Techno-Economic Feasibility Study
(TEFS), as the name suggests, mainly involves evaluation
of both technical feasibility as well as financial
viability of a project. In addition, it also deals
with the other two equally important 'pillars' of
a project, viz. management and market, and often covers
pre-design and basic design services. TEFS is thus
an entrepreneur-location-lending institution specific
exercise. It is one of the most important criteria
that influences investment decision. Needless to say,
it calls for highly competent consultants / consultancy
firms with proven track-record and an uncanny sense
of judgement, to conduct the TEFS.
Technically, burnt clay bricks fall
under the category of 'heavy-clay products' forming
a major part of the ceramic industry. Heavy-clay products
are those which are mainly made from a single clay
with very little additions of other raw materials.
They are principally used in structural work and hence
also called 'structural clay products' or 'building
ceramics'. Of late, cured bricks made from clay-like
materials (including industrial wastes), e.g. fly-ash
bricks, sand-lime bricks, stabilised soil blocks,
etc., have also come under the general 'building ceramics'
Most people often mistake the brick
industry for one which involves mere mechanical operations,
while in reality, it is a 'unique process industry'.
And hence, planning for a commercially successful
mechanised brick plant is at least as difficult as
any other process industry. Even the most competent
consultant will have to develop a thorough understanding
of the market, raw material(s) and fuel(s), plant
site, entrepreneur's technical, financial and managerial
strengths and lending norms of the financial institution(s),
before attempting to carry out TEFS and produce a
'bankable' and 'implementable' document. In fact,
scarcity of such professionals / professional firms
and absence of clear guidelines for conducting the
TEFS are some of the major causes for the long-persisting
'mechanisation phobia' in our country.
Therefore, an attempt has been made
here to highlight some of the key issues involved
in conducting a TEFS of mechanised brick plants. The
issues have been grouped under 4 categories, viz.
Management Strengths, Market Assessment, Technical
Feasibility and Financial Viability, and important
observations noted / suggestions given for each category.
2.0 MANAGEMENT STRENGTHS :
Management is undoubtedly the most
important 'pillar' of a project. The techno-commercial
'making' or 'breaking' of a project totally depends
upon the management. It is often said that, given
reasonable time, a 'good' management may succeed in
'turning-around' an unviable project, while a 'bad'
management requires no time in spoiling a healthy
project. Therefore, full understanding of entrepreneur's
true technical, financial and managerial strengths,
along with his ideas about / expectations from the
project, is a must during conduction of a TEFS.
a) The entrepreneur needs to be properly
educated on the risks involved in and the returns
expected from the project. This can be partly achieved
by arranging visits to / study of existing mechanised
brick plants and training of entrepreneur's key personnel.
b) The entrepreneur should prepare
himself to invest at least 40-50 % of the project
cost as his initial contribution to ensure early and
timely implementation. Part of this contribution may
later be reimbursed through Central / State incentives
or subsidies. The balance 50-60 % of the capital may
be funded through term loan from financial institutions
c) Mechanisation - mainly in the
shaping and firing / curing stages - should be taken
up in stages, preferably over a 2-3 year period. During
this period, only seasonal operation need be considered.
This will help the entrepreneur build his strengths
slowly before venturing into fully-mechanised all-the-year-round
d) Insight into the real motives
of the entrepreneur in taking up the project is crucial
to the success of the project.
3.0 MARKET ASSESSMENT :
Brick Industry is ancillary to the
Construction Industry. Therefore, the existence and
future of Brick Industry is intimately connected with
the growth of the Construction Industry. Market Assessment
should mainly focus on estimation of the marketing
radius, demand-supply-price position within the radius,
variation in prices in relation to brick quality and
time of sale, end-user preferences, etc.
Though one of the oldest industries
in the history of mankind, Brick Industry in India
still remains unorganised and no official / authentic
data is available regarding its status. The present
production of burnt clay bricks in India is estimated
at about 100 billion bricks per year coming from at
least 1,50,000 brickfields (of which about 35,000
units have 'annular' kilns while the balance use open-clamps
for burning bricks) scattered all over the country.
The production is consumed by the present Indian population
of about 100 million. Therefore, India's present Brick
Consumption Factor (BCF) works out to 100.
a) Demand for bricks within a given
marketing radius may be estimated by multiplying the
estimated population within the radius (obtained from
the 1991 Census figure updated by applying an annual
growth rate of 2.15 % per year) by the estimated BCF.
BCF for a given area is a function of its socio-economic
status and end-user preferences (which are mainly
governed by the tradition).
Alternatively, the consumption may
be indirectly calculated by compiling data on completed
built-up area from the Local Body (e.g. Corporation
/ Council / Grampanchayat / Cantonment Board, etc.)
having jurisdiction over the area of interest.
Application of above methods presupposes
that demand is at least equal to the consumption.
b) Supply can be found by carrying
out survey of brickfield clusters falling within the
marketing radius and totalling yearly/seasonal production
figures of individual units. Supply coming from brickfields
located outside the radius should also be taken into
c) Due to influence of traditional
thought, red bricks are preferred to the ones having
gray, etc. colours in our country. Therefore entrepreneurs
setting up calcium silicate brick plants may consider
addition of red oxide colour in their raw-mix.
d) In a tropical country like ours,
where extreme temperatures prevail, 'fired clay' has
proved to be a better thermal insulating material
than 'dense concrete' or 'calcium silicate'. At least
on this account, popularity of fired clay bricks stands
4.0 TECHNICAL FEASIBILITY :
'Selection of technology' and 'extent
of mechanisation' are the most important issues to
be tackled here. Many factors influence these decisions
such as nature of raw materials, desired product quality,
environmental regulations, cost -effectiveness, plant
capacity (which in turn, depends upon the technical,
financial and managerial strengths of the entrepreneur
and the market size), indigenous availability and
dependability of machinery suppliers and technology
providers, easy serviceability, labour and area intensity,
site topography, scope for diversification, etc.
