break-even utilisation (break-even capacity utilisation)

Break-even utilisation is derived from the relationship between fixed costs (which do not vary with production volume — depreciation, loan interest, minimum staff salaries, rent, insurance) and variable costs (which scale with production — raw material, power, consumables, variable labour). At zero production, the plant still incurs all fixed costs. As production increases, revenue rises linearly and variable costs rise proportionally, while fixed costs stay constant — the point where total revenue = total fixed cost + total variable cost is the break-even. Expressed as a percentage of installed capacity, this becomes the break-even capacity utilisation.

Calculation example for a typical 1,000 TPM (tonnes per month) plastic recycling plant: Monthly fixed costs: depreciation Rs 5 lakh, interest Rs 3 lakh, staff Rs 8 lakh, rent Rs 1.5 lakh, insurance Rs 0.5 lakh = Rs 18 lakh/month. Variable cost per tonne output: raw material Rs 2,500, power Rs 400, consumables Rs 200, variable labour Rs 150 = Rs 3,250/tonne. Selling price per tonne: Rs 65,000 (Rs 65/kg rPET pellets). Revenue per tonne = Rs 65,000. Contribution per tonne = Rs 65,000 − Rs 3,250 = Rs 61,750. Break-even volume = Fixed Costs ÷ Contribution per tonne = Rs 18,00,000 ÷ Rs 61,750 = 29.1 tonnes/month. Break-even utilisation = 29.1 ÷ 1,000 = 2.9%. This example shows why capital-light, high-margin businesses have very low break-even utilisation — but a more realistic scenario with Rs 2,000/kg raw material (not Rs 3.25/kg as above) shows the sensitivity.

A more realistic example for a 1,000 TPM PET recycler buying baled PET at Rs 25/kg: Raw material cost Rs 25,000/tonne input; at 85% yield = Rs 29,412/tonne output. Add power Rs 1,200, consumables Rs 300, caustic + chemicals Rs 600, variable labour Rs 500 = Rs 32,012/tonne variable cost. Selling price Rs 65,000/tonne. Contribution = Rs 32,988/tonne. Break-even = Rs 18,00,000 ÷ Rs 32,988 = 54.6 tonnes/month = 5.5% of capacity. Still low — but this changes dramatically if the business has high debt: a Rs 4 crore term loan at 12% interest adds Rs 4 lakh/month in interest cost, pushing break-even to 66 tonnes/month (6.6%). And if the plant is only running at 300 tonnes/month (30% capacity) due to feedstock shortage, break-even is well below operating level but profitability at 30% capacity is far below potential.

Break-even utilisation matters for Indian recyclers in three specific contexts: (1) bank appraisal — banks check that projected Year 1 utilisation is comfortably above break-even; a project where Year 1 projects 50% utilisation but break-even is 45% has thin safety margin; (2) ramp-up planning — new plants that ramp from 30% to 80% over 18 months need to know whether early months generate or destroy cash; (3) stress-testing — if a key customer drops out or feedstock becomes scarce and utilisation falls to X%, does the plant break even? Knowing the break-even utilisation threshold defines the minimum acceptable scale of operation before a temporary shutdown is economically rational.