smeda absorbent cotton

Pre-Feasibility Study

Absorbent Cotton

Small and Medium Enterprises Development Authority

Government of Pakistan www.smeda.org.pk

HEAD OFFICE 6th Floor LDA Plaza Egerton Road, Lahore

Tel (042)111 111 456, Fax: 6304926-7

[email protected]

REGIONAL OFFICE PUNJAB

REGIONAL OFFICE SINDH

REGIONAL OFFICE KHYBER PAKTUNKHWA

REGIONAL OFFICE BALOCHISTAN

8th Floor LDA Plaza,

Egerton Road, Lahore.

Tel: (042) 111 111 456, Fax: (042) 36370474

[email protected]

5TH Floor, Bahria Complex II, M.T.

Khan Road, Karachi.

Tel: (021) 111-111-456 Fax: (021) 5610572

[email protected]

Ground Floor

State Life Building The Mall, Peshawar.

Tel: (091)111 111 456, 9213046-7 Fax: (091) 286908

[email protected]

Bungalow No. 15-A Chamn Housing

Scheme Airport Road, Quetta. Tel: (081) 2831623, 2831702

Fax: (081) 2831922 [email protected]

September, 2011

Pre-feasibility Study Absorbent Cotton Manufacturing Unit

DISCLAIMER

The purpose and scope of this information memorandum is to introduce the subject

matter and provide a general idea and information on the said area. All the material

included in this document is based on data/information gathered from various sources and

is based on certain assumptions. Although, due care and diligence has been taken to

compile this document, the contained information may vary due to any change in any of

the concerned factors, and the actual results may differ substantially from the presented

information. SMEDA does not assume any liability for any financial or other loss

resulting from this memorandum in consequence of undertaking this activity. The

prospective user of this memorandum is encouraged to carry out additional diligence and

gather any information he/she feels necessary for making an informed decision.

For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk

DOCUMENT CONTROL

Document No. PREF-114

Prepared by SMEDA-Punjab

Issue Date September, 2011

Issued by Library Officer

PREF-114/ Sep, 2011 2

http://www.smeda.org.pk/


1 EXECUTIVE SUMMARY Cotton is a fiber being widely accepted by consumers, not least because many products consisting of cotton have been made and used by man for a long time. Loose cotton has been used for a long time by the sanitary and pharmaceutical industry as so-called cotton wool, cotton wool tips and cotton balls. The raw cotton is processed by series of steps which render the cotton hydro-phillic in character and free from external impurities needed to be fit for use in surgical dressings and personal hygiene. With the development of medical facilities and growing awareness towards personal hygiene, the absorbent cotton industry registered steady growth rate in past and is picking up pace with the spread of education and upward economic growth of towns and villages.

Demand for absorbent cotton depends on various factors. The demand of this product is directly related with the increase in population and expansion of Public Health Services. The consumption of surgical cotton or cotton wool increases with the increase in population and number of hospitals, dispensaries, health care centers, nursing homes etc. Govt. hospitals and big nursing homes are the largest consumers for cotton wool. Cotton is a highly absorbent fiber and therefore suited very well for absorption of body fluids such as urine, blood and other fluids. It is used for bandages and wound dressings, absorbent pads (demake-up), tampons, sponges, swabs. Cotton also offers the positive property of being a naturally breathing fiber, i.e. it largely prevents the passage of fluids, but lets gas and water vapor pass. With this property cotton is also predestined for surgical gowns and drapes.

Government of Pakistan primarily has made majority of investment in health sector by setting up hospitals, health centers in different areas of Pakistan, but these facilities are not up to standard and are very less in numbers as compared to population. Generally, Health care in Pakistan is government sponsored, but over the years private health care providers have become more common due to the tremendous increase in population. With the increase in population the demand of surgical cotton is also increasing. Currently most of the surgical cotton manufacturing units are in Lahore, Karachi and Okara.

The total estimated cost of the project is Rs.37.525 million. The project shall be financed through equity contribution of 50% by Equity Contributor-Private Investor and 50% by Bank Loan. The project will be run by qualified professionals. In the total estimated cost, a sum of Rs. 5.709 million is required as working capital. Projected IRR, NPV and Payback of the proposed project are 32%, Rs. 38.722 million and 4.27 years respectively.

PREF-114/ Sep, 2011 3


2 INTRODUCTION TO SMEDA The Small and Medium Enterprises Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program.

Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development.

SMEDA has so far successfully formulated strategies for industries such as horticulture, including export of fruits and vegetables, marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical instruments, transport, dairy etc. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation.

Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way.

This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.

3 PURPOSE OF THE DOCUMENT The objective of this proposed Pre-feasibility is primarily to facilitate potential entrepreneurs with the investment information and provide an overview about the "Absorbent Cotton Business". The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, and marketing, finance and business management. The document also provides sectoral information and international scenario, which have some bearing on the project itself.

The purpose of this document is to facilitate potential investors of the Absorbent Cotton business by providing them a macro and micro view of the business with the hope that the information provided herein will aid the potential investors in crucial investment decisions.

