PROJECT REPORT

Of

LEAD PENCIL

PURPOSE OF THE DOCUMENT

This particular pre-feasibility is regarding Lead Pencil making unit.

The objective of the pre-feasibility report is primarily to facilitate potential entrepreneurs in project
identification for investment and in order to serve his objective; the document covers various aspects
of the project concept development, start-up, marketing, finance and management.

[We can modify the project capacity and project cost as per your requirement. We can also prepare
project report on any subject as per your requirement.]

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Introduction
A pencil is a writing implement or art medium constructed of a narrow, solid pigment core inside a
protective casing which prevents the core from being broken and/or from leaving marks on the
user’s hand during use.

Pencils create marks by physical abrasion, leaving behind a trail of solid core material that adheres
to a sheet of paper or other surface. They are distinct from pens, which instead disperse a trail of
liquid or gel ink that stains the light colour of the paper by absorption.

Most pencil cores are made of graphite mixed with a clay binder which leaves grey or black marks
that can be easily erased. Graphite pencils are used for both writing and drawing and result in
durable markings: though writing is easily removable with an eraser, it is otherwise resistant to
moisture, most chemicals, ultraviolet radiation, and natural aging. Other types of pencil core are
less widely used, such as charcoal pencils, which are mainly used by artists for drawing
and sketching.

The most common type of pencil casing is of thin wood, usually hexagonal in section but
sometimes cylindrical, permanently bonded to the core. Similar permanent casings may be
constructed of other materials such as plastic or paper. To use the pencil, the casing must be carved
or peeled off to expose the working end of the core as a sharp point. Mechanical pencils have more
elaborate casings which are not permanently bonded to the core. Instead, the casing supports a
separate, mobile piece of pigment core that can be extended or retracted through the casing tip as
needed; these pencil casings can be re‐loaded with a new core (usually graphite) when necessary.
Market Potential
Wooden pencil or lead pencil is an essential item for students and artists. Generally, HB and 2B
pencils have popularity in the Indian market. Even in the recent era of computers, printers, tablets,
cell phones and a whole host of other writing and drawing instruments, pencil industry is growing.

There is a growing demand of wooden pencil in the market. The products find application in
schools, colleges, government offices, commercial establishments, NGOs and miscellaneous
activities.

According to the type of carbon used, pencils are classified as soft, medium and hard. There is no
doubt about the acceptability of the product and lead pencils still command a respectful demand.
The product has a good export potential also.

According to the different grades, there is a variety of HB, B, 2B, 3B, 4B, 5B, 6B, 7B, 8B, 9B, and 10B.
Writing, drawing, sketching, coloring and shading are the basic applications of the wooden pencil.

The ever increasing population of the country and requirement of quality products are the major
reason for the growth of this evergreen business. There is sufficient market for the pencil to justify
the establishment of a wooden pencil manufacturing plant in India.
Economics Of Pencil Making

Just as with any other manufactured products, the economics of pencil manufacturing are driven by
a number of factors.

These cost drivers include:

 cost of raw materials (wood, graphite, clay, brass or aluminum for ferrules, lacquer
components, etc.)
 cost of parts or other finished components used to assemble the pencil
 cost of transportation and handling of various materials used and of the finished product to
the factory
 cost of labor and benefits for the factory workers employees
 cost of energy
 cost of supplies used to maintain equipment
 cost of government regulations (taxes, duties, compliance to safety, labor or environmental
rules)
 cost of capital (money used to buy equipment, to purchase and maintain inventories of raw
materials, parts, supplies and finished product)
 cost of management

Pencil companies make a number of important decisions regarding these costs as part of
their business. Some of the most important decisions include:

 the quality of product they wish to produce will impact which raw materials and component
parts they will purchase
 alternative suppliers for raw materials
 whether to make internally or buy externally different component parts like slats, leads,
ferrules and erasers or even semi‐finished pencils from other pencil manufacturers where to
locate their pencil factories which is driven by relative difference in costs between cities, states
or countries for labor and materials, transportation costs for incoming materials as well as to
the customer, regulatory and energy cost as well as duties and taxes
 the quantity of product to produce drives the level of investment required in the factory and
inventories as well as can effect the cost per unit produced due to economies of scale.
The pencil manufacturer strives to minimize the cost of producing the pencils at the desired quality
level and quantity of production and to sell all these pencils for more than the cost in order to
achieve a profit.

All of these decisions are made within the framework of the marketplace and the competition the
pencil maker faces for business from the other producers. The level of competition can have a big
impact on the profit in an industry or segment of the pencil market. Each company tries to focus on
what competitive advantage it has versus other pencil makers and what it can do better than
others. This is why different companies specialize only in certain markets or product ranges to try
to set them apart.

