1.0 INTRODUCTION :

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' umbrella.

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.

Important Observations/Suggestions :

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 or banks.

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 operation.

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.

Important Observations/Suggestions:

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 account.

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 justified.

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 plant start-up.

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 green stage).

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 after grinding).

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 considered separately.

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.

Important Observations/Suggestions :

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 prices, etc.

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 machinery.

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.