Final Project Sarwesh - Kasat Roll No - 18 2003

Feasibility Study of Biodiesel Plant
FEASIBILITY STUDY OF BIODIESEL PLANT
Submitted by
Mr. Sarwesh O. Kasat
Under the guidance of
Mr. Suhas Gharat
PROJECT SUBMITTED IN FULL COMPLETION OF MMS TO
Chetana’s R. K. Institute of Management & Research
Bandra (East), Mumbai – 400051
MAY 2010
i
Chetana’s R.K. Institute of Management and Research

DECLARATION
This is to declare that the study presented by me to Chetana’s Institute of Management and
Research, in full completion of MMS degree under the title “FEASIBILITY STUDY OF
BIODIESEL PLANT” has been accomplished under the guidance of Mr. Suhas Gharat.
Signature
Sarwesh O. Kasat
ii

CERTIFICATE
This is to certify that the study presented by SARWESH O KASAT to Chetana’s Institute of
Management and Research, in full completion of MMS degree under the title “Feasibility Study
of Biodiesel Plant” has been done under the guidance of Mr. Suhas Gharat.
The project is in the nature of original work that has not so far been submitted for any program
of Chetana’s Institute of Management & Research or any other University / Institute.
References of work and related sources of information have been given at the end.
Signature of the Guide Signature of Director
Mr. Suhas Gharat Dr. Firdos T. Shroff
iii

ACKNOWLEDGEMENT
It gives me great pleasure to present before you, my final semester report on “Feasibility Study
of Biodiesel Plant” for the year 2008-2010.
I express my sincere gratitude towards Chetana’s Ramprasad Khandelwal Institute of

Management and Research, for giving me an opportunity to work on this report.
I take this opportunity to thank my respected project guide Mr. Suhas Gharat, for giving me an
opportunity to undertake this project. His guidance has been invaluable to me while preparing
this report.
I also thank all those who helped me directly or indirectly in completing this project.
Sarwesh O. Kasat
iv

TABLE OF CONTENTS
1. Executive Summary 01
2. Introduction 02
2.1 Objective of Study
2.2 Scope
2.3 Research Methodology
3. Literature Review 04
3.1 Background of Biodeisel
3.2 Market Survey and Demand-Supply Position
3.3 Flow Chart
3.4 Capital Expenditure Planning Phase
3.5 Cost Concept
3.6 Cash Flow Statement
3.7 Working Capital
4. Findings and Recommendations 14
5. Conclusion 22
6. Bibliography 23
v