These days, typical yellow writing pencils and children’s coloring pencils are generally considered
to be a commodity. That is, one product from one producer is more or less considered by the
customer to be as good as another, just like corn from one farm is more or less the same as corn
from another farm. When this occurs the price often becomes the key purchase factor for the
pencils. Then it is more difficult to make a profit without a strong brand name or other point of
difference in terms of product feature or performance.

A key factor that effects the competition is the increasing level of international trade. As more
markets have opened up to more producers from more countries around the world the pencil
industry like many others has globalized. Many poorer countries such as China, Indonesia and India
have dramatically increased pencils production and export because of a general cost advantage in
materials, labor and reduced regulatory environments.
TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description

The pencil making plant consists of the following processes: making uncoated pencils,
lacquering, stamping, attaching of eraser, final treatment, and packing.

a) Wood working process

The pencil slat is shaved in to fixed size, and a semicircular groove is made on the surface with
the grooving machine.

The grooved slat, which is half a pencil, is coated with glue and the leads are placed in the
groove and then covered with the second slat. The resulting block is tightened with iron frames
and dried in a drying chamber. The dried block is passed through a shaping machine that shapes
the raw pencil.

b) Lacquering Process

The raw pencils are then lacquered in a painting machine, which is made to apply three to ten
times of lacquer coating depending on the quality of finish required.

c) Final Treatment:

After the final coat of lacquer, the pencils are placed in heading and sizing machine which sands
off excess wood and paint from the ends of the pencils and trims the pencils to their exact
finished length.

The tipping process for making eraser tipped pencil consists of several steps. First, the pencils
are sent to rounding‐off and sharpening machine .The ferrule and the eraser are fitted to the
pencil and, with the aid of punching device, steel needles are plunged through the ferrule to
pierce the ferrule to both pencil and eraser.

The manufacturer's brand name, the hardiness number of lead, and any other required
information is imprinted on the pencil by means a stamping machine.
 The finished pencil are then inspected and graded, and then packed for dispatch.

B. ENGINEERING

1. Machinery and Equipment

Table shows the list of machinery and equipment required for a.

MACHINERY AND EQUIPMENT REQUIREMENT

Sr. No Description
I. Wood working Line
2 Automatic gluing machine and connector
3 Oleo‐hydraulic press
4 Clamping frame and plate
5 Automatic slut‐end rough cutting machine and connector
6 Cutter grinder
7 Glue stirrer
8 Exhaust fan
II. Painting Process
10 Lacquer stirrer
11 III. Final Treatment
12 Automatic triple hot foil stamping machine and connector
13 Automatic triple hot foil stamping machine and connector
14 Automatic eraser tipping machine
15 Exhaust fan
16 Foil cutter
 RAW MATERIALS

The major raw materials required are wood, lead, glue, lacquer, ferrule, eraser tip and packing
materials. The raw material requirement is calculated on the bases of the final output.

Wooden Pencil Manufacturing – Legalities

To start a small scale wooden pencil manufacturing business, you will need to apply for different
registrations and licenses. It is advisable to check the specific rule of your state.

 Register your firm with ROC

 Apply for Trade License from Municipal Authority
 Additionally, apply for MSME Udyog Aadhaar Registration
 Apply for GST
 Obtain NOC from Pollution Control Board
 Project Financials

Basis and Presumptions:

1 The basis for calculation of production capacity has been taken of single shift basis, working of
25 days per month on 75% efficiency.

2 The maximum capacity utilization on single shift basis for 300 days a year.

3 Interest rate for Fixed and Working capital of the project has been taken at an average rate of 13
% .

4 Land and Building is owned and Cost of Plant and Machinery has been taken as per prices
prevailing in the market.

5 The wages for skilled workers are taken as per prevailing rates in this type of industry.

6 The essential production machinery and test equipment required for the project have been
indicated.

7 Financial Assistance required from Bank/ Financial Institutions:

Term Loan : 1,290,000.00

Working Capital: 1,199,000.00

Cost Of Project

S.NO. PARTICULARS AMOUNT(Rs)

1 Land & Building Rented

2 Plant and Machinery 1255500.00
3 Furniture & Fixture 125000.00
4 Computer 80000.00
5 Pre‐Operative Expenses 125000.00
5 Margin for Working Capital 399700.00

Total 1985200.00
Means of Finance.