This particular Pre-feasibility is regarding setting up "Absorbent Cotton". Our report is based on the information obtained by us from industry sources as well as our discussions with businessmen. For financial model, since the forecast/projections relate to the future

PREF-114/ Sep, 2011 4


periods, actual results are likely to differ because of the events and circumstances that don’t occur as frequently as expected.

4 PROJECT INTRODUCTION Absorbent Cotton also known as Surgical Cotton or Cotton Wool is mainly used for medical purposes in hospitals, nursing homes, dispensaries etc. Because of high fluid absorbency power, it is better known as absorbent cotton.

The absorbent cotton should be chemically inert and soft to give maximum protection and should not cause irritation. These properties can be achieved by manufacturing the product as per standard method of manufacture. The raw cotton is processed by series of steps which render the cotton hydro-phillic in character and free from external impurities needed to be fit for use in surgical dressings and personal hygiene. Absorbent Cotton is also used for making conventional type of Sanitary napkins or pads besides medical purposes. And fairly good quality of cotton wool is consumed in beauty parlours for removing make up and dirt etc.

With the development of medical facilities and growing awareness towards personal hygiene, the absorbent cotton industry registered steady growth rate in past and is picking up pace with the spread of education and upward economic growth of towns and villages. It is important to note that this unit should initially cater to the local market and finally export absorbent cotton because the demand in the export market is increasing at a higher rate.

The proposed project could be set up in Karachi, Lahore, Multan, Okara, and Faisalabad. The project will have a capacity to produce 1,000 kg per day on 8-hour shift and 330 working days per year.

The surgical cotton rolls would be manufactured in the sizes of 100 grams-1000 grams, depending on the client’s requirement.

The proposed project will be financed through both debt and equity and the ratio would be 50:50.

5 MARKET/INDUSTRY ANALYSIS In roughly two generations, from 1947 till 2010-11, the estimated population of Pakistan has grown from 32.7 million to roughly 187.34 million, which has made Pakistan the seventh most populous country in the world. This tremendous growth rate of population has hampered Pakistan’s attempts to become a prosperous country of South East Asia. More then 17.2% of the population of Pakistan lives below the poverty line. The government’s inability to provide basic necessities to the majority of population specially, those living in the rural areas of the country has not helped the cause.

5.1 Health System in Pakistan The health of 187 million citizens of Pakistan is among the poorest in the world and its number is growing at the rate of 1.57 per cent per annum. At this rate the population will double by the year 2027. Health is not only related to availability of health services to a

PREF-114/ Sep, 2011 5


community but also to better hygienic atmosphere, which include clean drinking water, adequate dietary intake etc.

Government of Pakistan primarily did majority of investment in health sector by setting up hospitals, health centers in different areas of Pakistan, but these facilities are not up to standard and are very less in numbers as compared to population. Generally, Health care in Pakistan is government sponsored, but over the years private health care providers have become more common due to the tremendous increase in population.

Pakistan has made great strides in reducing mortality rates due to the increasing investment in health care by the private sector. It is, however, a constant struggle to meet the health care needs of the rapidly expanding population. The total allocation for health sector in the federal budget 2010-11 was Rs 17.0 billion

TTaabbllee 55--11:: DDiissttrriibbuuttiioonn ooff HHoossppiittaallss PPrroovviinnccee WWiissee11 iinn 22000088..

Description NumbersPunjab 306Sindh 330Khyber Pakhtunkhwa 202Balochistan 98Federal 12Total 948

TTaabbllee 55--22:: DDeettaaiillss ooff DDiissppeennssaarriieess PPrroovviinnccee WWiissee22 iinn 22000088

Description NumbersPunjab 1,496Sindh 2,096Khyber Pakhtunkhwa 562Balochistan 564Federal 76Total 4,794

5.2 Target Market

5.2.1 Local Market Demand for absorbent cotton depends on various factors. The demand of this product is directly related with the increase in population and expansion of Public Health Services. The consumption of surgical cotton or cotton wool increases with the increase in population and number of hospitals, dispensaries, health care centers, nursing homes etc. Progressive increase in health amenities offered by government and coming up of new hospitals and health care centers in private sector even at small towns are contributing to

1 Pakistan Statistical Year Book 2009 2 Pakistan Statistical Year Book 2009

PREF-114/ Sep, 2011 6


the growth of absorbent cotton industry. Govt. hospitals and big nursing homes are the largest consumers for cotton wool. Absorbent Cotton is used for surgical and cosmetic application.

5.2.2 Export Market Absorbent cotton has good export market potential. Presently it is being exported to the countries like Netherlands, Italy and several European countries. The export of surgical cotton can be done provided it is made according to standards and specifications of international market.