EXECUTIVE SUMMARY

“To have confidence is to have wings”
Financial management is the backbone of every business entity. Finance is acting as a blood for
the organization and efficient circulation of the same make the system robust. Throughout the globe
business leader’s act proactively in their financial planning which help to make concrete business
foundation.
For any business start up we need to work out all the financial aspects. Financial feasibility helps
in taking decision whether to go for the project. Financial helps in knowing the future cash flow and
profit generation by determining the demand for the product based on extensive market research.
In this project report I have tried to work out all the financial which are needed for setting up a
BIODIESEL PLANT. The project provides a through in‐depth knowledge about various parameters which
an entrepreneur needs to consider while starting a biodiesel plant. The project also covers the
information about Biodiesel, its production process, its byproduct and its usage as an effective fuel.
Various financial ratios like Debt to equity ratio, Debt service coverage ratio, Return on
Investment, etc have been calculate to get the knowledge about the condition of financial planning in
nutshell. Working capital which act as a life line for any production system have been calculate and
related information have been put in for through understanding. Raw material management is also
discussed along with its supply sources and future availability.
The main objective of project revolves around checking the financial feasibility of Biodiesel
plant. The financial feasibility of biodiesel plant had been proved to be good and risk free at the end of
this project for which all the necessary calculation has been given along with other real time proof.
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INTRODUCTION
Objective of Project:
The project gives the perspective about the bio‐diesel as a product. It highlights the financial
feasibility about commissioning the bio‐diesel plant. Project gives us the overview about which financials
need to be consider while setting‐up an industry and also the various financial measurements which we
one should consider for financial feasibility of the project.
Scope of the project:
For the bio‐diesel plant set‐up this will act as the ready reference and will provide the initial help
for the entrepreneurs who want to foray into this business.
Bio‐diesel acts as the alternate fuel. As per the current scenario the way we are consuming the
present resources we need to develop various alternate fuel to satisfy the ever increasing demand of
fuel. Thus in the coming future the demand for will be there. So there is the scope for bio‐diesel in the
future.
Research Methodology:
Data:
Primary Source:
Interaction with the following persons:
• Dr. Sanjay Bhoyar professor at PDKV, Akola
• Dr. Suhas Zambhere a technical consultant for Bio‐diesel plant
Secondary Source:
• Different articles from various websites as well as various web search engine acted asa the
source for the secondary data source. The information about the raw material is collected from
the internet as well as with the interaction with the industry persons.
Limitation of the data:
• All the limitation of the secondary data source is applicable to this project. Whereas for the
primary data the sample size is the only limitation which is very small.
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LITERATURE REVIEW
BACKGROUND OF BIODIESEL
Biodiesel fuel can be made from new or used vegetable oils and animal fats, which are non‐
toxic, biodegradable, renewable resources. Fats and oils are chemically reacted with an alcohol
(methanol is the usual choice) to produce chemical compounds known as fatty acid methyl esters.
Biodiesel is the name given to these esters when they are intended for use as fuel. Glycerol (used in
pharmaceuticals and cosmetics, among other markets) is produced as a co‐product. Biodiesel can be
produced by a variety of esterification technologies. The oils and fats are filtered and pre‐processed to
remove water and contaminants. If free fatty acids are present, they can be removed or transformed
into biodiesel using special pre‐treatment technologies. The pre‐treated oils and fats are then mixed
with an alcohol (usually methanol) and a catalyst (usually sodium or potassium hydroxide). The oil
molecules (triglycerides) are broken apart and reformed into esters and glycerol, which are then
separated from each other and purified. Approximately 55% of the biodiesel industry can use any fat or
oil feedstock, including recycled cooking oils. The other half of the industry is limited to vegetable oils,
the least expensive of which is Jatropa oil. The Jatropa oil industry has been the driving force behind
biodiesel commercialization because of large production capacity, product surpluses, and declining
prices. Similar issues apply to the recycled oils and animal fats industry, even though these feedstock are
less expensive than Jatropa oils. Eased on the combined resources of both industries, there is enough of
the feedstock to supply 1.9 billion gallons of biodiesel (under policies designed to encourage biodiesel
use). Biodiesel Benefits
Biodiesel is a substitute or extender for traditional petroleum diesel and you don't need special
pumps or high pressure equipment for fueling. In addition, it can be used in conventional diesel engines,
so you don’t need to buy special vehicles or engines to run on biodiesel.
Scientists believe carbon dioxide is one of the main greenhouse gases contributing to global
warming. Heat biodiesel (100 percent biodiesel) reduces carbon dioxide emissions by more than 75
percent over petroleum diesel. Using a blend of 20 percent biodiesel reduces carbon dioxide emissions
by 15 percent.
Biodiesel also produces fewer particulate, carbon monoxide, and sulphur‐dioxide emissions, all
targeted as public health risks by the Environmental Protection Agency. Since biodiesel can be used in
conventional diesel engines, the renewable fuel can directly replace petroleum products; reducing the
country’s dependence on imported oil.
Biodiesel offers safety benefits over petroleum diesel because it is much less combustible, with
a flash point greater than 150°C, compared to 77°C for petroleum diesel. It is safe to handle, store, and
transport.
Biodiesel can help reduce our dependence on foreign oil and help us leverage our fossil fuel
supplies. It can also help reduce greenhouse gas emissions, as well as public health risks associated with
air pollution. It is nontoxic and biodegradable. Biodiesel contains only trace amounts of sulphur, typically
less than the new EPA standards that will go into effect in 2006 for diesel fuel. It is safe to handle,
transport, and store, and has a higher flash point than petroleum diesel. It can also b e stored in diesel
tanks and pumped with regular equipment except in colder weather, where tank heaters or agitators
may be required. Biodiesel mixes readily with petroleum diesel at any blend level, making it a very
flexible fuel additive.
Biodiesel is an oxygenated fuel, so it contributes to a more complete fuel burn and a greatly
improved emissions profile. The more biodiesel used in a blend, the higher the emission reductions. One
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of the unique benefits of biodiesel is that it significantly reduces air toxic those are associated with
petroleum diesel exhaust and are suspected of causing cancer and other human health problems. NO
emissions are an exception to the rule, since biodiesel tends to increase NO emissions. Recent research
has shown a number of ways to mitigate this problem.
You can use pure biodiesel in most engines made after 1994 with some limitations. Engine
performance (fuel economy, torque, and power) can be less than that of diesel by 8% to 15%, because
of the lower energy content of the biodiesel (121,000 Btu compared to 135,000 Btu for diesel fuel).
Consumers should be aware of potential cold weather problems during vehicle operation and fuel
storage. Consumers should also watch for obvious signs of damage around seals and gaskets. You can
use pure biodiesel in older engines, but the seals and gaskets are more likely to be damaged by
biodiesel. Also, it helps to start out with a clean storage tank if pure biodiesel is used. Most people use a
blend of 20% biodiesel with petroleum diesel (B20) to avoid the problems listed above. Engine
performance with B20 is virtually the same as with petroleum diesel. Problems associated with storage,
seals and gaskets, and cold weather is minimal. Even very low amounts of biodiesel (1% to 2%) can
provide substantial lubricating benefits to premium diesel fuels.
Every gallon of biodiesel displaces 0.95 gallons of petroleum‐based diesel over its life cycle. It is
also very energy efficient. For every unit of fossil energy used to produce biodiesel, 3.37 units of
biodiesel energy are created. Additionally, biodiesel reduces the amount of carbon dioxide (CO) being
released into the atmosphere. It releases less fossil CO as compared to conventional diesel, and the
crops used to produce biodiesel absorb large amounts of CO as they grow. And because biodiesel is
nontoxic and biodegradable, it is an excellent fuel for use in fragile environments such as estuaries,
lakes, rivers, and national parks.

DESCRIPTION:
BioDiesel is a manufactured product, slightly yellow in colour, oily liquid with a slight aromatic
odour and a bitter taste.

APPLICATIONS:
It is commonly used as fuel for stationary diesel engine like Pump sets and other agricultural
implements and also in Diesel cars.

STANDARDS:
• Specifications for Biodiesel (B100): provided by the National Biodiesel Board.
• Standard Specification for Biodiesel Fuel (B100) Blend Stock for Distillate Fuels as provided by
ASTH International.

BIODIESEL PRODUCTION AND QUALITY:
• National Biodiesel Board.
• Biodiesel Handling and Use Guidelines
• Biodiesel Handling and Use Guidelines ‐ Japanese version.
Pure biodiesel (B100) needs to meet the requirements of ASTH D6751 to avoid engine
operational problems. To obtain a copy of ASTH's Standard Specification for Biodiesel Fuel (B100) Blend
Stock for Distillate Fuels, visit the ASTH International Web site. This table summarizes the requirements
for B100. Keep up with the latest biodiesel activities by reading the National Biodiesel Board's
newsletter, Biodiesel Bulletin.

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TRANSPORT INFORMATION:
It is hazardous for air, sea and road transport.

PERSONAL PROTECTION:
Safety glasses, adequate ventilation.

CONSUMER SAFETY:
BioDiesel is used as substitute for Diesel and all safety precautions are same as that of
Petroleum diesel.

