA ADM. COUNCIL, 1994.

Roofing Material Housing Unit %

No.
Corrugated iron sheets 36299 72.45
Thatch 4681 9.34
Wood and Mud 7025 14.02
Reed and Bamboo 272 0.54
Others 1169 2.33
Not stated 656 1.31
All Housing Units 50102 100

Source: CSA, The 1994 Population and Housing Census of Ethiopia, Results for
Dire Dawa Provisional Administration, 1995.
 46 -5
Housing units with a roofing of corrugated iron sheets constituted the substantially highest
proportion (72.45%) of all the housing units in DDPA in 1994. Besides, due to a rise in income
and urbanization, corrugated iron sheets are expected to substantially substitute other roofing
materials like thatch, wood and mud, and reed and bamboo. Moreover, flourishing commercial
and industrial activities in the DDPA would mean an increase in commercial (number of
commercial enterprises in the area stood at 4,221 in year 2001/02), industrial and institutional
buildings and hence a significant rise in the consumption of corrugated iron sheets. Taking into
account all these conditions, the proportion of housing units using corrugated iron sheets as a
roofing material is conservatively estimated to rise to 80%. Applying a quarter of the rate of
urbanization in the country (1%) on the base year housing data of 1994, the current urban
housing units in the DDPA that are expected to use roofing of corrugated iron sheet are
estimated at 45165 units. Making use of expert estimate of an average roofing area of 108
meter square, the current effective demand (for 2006) for corrugated iron sheet in DDPA is
estimated at 4,877,815 meter square or 2,438,907 pieces of corrugated iron sheets of 1 meter by
2 meter dimension.

2. Projected Demand

As stated above a growth rate of 1%, a quarter of the rate of urbanization in the country is
adopted in projecting the demand for corrugated iron sheets in DDPA. The projected demand is
shown in Table 3.2.
 46 -6

Table 3.2
PROJECTED DEMAND FOR CORRUGATED IRON SHEETS

Year Projected Demand

  m2 In pieces
2007 4,926,593 2,463,296
2008 4,975,859 2,487,929
2009 5,025,617 2,512,809
2010 5,075,873 2,537,937
2011 5,126,632 2,563,316
2012 5,177,899 2,588,949
2013 5,229,677 2,614,839
2014 5,281,974 2,640,987
2015 5,334,794 2,667,397
2016 5,388,142 2,694,071
2017 5,442,023 2,721,012
2018 5,496,444 2,748,222
2019 5,551,408 2,775,704
2020 5,606,922 2,803,461
2021 5,662,991 2,831,496
2022 5,719,621 2,859,811
2023 5,776,817 2,888,409
2024 5,834,586 2,917,293
2025 5,892,931 2,946,466

3. Pricing and Distribution

Based on current market price of the product a factory-gate price of Birr 6,500 per tonne is
adopted.

The envisaged factory can use the existing construction materials retailers to distribute its
product.
 46 -7
B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

Based on the market study the demand for corrugated iron sheets in DDPA is projected.
Accordingly, the demand for the product is 2,463,296 pieces in year 2007, and this figure will
grow to 2,803,461 pieces by the year 2020. The annual production capacity for the envisaged
plant will therefore be 15,000 tons.

This is based on a single shift of 8 hours operation per day and for 300 days a year. When
demand rises the production capacity will also be increased either by feeding or rolling multiple
sheets at the same time or by introducing additional shifts. The product mix is scheduled as
50%, 30% and 20% for 32,30 and 28 guages, respectively.

2. Production Programme

The production programme will be carried out in such a way that the plant will initially produce
at 75% of its capacity, and then will raise its production to 85% in the second year. It will then
attain full capacity production in the third and succeeding years. Such a gradual build-up of
production is required inorder to give opportunity for production workers and technicians to
develop skills and experience on operation and maintenance on plant machinery and
equipment. Table 3.3 shows production programme.