TTaabbllee 55--33:: EExxppoorrttss ffrroomm PPaakkiissttaann

DDrreessssiinngg,, WWaaddddiinngg,, ggaauuzzee,, bbaannddaaggeess aanndd ssiimmiillaarr aarrttiicclleess ootthheerr aarrttiicclleess hhaavviinngg aann aaddhheessiivvee llaayyeerr ((QQuuaannttiittyy iinn ‘‘000000 kkggss))

Period HS Code Trade Value Net Weight (kg) 2005 3005 $9,268,935 3,548,651 2006 3005 $14,987,655 5,788,295 2007 3005 $36,250,728 10,384,559 2008 3005 $25,881,974 8,401,878 2009 3005 $25,597,851 10,465,491

TTaabbllee 55--44:: MMaajjoorr EExxppoorrtt MMaarrkkeettss iinn 22000099

Period HS Code Total Export ($) Country Amount in $ %age Netherlands 7,016,227 27.41 % Italy 4,319,358 16.87 % Germany 3,251,016 12.70 % U K 1,967,829 7.69 % France 1,941,976 7.59 % Spain 930,700 3.64 % Poland 636,841 2.49 % Sri Lanka 582,361 2.28 % Ireland 515,498 2.01 % Thailand 458,118 1.79 % Tunisia 380,619 1.49 %

2009 3005 25,597,851

Uganda 379,957 1.48 %

PREF-114/ Sep, 2011 7


TTaabbllee 55--55:: MMaajjoorr EExxppoorrtt MMaarrkkeettss iinn yyeeaarr 22000088

Period HS Code Total Export ($) Country Amount in $ %age Italy 5,598,959 21.63 % Netherlands 5,233,462 20.22 % Saudi Arabia 1,835,559 7.09 % Germany 1,763,292 6.81 % U K 1,622,369 6.27 % USA 1,555,999 6.01 % France 1,343,294 5.19 % Sri Lanka 898,297 3.47 % Spain 753,851 2.91 % Ireland 720,029 2.78 % Belgium 580,441 2.24 %

2008 3005 25,881,974

South Africa 502,250 1.94 %

5.2.3 Industrial Market The industrial market comprise of those institutions, which buys surgical cotton in bulk, like provincial health departments and other government agencies related to health like population planning etc. Another substantial industrial market for surgical cotton is hospitals in both public and private sector. This particular market segment has shown an impressive growth in the last one decade.

5.2.4 Consumer Market Consumer market or open market consists of individual users of surgical cotton, and this segment buys surgical cotton from medical stores, pharmacies, and departmental stores.

5.3 Market Demand

As drugs and medicines have a direct relationship with the demand of surgical cotton, so with the increase in the population the demand for surgical cotton has also increased by approximately the same proportion.

6 PRODUCTION & PRODUCT OFFER 6.1 Current Product Mix

Supply such absorbent products as cotton wool and cotton balls, zigzag cotton wool, cotton buds and cotton pads

6.2 Proposed Product Mix The proposed product mix of the surgical cotton manufacturing unit will be as follows:

PREF-114/ Sep, 2011 8


TTaabbllee 66--11:: PPrroodduucctt MMiixx

Description Percentage of Total Production

Total Production Capacity in Rolls (per day)

500 grams 60% 1,047 350 grams 20% 499 250 grams 20% 698

6.3 Cotton-Raw Material Cotton is a highly absorbent fiber and therefore suited very well for absorption of body fluids such as urine, blood and other fluids. It is used for bandages and wound dressings, absorbent pads (demake-up), tampons, sponges, swabs.

Cotton also offers the positive property of being a naturally breathing fiber, i.e. it largely prevents the passage of fluids, but lets gas and water vapor pass. With this property cotton is also predestined for surgical gowns and drapes.

The quick water absorption by cotton is caused by the structural network of micro fibrils; this makes cotton particularly interesting for applications where liquids have to be removed from surfaces (wipes). Moreover, cotton offers an excellent resistance to heat as well as dimensional stability and strength even at temperatures of up to 175°C. It is also speaking in favor of cotton that this fiber has renewable resources and is bio-degradable.

In the past, the use of cotton for the medical industry often failed because of the higher price as compared to viscose, for example. The price of cotton varies depending on quality and crop yield as it is a natural fiber.

It can however be observed already that, in the long term, the market share of cotton will rise because of its many advantages.

In summary, cotton is characterized by the following excellent properties

- Good absorbency of liquids - bio-degradable - breathable - drape - easily sterilized - heat-resisting - high wet strength - insulating properties - non allergenic - non-irritant - renewable resources - softness - water retaining capacity

Usually cotton with a staple length of 7-25 mm is used for non woven products, depending on the web forming process used and the intended application. The titer ranges from about 1.2 to1.8 denier. Where mainly volume and absorbency of the products are

PREF-114/ Sep, 2011 9


required, linters and comber noils are used. In most cases bleached cotton is employed which provides the fiber with good absorbency, but makes it more difficult to handle on a card because the fibers can break and naps can form.

6.4 Raw Material Cotton is regarded as the most important cash crop of Pakistan. The lint is used for the production of textile and stuffing material. Cotton produces raw material not only to the ginning factories and rapidly expending textile industry, but also the oil mills, which provides edible oil and oil cakes for milk animals as feed. Cotton the silver fiber held for the unique quality of its fiber viz: Strength, durability, ease of dyeing, color retaining properties and suitability for the manufacture of textile fabrics. The fiber is obtaining from the thick growth of wooly seed hair. The longer fiber known as lint is used for making house hold fabrics and the shorter fibers called linters are used for making pad and sterile absorbent surgical cotton.