ALTERNATIVE FUELS INCENTIVES AND LAWS:
Energy Policy Act (EP‐Act) Fleet Information and Regulations:
The Energy Policy Act of 1992 was passed by Congress to reduce our nation's dependence on
imported petroleum by requiring certain fleets to acquire alternative fuel vehicles. Use this link to learn
more about the EP‐Act programs.
Regulatory review completed: On Hay 2, 2001, the Department of Energy (DOE) published in the
Federal Register the completion of its regulatory review for the Biodiesel Fuel Use Credit. According to
the review, DOE does not intend to initiate further rulemaking to modify provisions in the final rule
published January 11, 2001. Effective date of the rule is April 13, 2001.
Biodiesel Final Rule published on January 11, 2001 the final rulemaking concerning the use of
biodiesel to fulfil EP‐Act requirements was published in the Federal Register. The final rule making
amends Titles III and V of the Energy Policy Act of 1992 (EP‐Act) , giving biodiesel fuel use credit to fleets
that would otherwise be required to purchase an alternative fuelled vehicle. If you are interested in
learning more about the final rulemaking, please download this copy of the Federal Register (PDF 145
KB) for January 11, 2001.

MARKET SURVEY AND DEMAND SUPPLY POSITION
Recent trends are indicative of tremendous increase in the production of Commercial Vehicles
and the consumption of Diesel. The import bill is mounting and the availability is going down. Hew
sources will have to be developed and new units have to be put up in the next decade to manufacture
BioDiesel which will substitute imported diesel in large quantities to meet the domestic demand where
by causing smaller drain of our limited sources of foreign exchange. The growth of automotive industry,
particularly in the last 15 years, has been spectacular. It is not the magnitude of volume only, but also
the diversity of products (Commercial vehicle, cars, two/three wheelers) , which have been impressive.
The proposed product, i.e. BioDiesel also shows a good potential growth for demand.
• The biodiesel industry is relatively mature in Europe with the European Union (EU) being the
world leader in biodiesel production, producing 1.4 billion gallons (5.3 billion litres) in 2006,
mainly from rape seed (European Biodiesel Board, 2007). In 2006 total production capacity in
the EU was 3 billion gallons (11.3 billion litres). The EU has mandated a renewable fuel content
of 5.75% of market share by 2010, however this target is unlikely to be met (Commission of the
European Communities, 2006). An EU Commission Green Paper sets an even more ambitious
objective of 20 % substitution of conventional fuels by alternative fuels in the road transport
sector by 2020 (Commission of the European Communities, 2006).
US biodiesel production in 2006 was 250 million gallons (950 million litres), with a total
production capacity of 1.4 billion gallons (5.3 billion litres). In the US, small producers can qualify
for a 10 cent per gallon tax credit for up to 15 million gallons of biodiesel produced. The U.S.
Federal Government's Renewable Fuels Standard targets 7.5 billion gallons (23.4 billion litres) of
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renewable fuels by 2012 (Yacobucci, 2007). Canadian biodiesel production is limited and is
estimated to be between 30 to 90 million litres per annum (Agra, 2006). The proposed
renewable fuels standard in Canada calls for a 2% renewable content in diesel by 2012. The
present total production in India, of BioDiesel is estimated to be 30,000 Kilo litres per year.

• Future demand:
The major user of BioDiesel will be small farmers as well as for blending with diesel in
petroleum refinery. The demand for the product will grow with the increase in production of Oil
Engines. Due to shortage and irregular supply of electrical power, the growth rate for oil
engines, is expected to be very high in coming years for states where electrical power is not
easily available. Looking at the tremendous growth in Automotive and Stationary Oil Engines,
which is projected to be 10% pa in terms of number of new engines, large quantities of Diesel oil
will be required. Taking into account the potential for BioDiesel units, the total capacity of these
BioDiesel plants will substitute only a tiny fraction of the total diesel requirement.

• Conclusion:
From the demand and supply position, it appears that there should be a good scope for
a number of new ventures with a capacity of 1 to 30 Kilo litres per day.

RAW MATERIALS SUPPLIERS
The raw materials are:

Vegetable Oil: To manufacture one Kilo litres of BioDiesel, basic raw material, non‐edible vegetable oil,
required is 1,050 litres. So at 100 % capacity utilization, 346,500 litres of non‐edible vegetable will be
required, which is easily available from the local manufacturers and suppliers.

Methyl Alcohol: To manufacture one Kilo litres of BioDiesel, 150 litres of Methyl Alcohol is required. At
100 % capacity utilization, requirement of Methyl Alcohol will be 49,500 bulk litres, which can procured
easily from the market. Caustic Potash: To manufacture of one Kilo litres of BioDiesel, 3.8 kgs of caustic
potash is required. At 100 % capacity utilization, requirement of caustic potash will be 1254 kgs, which
can procured easily from the market.

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FLOW CHART

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CAPITAL EXPENDITURE PLANNING PHASES

• Identification of investment opportunities.
• Development of forecasts of benefits and costs.
• Evaluation of net benefit.
Investment ideas
Investment opportunities have to be identified or created. Most proposals, in the nature of cost
reduction or replacement or process or product improvement take place at plant level. The contribution
of top level management in generating investment idea is generally confined to expansion or
diversification project. The proposal for adding a new project may generate from marketing department
or plant manager
Long Term Finance