Table 3.3
PRODUCTION PROGRAMME

Year Capacity Production

Utilization Guage Tons
1 75% 32 5,625
30 3,375
28 2,250
2 85% 32 6,375
30 3,825
28 2,550
3-15 100% 32 7,500
30 4,500
28 3,000
 46 -8

IV. MATERIALS AND INPUTS

A. RAW & AUXILIARY MATERIALS

The raw material used for producing corrugated iron sheets is plain iron sheets. Depending on
the required thickness of the iron sheet, the product can be of guage thickness of 32,30 and 28.
Auxiliary materials required by the plant include printing ink, wooden stands, lead and
sulphuric acid. The annual requirement of the raw & auxiliary material at full capacity
production, including its cost is shown in Table 4.1 below.

B. UTILITIES

Electricity and water are inputs required for the envisaged plant. Annual requirements of
electricity and water at full production capacity are estimated to be 1,220,000 kWh and 150m 3,
respectively. At the unit rate of Birr 0.474 and 3.1/ m 3 for electricity and water, respectively,
the annual requirement of utilities is estimated to be Birr 578,745.
 46 -9
Table 4.1
RAW AND AUXILIARY MATERIALS

Sr. Description Cost ('000 Birr)

Qty Unit
No. (tonnes) Price ( Birr) FC LC TC
A. Raw Materials
1 Plain iron sheet
a) 28 guage 3,000 5,800 17,400 - 17,400
b) 30 guage 7,500 5,800 43,500 - 43,500
c) 32 guage 4,500 5,800 26,100 - 26,100
Sub-total 15,000 87,000 87,000
B. Auxiliary Materials
1 Printing ink 1,500 kg - 45 - 45
2 Lead 3,000 kg - 6 - 6
3 Wooden stands As reqd. - - 25 25
4 Sulphuric acid As reqd - - 15 15
Sub-total 51 40 91
Bank, insurance and customs
charges, transportation and - - - 100 100
material handling costs
Total Landed Cost 87,051 140 87,191

Thus, the total annual raw and auxiliary materials cost at full production capacity of the plant is
estimated at Birr 87 million.

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The production process of making corrugated iron sheet consisted of cleaning the rust and other
ingredients from the plain iron sheet, then drying by dry, hot air. Then the iron sheet is passed
into the molten lead to attain the required thickness. It is then dried by forced air from where it
is fed to feeding table by a suitable hoist or crane. Then they are conveyed to the corrugating
machine. After corrugation, the product is passed to correcting machine where deformation
are corrected. The product is then cut to standard size and trade mark of the company is
printed.
 46 -10
2. Source of Technology

The technology of corrugated iron sheet production has been widely applied by many countries
for many years in the past. The heart of the technology is the corrugating machine, which is
simple to operate and maintain. Countries like Korea, Japan, European and Far East counties
are well known for manufacturing and supply of machinery and equipment. Address of a
company that supplies the technology is given below.

KIA Heavy Indusries Corp.

15, Youido - dong, Yongdung Po - gu
Seoul, S. Korea
Tel. 02-783-9418
Fax: 02 - 782 - 4864

B. ENGINEERING

1. Machinery and Equipment

The envisaged plant requires the following production equipment. The machinery & equipment
required for the envisaged plant and corresponding cost is depicted in Table 5.1.

Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT & COST

Sr. Description Qty. Cost (‘000)

No. No. FC LC TC
1 Crane (10 tons) for loading and 1 1,400 1,400
unloading
2 Feeding conveyor 1 600 600
3 Feeding table 1 60 60
4 Corrugating machine 1 1,200 1,200
5 Correcting machine 1 900 900
6 cutting (rimming) machine 1 600 600
7 Furnace (oil fired) 1 120 120
8 Boiler (oil fired) 1 220 220
9 Other auxiliary equipment Req. 60 60
Sub-total 5,160 5,160
Bank, customs and insurance 250 250
charges, transport and handling
costs
Total Landed cost 5,160 250 5,410
 46 -11

Thus, the total cost of machinery and equipment is estimated at Birr 5.41 million, of which Birr
5.16 million is required in foreign currency, and the remaining Birr 0.25 million is in local
currency.

2. Land, Building and Civil Works

Land is required to accommodate plant building, management offices, social building for
workers, stores, internal roads, adequate space for expansion and other industry related
activities. The total land area for the envisaged plant is estimated at 2,000 m 2. The built-up
area is estimated at 800 m2. At land lease rate of Birr 2.0 per m2 for 70 years, the land lease
value will be Birr 280,000. At building rate of Birr 1,200 the cost of building and civil works
will be Birr 960,000.