TTaabbllee 66--22:: RRaaww MMaatteerriiaall RReeqquuiirreemmeenntt

Mix Dessi 15% Comber Noil 50% Delenter 35% Chemicals Caustic Soda Soda Ash Detergent Opticle Brightner Hydrogen Peroxide Acitic Acid-Formacide

Packing Paper, labels, gum, PE sheets, sacks etc

PREF-114/ Sep, 2011 10


6.5 Process Flow for the Product

Production Process-Flow Sheet For

Absorbent Cotton Wool - BPC

Raw Cotton

Q.C. LAB for Testing Before Processing

Villow Treatment of Cotton

De – Sizing

Cooking Chemical Treatment of Cotton (90 – 950C)

Hydro - Extraction

Opener

Drying

Lapping

Carding

Rolling & Paper Pasting

Cutting

Weighing & Labeling

Packing

PREF-114/ Sep, 2011 11


Raw cotton received in bale or otherwise is opened in opener where it is loosened and dust and other foreign particles are removed.

Loosen cotton is then loaded into a kier and chemicals, such as caustic soda, soda ash, detergent etc., are added along with adequate water and steam boiled for about 3-4 hours. By this process most of the natural waxes and oils are removed while remaining foreign matter get soften and disintegrate. The treated cotton is transferred to washing tanks where it is washed thoroughly.

Washed cotton is bleached to remove radish brown colour developed due to chemical treatment. For this purpose, bleaching agent such as sodium hypo-chloride or hydrogen peroxide are used. The bleaching process improves whiteness assisting in disintegration of any remaining foreign matters.

The bleached cotton is thoroughly washed again to remove the chemicals. A little quantity of dilute hydro-chloride acid or sulphuric acid is also added to neutralize excess alkali. The water of cotton is removed with the help of hydro-extractor which is then sent to a wet cotton opening machine. The cotton so obtained is dried by passing through dryer or alternatively subjected to sun drying where provision for dryer is not made.

Dried cotton is sent to blow room where it is thoroughly opened and made into laps. The laps are then fed into carding machine wherein cotton is wrapped around rollers in thin layers. Cotton so obtained is compressed and rolled into rolls along with papers.

The rolls are then weighed and cut according to weight & sizes and labeled properly before packing in polythene sheets and heat sealed.

6.6 Quality Control and Standard Surgical cotton or absorbent cotton is covered under Drug Control Act 1976; hence it should be manufactured to meet its requirements.

PREF-114/ Sep, 2011 12

Zulqarnain

http://www.dcomoh.gov.pk/regulations/drugact1976.php

shahzadh

No information in ANNEXURE


7 TECHNOLOGY TTaabbllee 77--11:: MMaacchhiinneerryy DDeettaaiillss

Description Capacity Quantity Price per Unit (in Rs.)

Total Cost (in Rs.)

Raw Cotton Carding Section

Willow Machinery 1,000 Kgs 2 180,000 360,000Carding Machine 1,000 Kgs 3 300,000 900,000Weighting Scale 1-600 kgs 1 300,000 300,000Cooking Section Kier 1,000 Kgs 1 1,200,000 1,200,000Kier Pumps As per required 1 56,000 56,000Washing Section Washing Tanks As per required 3 15,000 45,000Crane System 1-2 tons 1 800,000 800,000Hydro extractor 300 Liters 3 100,000 300,000Tube Well As per required 1 65,000 65,000Drying Section

Hot air oven 1,000 Kgs. Per 8 hours 1 1,200,000 1,200,000

Boiler 1 900,000 900,000Carding Section

Blow Machine 100 Kgs. Per hours/Machine 1 30,000 30,000

Weight Balance 0-5 kgs 1 35,000 35,000Rolling Section Rolling Machine As per required 1 120,000 120,000Rolling Rods As per required 1 50,000 50,000Cutting Section Cutter (Saw) As per required 1 7,000 7,000Cutter Round As per required 1 22,000 22,000Cutting Table As per required 1 35,000 35,000Transformer (200 KVA)

1 500,000 500,000

Generator (220 KVA)

1 1,740,000 1,740,000

TOTAL 8,665,000

PREF-114/ Sep, 2011 13


7.1 Machinery Recommendations Mostly machinery used for surgical cotton manufacturing unit is available locally, but some of the machinery can be second hand imported machinery from Europe. It is recommended that local machinery can be used to manufacture absorbent cotton, as the quality of the finished product would not be affected by using local machinery. Apart from this the project cost would not be high.

7.2 Area Required For Proposed Unit Total area required is 01 Acre (4,000 sq. yards) and the price of the land is approximately Rs. 2.0 million. Following area is required for a surgical cotton manufacturing unit having a capacity of 1,000 kgs:

TTaabbllee 77--22:: AArreeaa RReeqquuiirreedd

Description Area (in Sq. ft) Rate (in Rs.) Amount (in Rs.)