Financing is basically done by a firm to support its Investments. Equity and Debt represent the
two broad sources of finance for a business firm. Equity – Referred to as shareholders funds on balance
sheets in India. Equity investors have a claim on the residual cash flows of the firm. Dividend Paid to
equity investors has to come out of the profit tax. Equity basically has an infinite life in terms of
maturity. Equity investors enjoy the prerogative to control the affairs of the firm. Debts – referred to as
loan funds on balance sheets in India. Debts investors are entitled to a contractual set of the cash flows
(interest and principal). Interest paid to debt investor represents a tax deductible expense. Debt has
fixed maturity. Debts investors often impose certain restrictions on the way the firm is run to protect
their interests.
Equity Capital:
Equity Capitals represent the ownership capital, as equity shareholders collectively own the
company. They enjoy the reward and bear the risk of ownership. Firms may raise the equity capital
internally by retaining earnings. Alternatively, they could distribute the entire earnings to equity
shareholders and raise equity capitals externally by issuing new shares.
In both cases, shareholders are providing funds to the firms to finance their capital
expenditures. Therefore, the equity shareholders require rate of return would be the same whether
they supply funds by purchasing new shares or by foregoing dividends, which could have been
distributed to them. There is a difference between retained earnings and issue of equity shares from the
firm’s point of view. The firm may have to issue new shares at a price lower than the current market
price. Also, it may have to incur floating costs. Thus, external equity will cost more to the firm than the
internal equity.
Internal Accruals:
The internal accruals of a firm consist of depreciation charges and retained earnings.
Depreciation represents the allocation of capital expenditure to various periods over which the capital
expenditure is expected to benefit the firm. Retained earnings are that portion of equity earnings (profit
after tax less preference dividends) which are ploughed back in the firm. Because retained earnings are
the sacrifice made by equity shareholders, they are referred to as internal equity. Companies normally
retain 30% to 80% of Profit after tax financing growth. If you look at a sample of corporate balance
sheets you will find that reserves and surplus (other than shared premium reserve and revaluation
reserve), which essentially represent accumulated are an important source of long term financing. Even
this is an understatement of the contribution of retained earnings to long term financing because a
portion of reserves and surplus would have been capitalized by the firm in the form of bonus shares.
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Preference Capital:
Preference Capital represents a hybrid form of financing – it has some characteristics of equity and
some attributes of debentures. It resembles equity in the following ways:
• Preference dividend is payable only out of distributable profits.
• Preference dividend is not obligatory payment (the payment of preference dividend is entirely
within the discretion of directors)
• Preference dividend is not tax‐ deductible payment.
Preference Capital is similar to debentures in several ways:
• The dividend rate of preference capital is fixed.
• The claim of preference shareholders is prior to the claim of equity shareholders
• Preference shareholders do not normally enjoy the right to vote.
Term Loans
So far we looked at the sources of finance which fall under the broad category of equity finance
(or shareholders funds). Now we turn our attention to long term debt. Firms obtain long term debt
mainly by raising term loans or issuing debentures. Historically, term loans given by financial institutions
and banks were the primary source of long – term debt for private firms and most public firms. Terms
loans, also referred to as term finance, represents a source of debt finance which is generally repayable
in less than 10 years. They are employed to finance acquisition of fixed assets and working capital
margin. Term loans differ from short – term bank loans which are employed to finance short term
working capital need and tend to be self – liquidating over a period of time, usually less than 1 year.
Debentures
For many firms, debentures are a viable alternative to term loans. Akin to promissory notes,
debentures are instruments for raising long term debt. Debenture holders are the creditors of company.
The obligation of a company toward its debenture holders is similar to that of a borrower who promises
to pay interest and principal at specified times. Debentures often provide more flexibility than term
loans as they offer greater variety of choices with respect to maturity, interest rate, security, repayment,
and special features.

Short term financing.
Identify the appropriate source of financing, given the cash conversion cycle: the inventory is
ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or
overdraft), or to "convert debtors to cash" through "factoring".
COST CONCEPTS
The amount of expenditure whether it is actual or notional incurred on or attributable to a
specified article, product or activity is known as cost. There are two methods of ascertaining costs, viz.
Post Costing and Continuous Costing. Post costing means, analysis of actual information as recorded in
financial books. It is accurate and is useful in the case of cost plus contract where price is to be
determined finally on the basis of actual costs. Continuous costing, aims at collecting information about
cost as and when the activity takes place so that as soon as a job is completed the cost of completion
would be known. This involves careful estimates being prepared of overheads. In order to be of any use,
costing must be a continuous process.
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Though the selling price of the product is influenced by market conditions, which are beyond the
control of any business, it is still possible to determine the selling price within the market constraints.
For this purpose, it is necessary to rely upon cost data supplied by Costing Department.
• Direct Costs:
Costs which are directly related to or attributable to a cost centre or cost unit
are Direct Costs. Such, as cost of basic raw material used in the finished product, wages
paid to operators working for actual production. It includes all direct material, direct
labour and other direct expenses.
• Indirect Costs:
Costs which are not directly identified with a cost centre or a cost unit are
Indirect Costs. Such costs are apportioned over different cost centres using appropriate
basis. Such as, Factory rent incurred over various departments; Salary of supervisor
engaged in overseeing production activity.
• Fixed Costs:
There are the costs which are incurred for a period, and which, within a certain
output and turnover limits, tend to be unaffected by fluctuations in the levels output or
turnover. They do not tend to increase or decrease with the changes in output. For
example, rent, insurance of factory building etc. remain the same for different levels of
production.
• Variable Costs:
These costs which tend to vary or change in relation to volume of production.
They increase in total as production increases and vice versa.
For example, cost of raw materials, direct wages etc. However, variable costs
per unit are generally constant for every unit of additional output.
• Semi-variable Costs:
These are the costs which are partly fixed and partly variable. These are fixed up
to a particular volume of production and become variable thereafter for the next level
of production. Hence, they are also called Step Costs. Some examples are repairs and
maintenance, electricity, telephone etc.
• Production Costs:
The cost of the set of operations commences with the supply of materials,
labour and services and ends with the primary packing of the product. Thus it is equal to
the total of direct materials, direct labour, direct expenses and production overheads.
• Administration Cost:
The cost of formulating the policy, directing the organization and controlling the
operations of the undertaking, which is not directly related to production, selling and
distribution, research or development activity or function. Some examples are office
rent, accounts department expenses, audit and legal expenses, direct remuneration.
• Selling Cost:
The cost of seeking to create and stimulate demand including securing orders is
selling cost. These are sometimes called marketing costs. Some examples are
advertisement, cost of demonstration, samples etc.
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• Distribution Costs:
The cost of the sequence of operations which begins with making the packed
product available for dispatch and ends with making the reconditioned returned empty
package, if any, available for re‐use.
• Research and Development Cost:
The cost of researching for new or improved products, new applications of
materials or improved methods is Research cost. The cost of the process which begins
with the implementation of the decision to produce a new or improved product, or to
employ a new or improved method and ends with commencement of formal production
of that product or by that method is Development cost.
CASH FLOW STATEMENT

