COST COMPARISON: EXTERNAL SUPPLY OF RMC to CONCRETE BATCHING PLANT ON SITE
EXTERNAL SUPPLY OF RMC
Supply of RMC (Ready Mix Concrete) from external Suppliers.
CONCRETE BATCHING PLANT ON SITE (plant of 15m3/hr)
Production of RMC (Ready Mix Concrete) by site installed plants.
ADVANTAGES OF ON SITE CONCRETE BATCHING PLANT w.r.t. EXTERNAL SUPPLY
Better Quality Control - Site batched concrete can be closely monitored for 100% quality and cost efficiency as it is governed by site staff. Cost Efficiency - Site batched concrete would be more cost efficient (Discussed further). Readily available No waiting time or lead period. Batching can be carried out to quantity as required on site.
DISADVANTAGES OF ON SITE CONCRETE BATCHING PLANT w.r.t. EXTERNAL SUPPLY
Expensive in case of Low Volume Ends being uneconomical incase of volume of concrete is insufficient to cover investment cost of Batching Plant. Investment cost required Upfront payment for installation of the Batching Plant is required at the start of the project.
WORKING OF COST EFFICIENCY
Net Cost of Batching Plant (15m3/hr)>>>24 Lacs 50% of Loader Cost (JCB) >>>12 Lacs
Duration of Project/Building Rate of Return on Investment Total Cost to be recovered >>> >>> >>> >>> 24 months 18% p.a. 48.96 Lacs 49.00 Lacs
WORKING OF COST EFFICIENCY
Cost of Concrete per Cum >>> 4200.00 / Cum
Cost saved due to self production on site Excise Duty (1.03%) >>>> 43.26 / Cum MVAT (12.5%) (payable on cost of concrete+excise) >>>> 530.41 / Cum Transportation (L.S.) >>>> 400.00 / Cum >>> 973.67 / Cum >>> 970.00 / Cum
WORKING OF COST EFFICIENCY
Therefore for cost recovery of the Investment the minimum volume of concrete (Cum) should be :
Total Cost to be recovered >>> Rs. 49.00 Lacs ___________________________________________ Cost saved due to self production on site >>> Rs. 970.00 / Cum
i.e. For a Volume of 5051 Cum or above the batching installed on site will be economical.
WORKING OF PROJECTS FEASIBILITY
For a Volume of 5051 Cum or above the batching installed on site will be economical. 5051 Cum x 35.28 Cubicft = 1,78,199 Cubicft of Concrete By considering a norm of 0.45 Cft/Sft of Built up area. We get, 1,78,199 Cft / 0.45 Cft/sft = 3,95,998.40 Sft = 4,00,000.00 Sft Built up Area
Any project with a Built up Area of 4,00,000 Sft or plot area 2,00,000 Sft (Considering 2 FSI) will be viable.
OTHER FEASIBILITY CALCULATION
NET PRESENT VALUE (NPV) The net present value of project is equal to the sum of the present value of all cash flow associated with the project. Here Developer is investing Rs. 36 Lacs for project spanning 2years. NPV = (Cfn/(1+k)^n) Amt Invested. Here Cf. = cash flow at end of year. (70 Lacs) I = Initial Investment n= life of project k = Cost of capital Cost of capital for developer is 18%. Therefore, NPV = (70 X 1/1.18)^2.0) 36 NPV = 50.27 36 NPV = 14.27 Lacs. Since the value of NPV is positive the investment is viable.
1.8.2 INTERNAL RATE OF RETURN This method is that method which equates present value of all the future flows with initial investment. Here, I = ((Cf1 x 1/(1+k) )^n) Where, I Initial Investment CF Cash flow at end of the year. K Cost of capital n no of years 36= (70 X 1/(1+k))^2.0) Assuming value of k = 40% RHS = (70 X 1/(1+k))^2.0) = (70 X (1/(1+0.4))^2.0) = (70 X (1/(1.40))^2.0) = (70 X (0.510) = 35.71 Lacs Assuming value of k = 39% RHS = (70 X 1/(1+k))^2.0) = (70 X (1/(1+0.39))^2.0) = (70 X (1/(1.39))^2.0) = (70 X (0.518) = 36.26 Lacs By using interpolation, K = 39.53% Since the value of Kis much greater (i.e. 39.53%) than the expected 18% returns, the investment is viable.
1.8.3 PAYBACK PERIOD The Payback period is that period in which the entire investment is recovered. Considering an interest rate of return to be 18%, per quarter we get a rate of interest of 4.5% which is further calculated below: PV of 1st quarters cash flow = 8.75 X1/1.045 = 8.37Lacs Cum value = 8.37Lacs PV of 2nd quarters cash flow = 8.75X1/1.045 = 8.37Lacs Cum value = 16.74Lacs PV of 3rd quarters cash flow = 8.75X1/1.045 = 8.37Lacs Cum value = 25.11Lacs th quarters cash flow = 8.75X1/1.045 = 8.37Lacs PV of 4 Cum value = 33.48Lacs th quarters cash flow = 8.75 X1/1.045 = 8.37Lacs PV of 5 Cum value = 41.85Lacs th quarters cash flow = 8.75 X1/1.045 = 8.37Lacs PV of 6 Cum value = 50.22Lacs PV of 7th quarters cash flow = 8.75 X1/1.045 = 8.37Lacs Cum value = 58.59Lacs PV of 8th quarters cash flow = 8.75 X1/1.045 = 8.37Lacs Cum value = 66.96Lacs Therefore it is observed that the payback period is between 4th and 5th Quarter. Therefore Payback Period = 4 Quarter + 0.30 Quarter (By interpolation) = 4.3 Quarters = 13 Months The total cost of project is achieved in 13 months period.
1.9 CONCLUSION NPV = 14.27 Lacs. Since the value of NPV is positive (i.e. 14.27 Lacs) the investment is viable. K = 39.53% Since the value of Kis much greater (i.e. 39.53%) than the expected 18% returns, the investment is viable. The total cost of project is achieved in 13 months period. From the above calculations, cash flow & requirement study. The said project is financially viable & the developer will earn minimum 39.53% of profits from it which is much more than the minimum expected of 18%.
RECOMMENDATIONS:
Considering the variable advantages we have over and above Out sourced concrete it is hence recommended to Install a Concrete MiniBatching plant of 15m3/hr on site for any project having a volume more than 2,00,000 Sft or 4.6 Acres.
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