Management building 500 1,200 600,000Raw Cotton Carding Section 2,000 1,000 2,000,000Cooking Section 2,500 1,000 2,500,000Washing Section 2,500 1,000 2,500,000Drying Section 2,500 1,000 2,500,000Carding Section 2,000 1,000 2,000,000Rolling Section 2,000 1,000 2,000,000Cutting Section 1,000 1,000 1,000,000Store 1,500 500 750,000Washrooms 500 850 425,000Pavement/driveway 1,000 350 350,000Total 18,000 16,625,000

7.3 Utilities Required For Unit and Costs Involved • Electricity • Water • Gas

7.4 Office Equipment and Furniture Detail of office equipment and furniture requirement is given below.

TTaabbllee 77--33:: OOffffiiccee EEqquuiippmmeenntt

Office Equipment & Furniture Units Per unit Cost in Rs.

Total Cost in Rs.

Computers + UPS 5 45,000 225,000Computer printer (s) 1 20,000 20,000Telephones 4 1000 4,000Fax machines 1 25,000 25,000Total Office Equipment 274,000

PREF-114/ Sep, 2011 14


TTaabbllee 77--44:: FFuurrnniittuurree && FFiixxttuurree DDeettaaiillss

Furniture & Fixture Units Per unit Cost in Rs.

Total Cost in Rs.

Eclectic Wiring and Lighting 1 200,000 200,000Air Conditioners 1.5 ton (Split) 3 45,000 135,000Furniture Set for Office and Factory 1 400,000 400,000

Total Furniture & Fixture 735,000

8 HUMAN RESOURCE REQUIREMENT TTaabbllee 88--11:: RReeqquuiirreemmeenntt ooff TTeecchhnniiccaall SSttaaffff

Description No. of

Employees per Shift

Salary per Month (in Rs.)

Salary per Annum (in Rs.)

CEO 1 60,000 720,000Operations manager 1 40,000 480,000Technologist 1 25,000 300,000Accountant 1 15,000 180,000Purchase Officer & Supervisor 1 20,000 240,000

Marketing Executive 1 40,000 480,000Sales person 2 12,000 288,000Carding Master 1 10,000 120,000Chamber Master 1 10,000 120,000Willow Master 1 10,000 120,000Cutting Master 1 10,000 120,000Rolling Master 1 10,000 120,000Kier/ Boiler Operator 1 10,000 120,000Worker (Carding Section) 2 7,000 168,000Worker (Cooking Section) 2 7,000 168,000Worker (Washing Section) 3 7,000 252,000Worker (Drying Section) 2 7,000 168,000Worker (Blow room Section) 3 7,000 252,000Worker (Rolling Section) 3 7,000 252,000Worker (Cutting Section) 2 7,000 168,000Worker (Packing Section) 3 7,000 252,000Janitorial Staff 3 7,000 252,000Security Guard 2 8,500 204,000TOTAL 37 5,544,000

PREF-114/ Sep, 2011 15

Pre-fea

PREF-114/ Se

sibility Study Absorbent Cotton Manufacturing Unit

p, 2011 16

Equity ProjectInternal Rate of Return (IRR) 43% 32%Payback Period (yrs) 4.05 4.27 Net Present Value (NPV) 26,706,371 38,721,651

9 FINANCIAL ANALYSIS 9.1 Project Costs Total project cost for the Surgical Cotton Manufacturing Unit of Capacity 1,000 kgs per day is estimated to be around Rs. 37.525 million. It includes capital expenditure as well as working capital required for setting up the project.

TTaabbllee 99--11:: PPrroojjeecctt CCoosstt DDeettaaiillss Capital Investment Rs. in actualsLand 2,000,000 Building/Infrastructure 16,625,000 Machinery & equipment 8,665,000 Furniture & fixtures 735,000 Office vehicles 1,492,400 Office equipment Pre-operating costs 2 Total Capital Costs 31,816,30

Working Capital Rs. in actuEquipment spare part i 67,183 Raw material inventor 4,735,500 Upfront insurance pay 406,296 Cash 500,000 Total Working Capi 5,708,979

Total Investment 37,525,284

274,000,024,906

5

als

Initial Financing Rs. in actualsDebt 50% 18,762,642 Equity 50% 18,762,642

nventoryyment

tal

TTaabbllee 99--33:: PPrroojjeecctt RReettuurrnnss

The projected returns of the project are as follows

9.3 Project Returns

The proposed financing plan of the project is as follows: 9.2 Capital Structure

TTaabbllee 99--22:: CCaappiittaall SSttrruuccttuurree DDeettaaiillss


9.4 Projected Income Statement

Calculations SMEDAIncome Statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Revenue 45,492,150 62,076,630 76,819,830 89,196,358 98,115,994 107,927,593 118,720,352 130,592,387 143,651,626 158,016,789 Cost of sales

Cost of goods sold 28,413,000 34,095,600 40,275,428 44,638,599 46,870,529 49,214,055 51,674,758 54,258,496 56,971,421 59,819,992 Operation costs 1 (direct labor) 2,303,400 2,527,662 2,773,759 3,043,816 3,340,166 3,665,370 4,022,235 4,413,846 4,843,584 5,315,162 Operating costs 2 (machinery maintenance) 403,095 483,714 571,387 633,287 664,952 698,199 733,109 769,765 808,253 848,666 Operating costs 3 (direct electricity) 4,762,523 5,987,172 7,409,125 8,602,818 9,463,099 10,409,409 11,450,350 12,595,385 13,854,924 15,240,416 Operating costs 5 (direct gas) 586,320 737,088 912,146 1,059,103 1,165,014 1,281,515 1,409,667 1,550,633 1,705,696 1,876,266

