One to two million dollars sounds about right to set up this sort of manufacturing line, based on my recent experience with setting up a new plant with multiple production lines for pharmaceutical packaging.
To manufacture diapers, you need several steps. First, you need to mix pulp and SAP in some ratio, along with binders and possibly other ingredients, and compress that into the pad. Whether you can go directly to the pad shape or need to do continuous rolls and die cut it after will have to be established. Next, you need to take large rolls of plastic sheeting and liner material and bond them with the pad, then cut the diaper to shape. If you want elastic, it also needs to be bonded in at this stage. Whether you use heat, glue, ultrasonic welding, impulse sealing, or one of several other methods needs to be established. Finally, you need to run the diapers through a folder and into a packager.
If you are really ready to take on this complexity, the first step is to identify the companies that already build these machines, because they already have the know-how to do all this. If you start it as an R&D innovation project, you probably need to multiple your budget by five.
Don't forget that you need to lease a facility with industrial-grade power and loading docks. You need to buy forklifts, pallet racks, and lots of other material handling equipment. All very doable, but you'd best have deep pockets and be willing to hire plenty of expertise.
If your investment amount is more modest, you'll save a lot by going the contract manufacturing route.