Cash flow statement is a statement which indicates sources of cash inflows and transaction of cash
outflows of a firm during an accounting period. When cash flows are adjusted for present value using
present value factor which is derived from cost of capital it is known as discounted cash flows.
An analysis of cash flow is useful for short run planning. A firm needs sufficient cash to pay debts
maturing in the near future, to pay interest and other expenses and to pay dividends to shareholders.
The firm can make projection of cash inflows and outflows for the near future to determine the
availability of cash. This cash balance can be matched with the firm’s need for cash during the period,
and accordingly, arrangement can be made to meet the deficit or invest the surplus cash temporarily. It
summarises causes of changes in cash position between the dates of two balance sheets.
Cash flows arise from 3 activities:
1) Cash flows from operating activities‐ Operating activities are the principal revenue producing
activities of the enterprise like sale of goods and rendering services.
2) Cash flows from investing activities‐ Investment activities are the acquisition and disposal of long
term assets.
3) Cash flows from financing activities‐ Financing activities are the activities that result in changes in
the size and composition of owner’s capital and borrowing of the company.
The statement helps to analyse the company’s liquidity position, fixed asset acquired by the
firm, whether the firm use external resources of finance to meet its needs etc.
Cash outflows at operational level are in the form of cost. Costs are mainly classified into two
types the purpose of capital budgeting i.e. fixed cost and variable cost.
WORKING CAPITAL
Any industrial establishment requires broadly two kinds of funds. The first one is long‐term
funds which are required for the purchase of fixed assets such as land, building, machineries, electrical
installations, start up expenses, development expenses, purchase of goodwill, purchase of furniture,
purchase of vehicles and other items to bring the establishment into operation. The second kind is
short‐term funds. These are required to meet the needs of day‐to‐day expenses such as raw‐materials,
stores, power and fuel, salaries, wages, administrative expenses, interest, sales and distribution
expenses and other expenses to produce the saleable goods, up to the realization of the sale proceeds.
Till the sale proceeds are realized, the inventory is built up to facilitate smooth production and
outstanding bills i.e. debtors are also financed by the short‐term funds. In due course the establishment
also gets some credit from their supplier which is indirect financing of the short‐term funds.
Funds employed in current assets constitute working capital. It is in fact the life‐blood and
‘controlling‐nerve’ of the unit. The concept used for working capital may be gross working capital or net
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working capital. Gross working capital constitutes current assets, whereas net working capital means
current asset minus current liabilities. Working capital, also known as net working capital, is a financial
metric which represents operating liquidity available to a business. Along with fixed assets such as plant
and equipment, working capital is considered a part of operating capital. It is calculated as current assets
minus current liabilities. If current assets are less than current liabilities, an entity has a working capital
deficiency, also called a working capital deficit. A company can be endowed with assets and profitability
but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is
required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy
both maturing short‐term debt and upcoming operational expenses.
The management of working capital involves managing inventories, accounts receivable and
payable and cash. How much working capital will be required by a particular industrial undertaking will
depend upon the production cycle i.e. from the time raw material is purchased to the time goods are
sold and cash is realized (operating cycle). Therefore, the working capital for a unit would mean the total
current assets it has to hold.
Operating cycle depends upon the following actions:
• Seasonality
• Stock cut/safety
• Economy of purchases
• Bunched receipts
• Production process
• Disturbance in production process
• Disturbance in sales due to transport problems
• Disturbance in sales due to depression in market
• Terms of sale and
• Slow billing (slow collection etc.)
Many newly started units become sick or run into fatal problems due to defective financial plan. The
plan adopted may fail to provide adequate capital to meet the needs of both fixed and working capital,
particularly the later. There are instances where units have been able to obtain sufficient funds to buy a
plant but failed to equip the same and conduct production operations successfully because of faulty
assessment of working capital needs.
As far as the requirement of purchase of fixed assets is concerned, it is almost certain what items
are to be purchased and how much amount will be involved and usually the decision for this
expenditure is taken in the very beginning. If a borrower approaches for funds for this purpose, bankers
examine the technical feasibility, economic validity and managerial competency before deciding to
sanction the loan. There is not much problem to sanction it, provided the banker is satisfied about the
earning capacity and the repayment schedule. Both the bankers as well as borrower have to decide
about it only once.
On the other hand, amount of working capital required by the concerned unit may vary from time
to time, depending upon various factors such as cost of raw material, utilization capacity, marketing
arrangements etc. It is on account of this fact that entrepreneurs usually spend most of their time to
manage working capital requirements.
Prior to nationalization, banks largely financed medium and large‐scale industries and traders. There
was inequitable distribution of credit amongst different sector and geographical areas. The security
oriented‐approach of banks resulted in credit being available only to the well‐to‐do, thus leading to
concentration of economic power in their hands. Even upto 1973, industries did not have to plan their
credits since it was easily available against collaterals. Banks on their part did not think of credit planning
because banks were flush with funds.
Page 12 of 23

WORKING CAPITAL MANAGEMENT

Decisions relating to working capital and short term financing are referred to as working capital
management. These involve managing the relationship between a firm's short‐term assets and its short‐
term liabilities. The goal of working capital management is to ensure that the firm is able to continue its
operations and that it has sufficient cash flow to satisfy both maturing short‐term debt and upcoming
operational expenses. By definition, working capital management entails short term decisions ‐
generally, relating to the next one year periods, which are "reversible". These decisions are therefore
not taken on the same basis as Capital Investment Decisions rather they will be based on cash flows and
/ or profitability. One measure of cash flow is provided by the cash conversion cycle ‐ the net number of
days from the outlay of cash for raw material to receiving payment from the customer. As a
management tool, this metric makes explicit the inter‐relatedness of decisions relating to inventories,
accounts receivable and payable, and cash. Because this number effectively corresponds to the time
that the firm's cash is tied up in operations and unavailable for other activities, management generally
aims at a low net count.
Guided by the above criteria, management will use a combination of policies and techniques for the
management of working capital. These policies aim at managing the current assets (generally cash and
cash equivalents, inventories and debtors) and the short term financing, such that cash flows and
returns are acceptable.

