Investment Feasibility Analysis of Product Diversification Programme Case Study in Sei Aek Pancur Biofertilizer Factory

Abstract

The substantial decline in sales of Bioneensis biofertilizer which is reaching only 37% of the previous year's performance, significantly disrupted the operational continuity of the Sei Aek Pancur factory in North Sumatera. In response, PT Nusantara Estate Crops Research Institute (PT RPN) implemented a product diversification strategy by introducing two additional bioproduct, namely Greemi-G biofungiside and Metaribb bioinsecticide. This study aims to evaluate the impact of policies and business feasibility based on a forward integration strategy approach, where the production location was directed to be closer from consumers. The analysis was conducted using secondary data comprising production volumes, sales figures, distribution patterns, operational costs, and factory capacity. Methodologies employed included a comprehensive pros-and-cons assessment, market potential analysis, financial feasibility evaluation, and business sensitivity analysis. The findings indicate although the diversification strategy incurs depreciation costs for equipment and labor amounting to IDR 4.79 billion, it remains financially and operationally viable. Market projections suggest a potential annual demand of 1,695 tons for Greemi-G dan 300 tons for Metaribb. Financial analysis demonstrates favorable outcomes, with a Net Present Value (NPV) of IDR 4.86 billion, a Benefit-Cost (B/C) ratio of 1.22, an Internal Rate of Return (IRR) of 17.4%, a Profitability Index (PI) of 3.99, and a payback period of seven months. The diversification initiative is considered both technically and financially sustainable with supported by adequate technological infrastructure and qualified human resources.