A Business Plan for Expanding a Palm Oil Refinery

Executive Summary

Lam Soon Group is in palm oil business. They have a plan to expand their production capacity (a refinery) from 700 tons of crude palm oil/day to 1,000 tons/day because there has been increased demand both in the domestic and in the world market. In this report, the feasibility of this project will be analyzed and a supporting plan for the product will be proposed.

To invest in expansion of a refinery, project life is assumed to be 20 years and the company borrows 50% of total capital expenditure to invest with 7.5% interest rate. From the analysis of net present value by using 15% discounted rate, net present value (NPV) of this project is 4,515,967,332 baht and benefit and cost ratio (BC Ratio) is 1.09. As NPV is positive and BC ratio is more than 1, this project is accepted. It is feasible and might be profitable. The company will make profit from investing in expansion of a palm oil refinery.

However, it might be risky to invest in this project, especially the risk of the increasing price of raw material (crude palm oil - CPO) which can cause revenue of the company to highly decrease. Therefore, the company should prevent this kind of risk by seeking CPO emergency reserves or buying future contract so that the company can better control production and cost in time of fluctuation.

There are some suggestions from the analysis of SWOT and the survey for marketing plans to support this expansion. In the short run, the company can design a new bottle to differentiate their product, support the product by scientific researches in order to create credibility, collaborate with cooking school, hotel, hospital's cuisine and other public organizations to promote palm olein oil, organize more events and support food fair or related festival, provide healthcare service, measurement of cholesterol and fat in the blood vessel - Free for qualified customers and delivery a monthly recipe guide freely to their customers.

For the long run, the company should increase CSR activities for society and provide CSR report, expand to international markets and increase their distribution channel by setting up vegetable oil station (like a petrol station).