• Cash management: Identify the cash balance which allows for the business to meet day to day
expenses, but reduces cash holding costs.
• Inventory management. Identify the level of inventory which allows for uninterrupted
production but reduces the investment in raw materials ‐ and minimizes reordering costs ‐ and
hence increases cash flow.
• Debtor’s management. Identify the appropriate credit policy, i.e. credit terms which will attract
customers, such that any impact on cash flows and the cash conversion cycle will be offset by
increased revenue and hence Return on Capital (or vice versa).

Page 13 of 23


FINDINGS AND RECOMMENDATION
FINANCIAL STATEMENTS
COST OF PROJECT
PARTICULAR AMOUNT
COST OF FINANCE
LAND AND SITE 145
BUILDING AND CIVIL WORK 7,295
PLANT AND MACHINERY 11,233
UTILITIES 860
KNOWHOW AND ENGINEERING FEES 550
MISC. FIXED ASSETS 2,050
PRELIMINARY & PREOPERATIVE EXPENCES 539
WORKING CAPITAL REQUIREMENT 21,300
TOTAL 43,778
MEANS OF FINANCE (0)

PROMOTERS' CAPITAL 9,000
SECURED TERM LOAN 19,800
WC FINANCE 14,978
TOTAL 43,778
DEBT‐EQUITY RATIO
Page 14 of 23

ASSUMPTION
SR. NO. PARTICULARS AMOUNT UNIT
1 ALL THE AMOUNT IS Rs. in Thousand
2 PROMOTER'S CAPITAL 9000 Rs.
3 TERM LOAN 19800 %
4 INTEREST RATE ON TERM LOAN 11.50% %
5 W.C LOAN INTERST RATE 12% KL PER YEAR
6 BIODIESEL 100% CAPACITY 3300 TONS PER YEAR
7 GLTCERINE PRODUCTION CAPACITY 363 PER UNIT
8 POWER RATE 7 PER LTR
9 FUEL OIL (LDO) RATE 33 PER CU.M
10 WATER RATE 12.5
11 PACKING TO BE DONE IN DRUMS OF 220 LTR.
12 COST OF THE DRUM 600 Rs.
13 TAX RATE 30%
14 TOTAL DAYS IN THE YEAR 330
Page 15 of 23

PROJECTED INCOME STATEMENT
PARTICULARS 1 2 3 4
PRODUCTION IN KL 2,310 2,640 2,970 3,300

SALES
BIO‐DIESEL 106,260 121,440 136,620 151,800
GLYCERIN 4,066 4,646 5,227 5,808
NET SALES 110,326 126,086 141,847 157,608
RAW MATERIAL COST 85,811 98,069 110,328 122,587
PACKING COST 6,930 7,920 8,910 9,900
UTILITIES COST 2,400 2,743 3,086 3,428
SALARIES & WAGES 1,033 1,033 1,033 1,033
REPAIRS & MAINTAINENCE 595 680 765 850
DEPRICIATION 2,788 2,788 2,788 2,788
TOTAL COST OF PRODUCTION 99,556 113,233 126,909 140,586
ADD: OPENING STOCK ‐ 15,657 17,894 20,130
LESS: CLOSING STOCK 15,657 17,894 20,130 22,367
COST OF SALES 1% OF SALES 1,103 1,261 1,418 1,576
GROSS PROFIT 25,323 13,829 15,756 17,683
INTEREST
1. ON TERM LOAN 2,277 2,174 1,760 1,346
2. ON W.C. LOAN 1,797 2,054 2,311 2,568
ADMINISTRATIVE OVERHEADS 2,450 2,800 3,150 3,500
SELLING OVERHEADS & EXPENSES 315 315 315 360
PRELIMINARY & PREOPERATIVE EXP. WRITE OFF 77 77 77 77
TOTAL OVERHEADS ( 14+15+16+17 ) 6,916 7,420 7,612 7,850
PROFIT BEFORE TAX ( 13‐ 18) 18,407 6,410 8,144 9,833
PROVISION FOR TAX 5,522 1,923 2,443 2,950
NET PROFIT AFTER TAX 12,885 4,487 5,701 6,883
RETAINED PROFITS 12,885 4,487 5,701 6,883
ADD: DEPRICIATION 2,788 2,788 2,788 2,788
ADD: PRELIMINARY & PREOPERATIVE EXP. WRITE OFF 77 77 77 77
NET CASH ACCRUALS 15,750 7,352 8,566 9,748
Page 16 of 23

PROJECTED INCOME STATEMENT
PARTICULARS 5 6 7
PRODUCTION IN KL 3,300 3,300 3,300

SALES
BIO‐DIESEL 151,800 151,800 151,800
GLYCERIN 5,808 5,808 5,808
NET SALES 157,608 157,608 157,608
RAW MATERIAL COST 122,587 122,587 122,587
PACKING COST 9,900 9,900 9,900
UTILITIES COST 3,428 3,428 3,428
SALARIES & WAGES 1,033 1,033 1,033
REPAIRS & MAINTAINENCE 850 850 850
DEPRICIATION 2,788 2,788 2,788
TOTAL COST OF PRODUCTION 140,586 140,586 140,586
ADD: OPENING STOCK 22,367 22,367 22,367
LESS: CLOSING STOCK 22,367 22,367 22,367
COST OF SALES 1% OF SALES 1,576 1,576 1,576
GROSS PROFIT 15,446 15,446 15,446
INTEREST
1. ON TERM LOAN 932 518 104
2. ON W.C. LOAN 2,568 2,568 2,568
ADMINISTRATIVE OVERHEADS 3,500 3,500 3,500
SELLING OVERHEADS & EXPENSES 360 360 360
PRELIMINARY & PREOPERATIVE EXP. WRITE OFF 77 77 77
TOTAL OVERHEADS ( 14+15+16+17 ) 7,436 7,022 6,608
PROFIT BEFORE TAX ( 13‐ 18) 8,010 8,424 8,838
PROVISION FOR TAX 2,403 2,527 2,651
NET PROFIT AFTER TAX 5,607 5,897 6,187
RETAINED PROFITS 5,607 5,897 6,187
ADD: DEPRICIATION 2,788 2,788 2,788
ADD: PRELIMINARY & PREOPERATIVE EXP. WRITE OFF 77 77 77
NET CASH ACCRUALS 8,472 8,762 9,052
Page 17 of 23