Although, short-term decisions regarding
technology and mechanisation level are bound to be
influenced by their 'appropriateness' alone, sooner
or later, our brick industry will have to come to
terms with the universally accepted 'sustainability'
principles and catch-up with the global trends.
Important Observations / Suggestions
a) Extensive surveying and lab/pilot-scale
testing of raw materials is a must for gaining insight
into the process and the expected product quality.
Raw-mix and overall process design should then follow.
However, one should always bear in mind that this
exercise can only provide 'pointers' to the production
process and can never replace the actual trials during
As a thumb rule, 1 acre of silt deposit
(with 'in situ' bulk density of 1.5) excavated to
1 foot depth will yield material sufficient to mould
about 50,000 fired bricks of 10" x 5" x
3" size (each weighing about 3.75 kg in its dry
b) Installed capacity of the plant
may be taken at 80 % of the maximum shaping capacity
to account for the mechanical / human inefficiencies.
Provision of 5 % losses in 'making' and 5 % in 'firing
/ curing' is usual. These are only numerical losses
and the materials may be recycled in 'toto' (green
bricks without any processing, while finished bricks
Seasonal operation may be based
on 30-35 working weeks, while all-the-year round operation
may have 300-350 working days.
The commissioning of the plant must
coincide with the beginning of a new brick season.
c) Proper stage-wise material balance
(including utilities) should be carried out prior
to sizing/designing civil structures and machinery.
Production figures should be calculated for green
as well as finished bricks on yearly/seasonal, weekly
and daily basis. It is interesting to note here that
green bricks made in 6 days in a week get fired or
cured in 7 days time.
d) Since brickmaking involves reasonably
heavy material handling, purchase of a truck or tractor
along with process machinery is advised. It may be
included in the project as 'miscellaneous asset' or
e) Preparation of Block Plant Layout
should be based on factors such as optimum space utilisation/distance
moved, ease of material flow, security /safety to
plant, personnel and environment, economy, provision
for expansion/diversification, etc.
5.0 FINANCIAL VIABILITY :
Earning profit is the prime motive
of every entrepreneur entering business. Therefore,
the profitability calculations made during this stage
should necessarily reflect the 'reality' and not 'wishful
thinking'. Paper manipulation should also be avoided.
As far as possible, competent technocrats who perfectly
understand 'what makes a brick plant click' and who
have adequate finance background should provide the
basic inputs and work shoulder-to-shoulder with Chartered
Accountants in preparing the Financial Statements.
a) At the current level of profitability
in our country, financial viability norms dictate
an investment/turnover ratio of 1. Here, the turnover
is calculated at 100 % capacity utilisation and the
investment implies the total capital cost including
working capital margin. Once the plant capacity gets
finalised with entrepreneur 'affordability' and market
size considerations, it is multiplied by the average
estimated ex-works price to arrive at the turnover.
This fixes the upper limit of the project cost. The
choice of technology/plant site and extent of mechanisation
are then guided by this total investment limit.
b) Capacity utilisation in the I
year of operation should be above the break-even point
(including depreciation). Although financial institutions
/ banks normally recommend 60 % capacity utilisation
in the I year, 70-75 % is easily achievable in brickmaking.
c) The minimum and average Debt-Service
Coverage Ratio (DSCR) should be 1.3 and 1.6, respectively.
d) Sensitivity analysis should be
carried out to know the vulnerability of the project
to a variety of internal and external factors such
as variation in raw material/utility costs, selling
e) Banks are normally reluctant to
sanction working capital loan against clay stocks
as it is difficult for them to conceive clay or soil
as an 'industrial raw material'. This can put heavy
financial burden on entrepreneurs who purchase clay
from outside and maintain a full season's stock.
f) One should not expect machine-made
bricks to fetch more than 5-10 % price premium over
the hand-made bricks, in spite of their superior quality.
6.0 OTHER ISSUES :
Apart from proper assessment of management,
market, technology and finance, the TEFS should also
include SWOT ( Strengths, Weaknesses, Opportunities
& Threats) Analysis of the project and highlight
scope for expansion, diversification and backward
/ forward integration, to the extent possible.
The 'Project Profiles' given as 'Annexure'
to this paper briefly illustrate some of the principles
discussed above. They are extremely 'sketchy' in nature
and are only meant to indicate the format / methodology
of presentation / calculation.
7.0 SUMMING UP :
The present psyche of the Indian
Brick Fraternity can be best described by the term
'mechanisation phobia', as mentioned earlier. This
fear psychosis is due to the techno-commercial failures
of a large number of semi-mechanised / mechanised
brick plants set up so far. On one hand, the phobia
is making entrepreneurs extremely cautious towards
mechanisation, while on the other, MoEF's Brick Regulation
'96 is forcing them to adopt fuel-efficient and cleaner
continuous kilns and waste-based products from the
ensuing 1999-2000 season. Also, factors like fast
depleting deposits of good brickearth, ever increasing
labour management problems (especially that of the
'moulders'), decreasing profit margins, etc. are inducing
entrepreneurs to consider immediate adoption of affordable,
cost-effective, dependable and simple technologies
And therefore, if our Brick Industry
is to be put on the mechanisation fast-track without
any further delay, the importance of a well-orchestrated
TEFS cannot be over-emphasised.