Thus, the total investment cost of land, building and civil works will be Birr 1.24 million.

3. Proposed Location

Location of an industrial plant is determined on the basis of the proximity to sources of raw
materials and access to the market for corrugated iron sheets. In terms of basic locational
mode, the optimal location is the one where the aggregate costs of raw materials transportation,
production and distribution of the products is minimized. The major raw material and some of
the auxiliary materials have to be imported. The construction sector is the major end user of
the final product. It would, therefore, be appropriate to locate the project site in Dire Dawa
town. This is advantageous since infrastructures like electricity, water, transportation and
communication are well developed in Dire Dawa town. Market outlets can be established in
zonal towns located in the vicinity of Dire Dawa.
 46 -12
VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The plant requires both direct and indirect manpower. The direct manpower requires engineer,
production head, machine operators, technicians and unskilled workers. The indirect
manpower consists of plant manager and other office management personnel. The complete
list of manpower and labour cost required by the plant is given in Table 6.1.

B. TRAINING REQUIREMENT

Training is required for production workers including the engineer, production head, machinery
operators, technicians and crane operator. The training programme can be executed by making
special arrangements with either public or private industries that are engaged with similar
activities. A total of Birr 20,000 is allotted to conduct the training programme, that will take
three to four weeks.
 46 -13

Table 6.1
MANPOWER REQUIREMENT AND LABOUR COST (BIRR)

Sr. Description Req. Monthly Annual

No. No. Salary Salary

A. Administration
1 1 1,800 21,600
2 Plant manager 1 600 7200
3 Secretary 1 1,200 14,400
4 Administrator 1 1,200 14,400
5 Accountant 1 800 9,600
6 Sales person 1 750 9,000
7 Store person 2 400 4,800
8 Clerk 2 380 9,120
9 Driver 4 220 5,200
10 Guard 180 8,640
Messenger and cleaner
Sub-total 15 - 175.4

B. Production
1 1 1,500 18,000
2 Mechanical engineer 1 1,500 18,000
3 Production head 5 600 36,000
4 Machinery operators 2 750 18,000
5 Technicians 1 450 5,400
6 Crane operator 3 180 6,400
Unskilled workers
Sub-total 13 101,800
Workers' benefit (25% 51,440
of basic salary)
Total Cost 28 277,200
 46 -14

VII. FINANCIAL ANALYSIS

The financial analysis of the corrugated iron sheet project is based on the data presented in the
previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 2 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 90 days
Raw materials, import 30 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at 23.31 million,
of which 76.21 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
 46 -15

Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)
1. Land lease value 280.0
2. Building and Civil Work 960.0
3. Plant Machinery and Equipment 5410.0
4. Office Furniture and Equipment 75.0
5. Vehicle 450.0
6. Pre-production Expenditure* 588.36
7. Working Capital 15550.77
Total Investment cost 23314.13
Foreign Share 76.21

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 89.96 million (see
Table 7.2). The material and utility cost accounts for 97.57 per cent, while repair and
maintenance take 0.11 per cent of the production cost.

* N.B Pre-production expenditure includes interest during construction ( Birr 418.36

thousand ) training (Birr 20 thousand ) and Birr 150 thousand costs of registration,
licensing and formation of the company including legal fees, commissioning expenses,
etc.
 46 -16

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 87191 96.92
Utilities 578.74 0.64
Maintenance and repair 100.00 0.11
Labour direct 101.8 0.11
Factory overheads * 51.44 0.06
Administration Costs** 175.4 0.19
Total Operating Costs 88198.38 98.04
Depreciation 734.50 0.82
Cost of Finance 1027.15 1.14
Total Production Cost 89960.03 100

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.

* Factory overhead cost includes salaries and wages of supervisors, insurance of factory
workers social costs on salaries of direct labour etc.

** Administrative cost includes salaries and wages, insurance, social costs, materials and
services used by administrative staff etc.
 46 -17

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 = 15%
Sales – Variable Cost

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 4 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 37 % and the net
present value at 8.5% discount rate is Birr 41.05 million.

D. ECONOMIC BENEFITS

The project can create employment for 28 persons. In addition to supply of the domestic
needs, the project will generate Birr 2.31 million per annum in terms of tax revenue.