CASH FLOW STATEMENT

YEAR 1 2 3 4 5 6 7
PARTICULARS
SOURCES OF FUNDS
1 EQUITY SHARE CAPITAL 19,800 ‐ ‐ ‐ ‐ ‐ ‐
2 NET CASH ACCRUALS ‐ ‐ ‐ ‐ ‐ ‐ ‐
3 TERM LOAN 14,978 ‐ ‐ ‐ ‐ ‐ ‐
4 BANK BORROWING 43,778 ‐ ‐ ‐ ‐ ‐ ‐
TOTAL 78,556 ‐ ‐ ‐ ‐ ‐ ‐
APPLICATION OF FUNDS
1 CAPITAL EXPENDITURE 7,295 ‐ ‐ ‐ ‐ ‐ ‐
2 CURRENT ASSETS
(INCREASE/DECREEASE IN WC) ‐ ‐ ‐ ‐ ‐ ‐ ‐
3 PRELIMINARY EXP. 21,300 ‐ ‐ ‐ ‐ ‐ ‐
5 DECREASE IN TERM LOAN ‐ 3,600 3,600 3,600 3,600 3,600 ‐
6 TAX
TOTAL 28,595 3,600 3,600 3,600 3,600 3,600 ‐
NET CASH FLOW 49,960 (3,600) (3,600) (3,600) (3,600) (3,600) ‐

OPENING CASH ‐ 49,960 46,360 42,760 39,160 35,560 31,960
CLOSING CASH FLOW 49,960 46,360 42,760 39,160 35,560 31,960 31,960
Page 18 of 23

BALANCE SHEET
1 2 3 4 5 6 7
SOURCES OF FUND
EQUITY 9,000 9,000 9,000 9,000 9,000 9,000 9,000
RETAINED EARNING 12,885 17,371 23,072 29,955 35,562 41,459 47,645
TERM LOAN 19,800 16,200 12,600 9,000 5,400 1,800 ‐
W.C LOAN 14,978 17,118 19,257 21,397 21,397 21,397 21,397
TOTAL 56,662 59,689 63,929 69,352 71,359 73,655 78,042
APPLICATION OF FUNDS
FIXED ASSETS
LAND 145 145 145 145 145 145 145
BUILDING 7,295 7,295 7,295 7,295 7,295 7,295 7,295
PLANT & MACHINERY 11,783 11,783 11,783 11,783 11,783 11,783 11,783
MISC. FIXED ASSETS 2,050 2,050 2,050 2,050 2,050 2,050 2,050
UTILITIES 860 860 860 860 860 860 860
DEPRECIATION (2,788) (5,576) (8,364) (11,152) (13,940) (16,728) (19,516)
NET FIXED ASSET 19,345 16,557 13,769 10,981 8,193 5,405 2,617
CURRENT ASSETS
CASH 15,555 18,386 22,367 27,662 32,534 37,696 44,948
PRELIMINARY EXPENSES 462 385 308 231 154 77 ‐
NET WORKING CAPITAL 21,300 24,361 27,485 30,477 30,477 30,477 30,477
TOTAL 56,662 59,689 63,929 69,352 71,359 73,655 78,042
Page 19 of 23


WORKING CAPITAL REQUIREMENT
SR. PARTICULARS PERIODBASIS MARGIN YEAR 1 YEAR 2
NO. (DAYS) ( % ) Amount Margin Amount Margin
CURRENT ASSETS
1 RAW MATERIALS 45 RM COST 30 11,701
3,510 13,373 4,012
2 PACKING MATERIAL 15 MATERIAL COST 25 315 79 360 90
3 GOODS IN PROCESS 5 RM COST 50 1,300 650 1,486 743
4 FINISHED GOODS 7 SALES VALUE 30 2,340 702 2,675 802
5 DEBITORS 30 SALES VALUE 30 10,030 3,009
11,462 3,439
TOTAL 25,686
7,950
29,356 9,086
CURRENT LIABILITIES
1 CREDITORS 15 RM COST 30 3,900 1,170 4,458 1,337
2 SALARY & WAGES 30 EXPENSES 100 94 94 94 94
3 FUEL OIL 7 FUEL OIL COST 30 40 12 46 14
4 OTHER UTILITIES 30 MONTHLY EXP. 100 100 100 115 115
ADMINISTRATIVE
5 OVERHEADS 30 MONTHLY EXP. 100 223 223 255 255
6 SELLING OVERHEADS 30 MONTHLY EXP. 100 29 29 29 29
TOTAL 4,386 1,628 4,995 1,843
NET WORKING CAPITAL
21,300 6,322
24,361 7,243