Total cost of sales 36,468,338 43,831,236 51,941,845 57,977,623 61,503,760 65,268,549 69,290,119 73,588,125 78,183,878 83,100,502 Gross Profit 9,023,812 18,245,394 24,877,984 31,218,734 36,612,234 42,659,044 49,430,233 57,004,262 65,467,748 74,916,287 General administration & selling expenses

Administration expense 2,904,000 3,186,738 3,497,003 3,837,476 4,211,098 4,621,096 5,071,013 5,564,734 6,106,524 6,701,064 Electricity expense 725,205 797,726 877,498 965,248 1,061,773 1,167,950 1,284,745 1,413,220 1,554,542 1,709,996 Travelling expense 145,200 159,337 174,850 191,874 210,555 231,055 253,551 278,237 305,326 335,053 Communications expense (phone, fax, mail, internet, etc.) 203,280 223,072 244,790 268,623 294,777 323,477 354,971 389,531 427,457 469,074 Office vehicles running expense 74,620 82,082 90,290 99,319 109,251 120,176 132,194 145,413 159,955 175,950 Office expenses (stationary, entertainment, janitorial services, etc.) 145,200 159,337 174,850 191,874 210,555 231,055 253,551 278,237 305,326 335,053 Promotional expense 454,922 620,766 768,198 891,964 981,160 1,079,276 1,187,204 1,305,924 1,436,516 1,580,168 Insurance expense 406,296 365,666 325,037 284,407 243,778 203,148 162,518 121,889 81,259 40,630 Professional fees (legal, audit, consultants, etc.) 45,492 62,077 76,820 89,196 98,116 107,928 118,720 130,592 143,652 158,017 Depreciation expense 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 Amortization of pre-operating costs 404,981 404,981 404,981 404,981 404,981 - - - - -

Subtotal 7,457,086 8,009,671 8,582,208 9,172,852 9,773,933 10,033,051 10,766,356 11,575,667 12,468,447 13,452,895 Operating Income 1,566,726 10,235,723 16,295,777 22,045,882 26,838,300 32,625,993 38,663,876 45,428,596 52,999,301 61,463,392

Earnings Before Interest & Taxes 1,566,726 10,235,723 16,295,777 22,045,882 26,838,300 32,625,993 38,663,876 45,428,596 52,999,301 61,463,392

Interest on short term debt 469,182 559,776 90,594 - - - - - - - Interest expense on long term debt (Project Loan) 2,457,454 2,077,377 1,634,056 1,116,966 513,832 - - - - - Interest expense on long term debt (Working Capital Loan) 427,861 358,070 276,255 180,347 67,916 - - - - - Subtotal 3,354,497 2,995,223 2,000,905 1,297,313 581,748 - - - - - Earnings Before Tax (1,787,771) 7,240,500 14,294,871 20,748,569 26,256,552 32,625,993 38,663,876 45,428,596 52,999,301 61,463,392

Tax - 1,810,125 3,573,718 5,187,142 6,564,138 8,156,498 9,665,969 11,357,149 13,249,825 15,365,848 NET PROFIT/(LOSS) AFTER TAX (1,787,771) 5,430,375 10,721,154 15,561,427 19,692,414 24,469,495 28,997,907 34,071,447 39,749,476 46,097,544

PREF-114/ Sep, 2011 17


9.5 Projected Cash flow Statement Calculations SMEDACash Flow Statement

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Operating activities

Net profit (1,787,771) 5,430,375 10,721,154 15,561,427 19,692,414 24,469,495 28,997,907 34,071,447 39,749,476 46,097,544 Add: depreciation expense 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 1,947,890 amortization of pre-operating costs 404,981 404,981 404,981 404,981 404,981 - - - - - Deferred income tax - 1,604,688 37,310 37,310 37,310 (253,935) (253,935) (253,935) (253,935) (253,935) Accounts receivable (3,739,081) (681,554) (1,287,439) (1,114,509) (875,185) (769,777) (846,754) (931,430) (1,024,573) (1,127,030) Finished goods inventory (1,741,563) (351,619) (387,326) (288,242) (168,392) (179,789) (192,052) (205,253) (219,472) (234,796) Equipment inventory (67,183) (17,467) (20,342) (17,193) (12,524) (13,808) (15,223) (16,783) (18,504) (20,400) 219,427 Raw material inventory (4,735,500) (1,231,230) (1,433,880) (1,211,850) (882,777) (973,262) (1,073,021) (1,183,006) (1,304,264) (1,437,951) 15,466,740 Advance insurance premium (406,296) 40,630 40,630 40,630 40,630 40,630 40,630 40,630 40,630 40,630 40,630 Accounts payable 2,865,820 593,214 616,154 437,291 267,178 284,796 303,732 324,095 346,008 (1,051,823)

