Project Proposal For

Setting up An

Instant Tea Manufacturing Plant In

Sri Lanka

Prepared & Presented by

COMMONFUND CAPITAL PARTNERS, SRI LANKA.

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JUNE, 2009Executive Summary

This is a project proposal for commencement of an Instant Tea Factory in Sri Lanka.

1) Rationale for this Project

a) Increasing global demand for instant tea

In a world where people are demanding many of their requisites almost instantly, tea also is becoming an instant consumable. Being in line with the ultra fast lifestyles, the trends in the world market also advocates that there is a growing demand for instant tea supplies over black tea and tea in bags.

There are four types of instant tea powder types currently in the market.

1. Natural instant tea cold water soluble powder2. Natural instant tea hot water soluble powder

3. Natural green instant tea cold water soluble powder. 4. Chemically treated cold water soluble powder

The current annul demand for the respective powders are as follows.

TYPE OF INSTANT TEA DEMAND IN MTCold Water Soluble Powder 15,000Hot Water Soluble Powder 3,000Green Tea Powder 5,000Chemically Treated Powder 10,000TOTAL DEMAND 33,000

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Currently, there are no sufficient arrangements to meet the global demand for Instant Tea from Sri Lanka. The only factory in Sri Lanka contributes with only 1,500 tons of instant tea which is only 4.5% of the total global demand.

b). Availability of raw material

The raw material used for instant tea manufacturing is called BMF (Broken Mixed Fanning's), which is obtained from black tea processing. The total tea production for year 2006 was 300,000 Metric tons. The BMF made out of this is approx. 30,000 tons.

The factory currently operating in Sri Lanka uses only 9,000 tons. There is a balance of 21,000 tons available for use by the proposed factory. Therefore raw material is totally available for the new factory.

c). Encouragement from govt. authorities

The highest governing authority of tea industry in Sri Lanka has already indicated their consent to this project as this project will generate more value addition to the industry and brings in additional revenue to the country. If the available facilities and products are completely used for instant tea manufacturing, this will generate more value addition to the industry. All the initial discussions are already completed and formal approvals from all the relevant authorities can be obtained within a short period.

d). Availability of technical know how

Currently there is a monopoly in instant tea manufacturing in Sri Lanka due to unavailability of technical know how. This has acted as an entry barrier for many investors who were interested in this field. However, we have already secured the complete process know how which will be a key success factor for this project.

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Global Instant tea demand in 2009

15,000 , 46%

3,000 , 9% 5,000 , 15%

10,000 , 30%Cold Water SolublePowderHot water SolublePowderGreen tea powder

Chemically treatedPowder

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2) Market Analysis

Current Suppliers

There are only few major suppliers of instant tea for the world market. They are;

Unilever Finlays Nestle Deminfoods

Out of the total global demand, Sri Lanka provides only 4.5 %. Even though there is a local market for Sri Lankan products, the total quantity manufactured in this plant is exported.

Current Buyers

Following are the direct buyers for instant tea;

Unilever NestleHalassen & LyonMitsui

Average price of instant tea in the world market is around USD 8 per Kg. and the main distribution is undertaken in the Europe.

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COMPUTATION OF CAPITAL COSTS

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From the above table it can be seen that the full investment [including working capital] can be recovered just within first two and half years of operation.

Project ScheduleThe implementation period for the factory will be approximately one year period. A detailed project schedule will be provided later.

Conclusion:Considering all above factors, this project will be attractive for a potential investor due to the higher return with a very low risks involvement.

RecommendationThis is a project with high returns and very short period of total re-coupe of full investment. As such, the proposal is recommended to any prospective investor.

Mode of InvestmentThe investment can be made as a term loan or equity investment. The details could be discussed later.

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