Page 20 of 23

WORKING CAPITAL REQUIREMENT
SR. PARTICULARS YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7
NO. Amount Margin Amount Margin Amount Margin Amount Margin Amount Margin
CURRENT ASSETS
1 RAW MATERIALS 15,045 4,513 16,716 5,015 16,716 5,015 16,716 5,015 16,716 5,015
2 PACKING MATERIAL 405 101 450 113 450 113 450 113 450 113
3 GOODS IN PROCESS 1,672 836 1,857 929 1,857 929 1,857 929 1,857 929
4 FINISHED GOODS 3,009 903 3,343 1,003 3,343 1,003 3,343 1,003 3,343 1,003
5 DEBITORS 12,895 3,869 14,328 4,298 14,328 4,298 14,328 4,298 14,328 4,298
TOTAL 33,025 10,222 36,695 11,357 36,695 11,357 36,695 11,357 36,695
11,357
CURRENT LIABILITIES
1 CREDITORS 5,015 1,504 5,572 1,672 5,572 1,672 5,572 1,672 5,572 1,672
2 SALARY & WAGES 94 94 94 94 94 94 94 94 94 94
3 FUEL OIL 52 15 57 17 57 17 57 17 57 17
4 OTHER UTILITIES 129 129 143 143 143 143 143 143 143 143
ADMINISTRATIVE
5 OVERHEADS 223 223 318 318 318 318 318 318 318 318
6 SELLING OVERHEADS 29 29 33 33 33 33 33 33 33 33
TOTAL 5,541 1,994 6,218 2,277 6,218 2,277 6,218 2,277 6,218 2,277
NET WORKING CAPIT 27,485 8,227 30,477 9,080 30,477 9,080 30,477 9,080 30,477 9,080

FINANCING OF WORKING CAPITAL
SR. NOPARTICULARS 1 2 3 4 5 6 7
TOTAL WORKING CAPITAL
1 REQUIREMENT 21,300 24,361 27,485 30,477 30,477 30,477 30,477
2 PROMOTER'S MARGIN 6,322 7,243 8,227 9,080 9,080 9,080 9,080
3 PERMISSIBLE BANK LIMITS 14,978 17,118 19,257 21,397 21,397 21,397 21,397

Page 21 of 23

CONCLUSION

CONCLUSION SHEET
0 1 2 3 4 5 6 7
DISCOUNTING FACTOR 13.00%
CASH FLOWS 15,750 7,352 8,566 9,748 8,472 8,762 9,052
CUMULATIVE CASH INFLOW 15,750 23,101 31,667 41,415 49,887 58,648 67,700
CASH OUTFLOW (43,972)
DISCOUNTING FACTOR 13% 13% 13% 13% 13% 13% 13%
DCIF 13,938 5,758 5,936 5,978 4,598 4,208 3,848
DCF (43,972) 13,938 5,758 5,936 5,978 4,598 4,208 3,848
TOTAL DCIF 44,264
NPV 292
IRR 0.21%
PAY BACK PERIOD 4 YEARS
4 MONTHS
ROI 29.30% 10.20% 12.96% 15.65% 12.75% 13.41% 14.07%
DSCR 7.92 1.65 1.93 2.24 2.08 2.25 2.47
DEBT‐TO‐EQUITY RATIO 3.86 1.59 1.26 0.99 0.78 0.60 0.46 0.38

From the above table we can draw following conclusion:

• The NPV of the project considering only the revenue of first seven year and a
discounting factor of 13% is 292, which is positive. As in this case we have not consider
the terminal value for the project so the value of NPV which is positive is good for the
project and we should go for the project.

• The IRR for the project at 13% discounting factor is .21%.

• The payback period for the project is 4 years and 4 months

• ROI and DSCR are high for the first year as compared with the remaining; this is due the
reason that we are doing the repayment of the term loan form 2nd year onward.

• At the beginning of the project the debt‐to‐equity ratio is 3.86 which is reducing as the
retained earnings for the project is increasing as the plant start operating. We are not
doing any extra capital expenditure in the seven year that is the reasoning why the
retained earnings are increasing.

Page 22 of 23


BIBLIOGRAPHY

The study is based on secondary data collected from RBI website, various scholarly articles and
research papers. It also involves discussion with Dr. Sanjay Bhoyar, Bio‐diesel department PDKV, Akola
and Dr. Suhas Zambhere a consultant for Bio‐diesel plant, Mumbai.

ARTICLES & RESEARCH PAPER:
• http://www.iwmi.cgiar.org/EWMA/files/papers/rajagopal_biofuels_final_Mar02.pdf
This document briefs you about the production strategies and challenges involved in the
same in India.
• http://www.crowniron.com/userImages/Biodiesel.pdf
This document gives the information about the plant layout and engineering aspects of
the biodiesel plant.
• http://www.istc.illinois.edu/tech/small‐scale‐biodiesel.pdf
This report briefs about the biodiesel plant and material requirement for the same.
• http://www.unapcaem.org/Activities%20Files/A0801/0307.pdf
This document gives the information about esterification plant in India and also about
the production facilities in India.
• http://www.canolacouncil.org/uploads/convention_2008/Global%20Biodiesel%20Market%20Tr
ends%20‐%20Outlook%20and%20Opportunities%20‐%20THURMOND.pdf
This document gives the information about the global market survey, raw material
trends and market forecast of the biodiesel in the future.

BOOKS:
• Financial Management: Seventh Edition by Prasanna Chandra
• Principles of Corporate Finance: Eight Edition by Richard Brealey & Stewart Myers

Page 23 of 23

Final Project Sarwesh - Kasat Roll No - 18 2003

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Feasibility Study of Biodiesel Plant

Mr. Sarwesh O. Kasat

Under the guidance of

Mr. Suhas Gharat

PROJECT SUBMITTED IN FULL COMPLETION OF MMS TO

Chetana’s R. K. Institute of Management & Research

Bandra (East), Mumbai – 400051

Signature of the Guide Signature of Director

Mr. Suhas Gharat Dr. Firdos T. Shroff

I express my sincere gratitude towards Chetana’s Ramprasad Khandelwal Institute of

4. Findings and Recommendations 14

CAPITAL EXPENDITURE PLANNING PHASES

Long Term Finance

CASH FLOW STATEMENT

WORKING CAPITAL MANAGEMENT

MEANS OF FINANCE (0)

PRODUCTION IN KL 2,310 2,640 2,970 3,300

PRODUCTION IN KL 3,300 3,300 3,300

CASH FLOW STATEMENT

NET CASH FLOW 49,960 (3,600) (3,600) (3,600) (3,600) (3,600) ‐

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