Cash provided by operations (5,208,979) (3,257,793) 7,534,383 10,864,311 16,131,477 20,359,756 24,451,066 28,797,628 33,670,676 39,127,672 61,104,646

Financing activitiesProject Loan - principal repayment (2,284,114) (2,664,190) (3,107,512) (3,624,602) (4,227,735) - - - - - Working Capital Loan - principal repayment (405,126) (474,918) (556,732) (652,641) (765,072) - - - - - Short term debt principal repayment - (5,447,033) (1,051,758) - - - - - - - Additions to Project Loan 15,908,153 - - - - - - - - - - Additions to Working Capital Loan 2,854,489 - - - - - - - - - - Issuance of shares 18,762,642 - - - - - - - - - -

Cash provided by / (used for) financing activities 37,525,284 (2,689,240) (8,586,141) (4,716,002) (4,277,243) (4,992,807) - - - - -

Investing activitiesCapital expenditure (31,816,305) - - - - - - - - - - Acquisitions

Cash (used for) / provided by investing activities (31,816,305) - - - - - - - - - -

NET CASH 500,000 (5,947,033) (1,051,758) 6,148,309 11,854,234 15,366,949 24,451,066 28,797,628 33,670,676 39,127,672 61,104,646

PREF-114/ Sep, 2011 18

Pre-fea

PREF-114/ Se

sibility Study Absorbent Cotton Manufacturing Unit

p, 2011 19

9.6 Projected Balance Sheet

Calculations SMEDABalance Sheet

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Current assetsCash & Bank 500,000 - - 6,148,309 18,002,543 33,369,492 57,820,557 86,618,185 120,288,861 159,416,533 220,521,179 Accounts receivable 3,739,081 4,420,635 5,708,074 6,822,583 7,697,768 8,467,545 9,314,299 10,245,729 11,270,302 12,397,332 Finished goods inventory 1,741,563 2,093,182 2,480,508 2,768,750 2,937,142 3,116,932 3,308,984 3,514,237 3,733,710 3,968,505 Equipment spare part inventory 67,183 84,650 104,992 122,185 134,709 148,517 163,739 180,523 199,026 219,427 - Raw material inventory 4,735,500 5,966,730 7,400,610 8,612,460 9,495,237 10,468,499 11,541,520 12,724,525 14,028,789 15,466,740 - Pre-paid insurance 406,296 365,666 325,037 284,407 243,778 203,148 162,518 121,889 81,259 40,630 -

Total Current Assets 5,708,979 11,897,691 14,344,456 23,355,943 37,467,599 54,824,565 81,272,811 112,268,405 148,357,902 190,147,341 236,887,017

Fixed assetsLand 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000 Building/Infrastructure 16,625,000 15,793,750 14,962,500 14,131,250 13,300,000 12,468,750 11,637,500 10,806,250 9,975,000 9,143,750 8,312,500 Machinery & equipment 8,665,000 7,798,500 6,932,000 6,065,500 5,199,000 4,332,500 3,466,000 2,599,500 1,733,000 866,500 - Furniture & fixtures 735,000 661,500 588,000 514,500 441,000 367,500 294,000 220,500 147,000 73,500 - Office vehicles 1,492,400 1,343,160 1,193,920 1,044,680 895,440 746,200 596,960 447,720 298,480 149,240 - Office equipment 274,000 246,600 219,200 191,800 164,400 137,000 109,600 82,200 54,800 27,400 -

Total Fixed Assets 29,791,400 27,843,510 25,895,620 23,947,730 21,999,840 20,051,950 18,104,060 16,156,170 14,208,280 12,260,390 10,312,500

Intangible assetsPre-operation costs 2,024,906 1,619,924 1,214,943 809,962 404,981 - - - - - - Legal, licensing, & training costs - - - - - - - - - - -

Total Intangible Assets 2,024,906 1,619,924 1,214,943 809,962 404,981 - - - - - - TOTAL ASSETS 37,525,284 41,361,125 41,455,019 48,113,635 59,872,420 74,876,515 99,376,871 128,424,575 162,566,182 202,407,731 247,199,516

Current liabilitiesAccounts payable 2,865,820 3,459,034 4,075,188 4,512,479 4,779,657 5,064,453 5,368,185 5,692,280 6,038,288 4,986,465 Short term debt - 5,447,033 1,051,758 - - - - - - - - Other liabilities

Total Current Liabilities - 8,312,853 4,510,792 4,075,188 4,512,479 4,779,657 5,064,453 5,368,185 5,692,280 6,038,288 4,986,465

Other liabilitiesDeferred tax - 1,604,688 1,641,998 1,679,308 1,716,618 1,462,683 1,208,748 954,813 700,878 446,943 Long term debt (Project Loan) 15,908,153 13,624,039 10,959,849 7,852,337 4,227,735 - - - - - - Long term debt (Working Capital Loan) 2,854,489 2,449,363 1,974,445 1,417,713 765,072 - - - - - -