S.NO. PARTICULARS AMOUNT

1 Own Contribution 695200.00

2 Term Loan 1290000.00
Total 1985200.00

Fixed Capital

(i) Land and building Amount(In Lakhs)

i) Land & Building( On Rent) 150 Rs 10000/‐ Per
Sq.mtr Month

(ii) Machinery and Equipment

S.no Description Qty. nos. Price/unit Amount (In Rs.)
.
1 Ball mill ‐ 200 kg cap 120,000.00
2 Filter press ‐18 plates & frames 60,000.00
3 Diaphragm pump 30,000.00
4 Kneading m/c 35,000.00
5 Press for billet making with motor 90,000.00
6 Electric baking oven ‐ range upto 250 C 35,000.00

7 Extruding m/c ‐ hand operated 200,000.00

8 Furnace, coal fired, self draught with 210,000.00
chimney
9 Automatic shaping and grooving m/c 114,000.00
10 Gluing m/c for slats 158,000.00
11 End cutting m/c 38,500.00
12 Painting m/c 50,000.00
13 Embossing m/c 65,000.00
14 Dies, tools, cutters & other misc. 50,000.00
equipments
Sub Total 1,255,500.00

Furniture and Fixture/ Office Equipment 125000.00

Computers 80000.00
Total Fixed Capital 1460500.00
Total Capital Investment

Rs

1 Total Fixed Capital 1460500.00

2 Working Capital for 3 Months 1598700.00

Total 3059200.00

Total Working Capital.

1 Salary and Wages (i) 148,500.00

2 Raw Material (ii) 330,400.00

3 Utilities (iii) 17,000.00

4 Other Contingent Expenses (iv) 37,000.00

Total 532,900.00

Working Capital for 3 months 1,598,700.00

Staff and Labour

S.No. Designation No. Salary(Rs.) Total (In. Rs.)

1 Manager cum Engineer 1 20,000.00 20,000.00

2 Supervisor 1 15,000.00 15,000.00
3 Accountant 1 10,000.00 10,000.00
4 Sales Man 1 9,500.00 9,500.00
5 Skilled Worker 4 9,000.00 36,000.00
6 Unskilled Worker 5 8,500.00 42,500.00
7 Helpers 1 8,000.00 8,000.00
8 Watchman 1 7,500.00 7,500.00
Total 15 148,500.00
Raw Material

S.No. Particulars Rate(Rs)/unit Quantity Total(In. Rs.)

1 Wooden slates (6 ply) ‐ Gross Nos. Rs 3 per unit 40800 122400

2 Graphite Rs45 Per Kg 24 MT 108,000.00

3 Ball Clay Glue, paint, varnishes, driers, LS 100,000.00

lacquers, binders, pigments, sand
papers, stamping papers, cotton
boxes, etc as required
Total 330,400.00

Utilities.

S No CALCULATION OF POWER EXPENSE Amount

1 Power 15,000.00

2 Water 2,000.00

Total 17,000.00

Other Contingent Expenses.

S.No. Particulars Amount(In.Rs)

1 Rent 9000.00
2 Repair and Maintenance 10000.00
3 Postage and Stationery 3000.00
4 Telephone Charges 2500.00
5 Transportation and Freight 8000.00
6 Insurance 5000.00
7 Sales Expenses 6000.00
8 Consumables 2500.00

Total 37000.00
Financial Analysis.

Cost of Production.

S.No. Particulars In. Rs.

1 Total Recurring Expenditure 6394800.00

2 Depreciation on Plant and Machinery @ 15% 1255500.00

3 Depreciation of Furniture/Fixture & Office Equipment @ 10 % 12500.00

5 Depreciation of Computers @ 60 % 48000.00

6 Finance Cost 298680.00

TOTAL COST OF PRODUCTION 8009480.00

Turnover

S.No. Particulars Qty(nos.) Rate (in Rs) In. Rs.

1 Card Boxes 37500 Gross Per 230.00 8,625,000.00

Annum

The finished products are packed in

card board boxes with 12 dozens of
pencils each.

TOTAL TURNOVER 8625000.00

Profit Rs615520/=

Percentage Profit on Sales 7.14%

 Ratio Analysis

i) Rate of Return on Total Capital Investment

=Net Operating Profit/ Invested Capital

=20%

ii) Return on Assets

=Sales/Average total Assets

=0.42

iii) Return on Equity

=Sales/ Stockholder's Equity

=0.89

iv) Debt to Equity Ratio

=Total Term Liabilities/Total Shareholder's Equity

=1.9

v) Interest Coverage Ratio

=Earning before Interest & Tax/ Interest Expense

=3.06
 DISCLAIMER

The views expressed in this Project Report are advisory in nature. SAMADHAN assume no
financial liability to anyone using the content for any purpose. All the materials and content
contained in Project report is for educational purpose and reflect the views of the industry
which are drawn from various research material sources from internet, experts, suppliers and
various other sources. The actual cost of the project or industry will have to be taken on case
to case basis considering specific requirement of the project, capacity and type of plant and
other specific factors/cost directly related to the implementation of project. It is intended for
general guidance only and must not be considered a substitute for a competent legal advice
provided by a licensed industry professional. SAMADHAN hereby disclaims any and all
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