Degree
Master of Business Administration
Faculty / School
Faculty of Business Administration (FBA)
Advisor
Dr. Sana Tauseef, Associate Professor, Department of Finance
Committee Member 1
Dr. Sana Tauseef, Assistant Professor, Department of Finance, Institute of Business Administration (IBA), Karachi
Project Type
MBA Research Project
Keywords
https://ir.iba.edu.pk/do/search/?q=Seamless%20pipe&start=0&context=8598587&facet=">Seamless pipe, Sensitivity analysis, Peoples Steel Mills, Commercial feasibility
Abstract / Summary
The report presents financial feasibility of a seamless pipe manufacturing facility in Pakistan with an operating capacity of up to 50,000 tons. For the aforementioned purpose, comprehensive research has been conducted, financial model has been developed and sensitivity analysis has been undertaken to assess the financial and commercial feasibility.
A detailed secondary and primary research has been conducted to estimate key input variables which form the basis of the financial model. For primary research, two separate questionnaires were developed and interviews were conducted against them. The first questionnaire was for a detailed overview of the industry with an industry expert and the other questionnaire was filled by few end users for the said product which formed the basis of these key input variables.
As per the financial evaluation of the project, the project is expected to yield an equity IRR of 26.4% which is higher than our cost of equity. However, in order to achieve this IRR, it is being assumed that the project would be operating at a utilization factor of 40% throughout the evaluation period i.e. 10 years. Moreover, the portfolio mix of the end product of plant would be 56% process pipes, 20% line pipes, 13.9% boiler and heat exchanger tubes, 10% mechanical tubes and 0.1% high alloy/ stainless steel pipes. The portfolio mix is also expected to remain constant throughout the evaluation period.
The utilization factor assumed for financial evaluation is conservative and portfolio mix assumed is based on plant’s output parameters and is not expected to deviate.
The products offered by the project are currently being imported from China and other neighboring countries. Due to recent devaluation and duties imposed by the Government of Pakistan, the price of these products is comparatively higher for end customers. Peoples Steel Mills (PSM) is looking forward to fulfill demand of these products locally. Since PSM has an edge on product’s pricing and cheap financing, we expect that this project would be able to achieve these conservative assumptions.
Based upon sensitivity analysis undertaken, it has been observed that PSM is effectively covered from product’s price de-escalation risk. As for the variable cost, due consideration is needed to be taken by PSM during the period of operation. There is a local market appetite for the products of this project. Therefore, we drive the conclusion that PSM will successfully achieve the calculated financial ratios. Hence, the project should be undertaken.
Recommended Citation
Khan, A., Shuaib, H., Farooqui, M. U., Ahmad, N., & Momin, S. D. (2020). Project Seamless (Unpublished graduate research project). Institute of Business Administration, Pakistan. Retrieved from https://ir.iba.edu.pk/research-projects-mba/11