Total Long Term Liabilities 18,762,642 16,073,402 14,538,982 10,912,048 6,672,115 1,716,618 1,462,683 1,208,748 954,813 700,878 446,943

Shareholders' equityPaid-up capital 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 18,762,642 Retained earnings (1,787,771) 3,642,603 14,363,757 29,925,184 49,617,598 74,087,093 103,085,000 137,156,447 176,905,923 223,003,467

Total Equity 18,762,642 16,974,870 22,405,245 33,126,399 48,687,826 68,380,240 92,849,735 121,847,642 155,919,089 195,668,565 241,766,109 TOTAL CAPITAL AND LIABILITIES 37,525,284 41,361,125 41,455,019 48,113,635 59,872,420 74,876,515 99,376,871 128,424,575 162,566,182 202,407,731 247,199,516

Liabilities & Shareholders' Equity

Assets


10 KEY ASSUMPTIONS TTaabbllee 1100--11:: OOppeerraattiinngg AAssssuummppttiioonnss Hours operational per day 8Days operational per year 330

TTaabbllee 1100--22:: PPrroodduuccttiioonn AAssssuummppttiioonnss Annual production capacity in Kgs 330,000Annual production capacity in Rolls after Wastage at full capacity

500 Gram Roll 410,293 350 Gram Roll 109,412 250 Gram Roll 218,823

Capacity utilization (1st Year) 70%Capacity growth rate (yearly) 10%Maximum Capacity utilization 95%First Year utilized production (Rools)

500 Gram Roll 241,857350 Gram Roll 115,170250 Gram Roll 161,238

TTaabbllee 1100--33:: EEccoonnoommiicc AAssssuummppttiioonnss Electricity growth rate 10%Wages growth rate 10%Machine maintenance growth rate 5%

TTaabbllee 1100--44:: CCaasshh FFllooww AAssssuummppttiioonnss Accounts Receivable cycle (in days) 30Accounts Payable cycle (in days) 30Raw material inventory (in days) 60Finished Goods inventory (in days) 15

TTaabbllee 1100--55:: EExxppeennssee AAssssuummppttiioonnss Professional fees (audit, legal etc.) 0.1% of Revenue Office Expenses (stationery, entertainment, etc.) 5% of administrative expenses Promotional Expenses 1% of revenue Communication Expenses 5% of administrative expenses

PREF-114/ Sep, 2011 20


TTaabbllee 1100--66:: RRaaww MMaatteerriiaall AAssssuummppttiioonnss

Wastage Cost per Kg.(in Rs) Dessi 10% 98 Comber Noil 5% 105 Delenter 25% 38 ChemicalsCaustic Soda Soda Ash Detergent Opticle Brightner Hydrogen Peroxide Acitic Acid-Formacide

39.25

Packing Paper, labels, gum, PE sheets, sacks etc 3.25

Raw Material Cost per Kg in Rs. 123

TTaabbllee 1100--77:: EExxppeennssee AAssssuummppttiioonnss Professional fees (audit, legal etc.) 0.1% of Revenue Office Expenses (stationery, entertainment, etc.) 5% of administrative expenses Promotional Expenses 1% of revenue Communication Expenses 7% of administrative expenses

TTaabbllee 1100--88:: DDeepprreecciiaattiioonn RRaatteess Depreciation Method Straight Line MethodBuilding & infrastructure 5%Machinery & Equipment 10%Furniture & Fixtures 10%

TTaabbllee 1100--99:: FFiinnaanncciiaall AAssssuummppttiioonnss

Project life (Years) 10Debt: Equity 50:50Interest rate on long and short term debt 16%

TTaabbllee 1100--1100:: PPrroodduucctt SSaallee PPrriiccee

Size Price (Rs)500 Gram Roll 110350 Gram Roll 80250 Gram Roll 60

PREF-114/ Sep, 2011 21


11 ANNEXURE TTaabbllee 1111--11:: RRaaww MMaatteerriiaall && MMaacchhiinneerryy SSuupppplliieerr

Raw Material Suppliers Machinery Suppliers

SULTAN TRADING COMPANY P-130, Gole Lakkarwala, Faisalabad Faisalabad Tel: 041-2643262-2648262 Fax: 041-2647262 Email: [email protected]

Noorani Industries Samundri Road Faisalabad, Pakistan Tel: 041-8544683 Fax: 041- 8545692 Mobile: 0300-8650205 Email: [email protected]

FABRICHEM TRADING COMPANY 1419-B Peoples Colony No 1 Faisalabad, Pakistan Tel: 041-8547430,8541344 Fax: 041-8555634 Mobile: 0300-8654191

Jamil Engineering Works Muhallah Naseerabad, Nishatabad Opposite Total Petrol Pump Sheikhupura Road, Faisalabad. Tel: (92-41) 8750941 Fax: (92-41) 8750741 Mobile: (92-300) 6692741

Ishaq Engineering Works Sheikhupura Road, Under bridge Nishatabad Faisalabad, Pakistan Tel: 041-8755818 Fax: 041-8753632 Cell: 0301-7149435 Email: [email protected]

PREF-114/ Sep, 2011 22

mailto:[email protected]

smeda absorbent cotton

Documents