smeda denim jeans stitching unit

Pre-Feasibility Study

DENIM JEANS STITCHING UNIT

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: (042) 36304926-7

[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) 35610572

[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]

June, 2010

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

Pre-Feasibility Study Garments Stitching Unit (Denim Jeans)

1. EXECUTIVE SUMMARY............................................................................. 4

2. INTRODUCTION TO SMEDA..................................................................... 5

3. PURPOSE OF THE DOCUMENT................................................................ 5

4. CRUCIAL FACTORS AND STEPS IN DECISION MAKING................. 6 4.1. STRENGTHS.................................................................................................. 6

4.2. WEAKNESSES............................................................................................... 6

4.3. OPPORTUNITIES ........................................................................................... 6

4.4. THREATS...................................................................................................... 6

5. PROJECT PROFILE...................................................................................... 6 5.1. OPPORTUNITY RATIONALE .......................................................................... 6

5.2. PROJECT BRIEF ............................................................................................ 7

5.3. PROPOSED CAPACITY................................................................................... 7

5.4. TOTAL PROJECT COST ................................................................................. 7

5.5. PROPOSED BUSINESS LEGAL STATUS .......................................................... 7

5.6. PROPOSED LOCATION .................................................................................. 8

5.7. KEY SUCCESS FACTORS............................................................................... 8

6. CURRENT INDUSTRY ANALYSIS ............................................................ 8 6.1. EXPORT MARKET......................................................................................... 8

7. MARKET ANALYSIS.................................................................................. 11 7.1. DOMESTIC MARKET................................................................................... 11

7.2. TARGET CUSTOMERS ................................................................................. 11

8. PRODUCTION PROCESS FLOW ............................................................. 11 8.1. RAW MATERIAL......................................................................................... 12

8.1.1. Packing Cost.......................................................................................... 12

9. HUMAN RESOURCE REQUIREMENTS ................................................ 13

10. MACHINERY AND EQUIPMENT DETAILS.......................................... 14 10.1. MACHINERY LIST ...................................................................................... 14

10.2. FURNITURE AND EQUIPMENT LIST............................................................. 14

111. LAND & BUILDING .................................................................................... 15

PREF-01/June, 2010/Rev 3


11.1. LAND/BUILDING REQUIREMENT ................................................................ 15

11.2. RECOMMENDED MODE .............................................................................. 15

11.3. SUITABLE LOCATIONS ............................................................................... 16

11.4. UTILITIES REQUIREMENTS ......................................................................... 16

12. PROJECT ECONOMICS ............................................................................ 16

13. FINANCIAL ANALYSIS ............................................................................. 17 13.1. PROJECTED INCOME STATEMENT............................................................... 17

13.2. PROJECTED BALANCE SHEET..................................................................... 18

13.3. PROJECTED CASH FLOW STATEMENT ........................................................ 19

14. KEY ASSUMPTIONS .................................................................................. 20

ANNEXURE 1: RAW MATERIAL & MACHINERY SUPPLIERS ................ 22

ANNEXURE 2: INCOME TAX DEDUCTION SLABS...................................... 24


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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-01

Revision 3

Prepared by SMEDA-Punjab

Issue Date July, 2001

Revised in June, 2010

Issued by Library Officer


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


11.. EEXXEECCUUTTIIVVEE SSUUMMMMAARRYY The proposed Denim Jeans Stitching unit is a project of the Textile Sector, producing standard five pocket jeans trouser. The unit will cater to the local as well as export denim market. The jeans produced will be of export, high quality fabric. Through the use of high-tech equipment and modern techniques the company can produce jeans of latest trends without compromising on quality. The process flow includes purchase of raw material, cutting, stitching, washing, finishing, pressing and packing. Quality control checks will be taken care of through out the process.

Pakistan has become denim hub in the region in less than a decade and is considered as one of the leading supplier of quality denim fabric to the world's known brands. Pakistan's denim is second to none. There has been a phenomenal increase in the production capacity of denim mills in Pakistan and at present numerous denim mills are in operation. The denim industry is contributing substantially towards exports creating job opportunities and has invested billions in the denim sector. The denim industry is not only fully catering to the needs of the local apparel industry but is also catering to the foreign market and earning valuable foreign exchange for the country.

This particular stitching unit is proposed to have an installed capacity for producing 1000 denim jeans per day. The unit’s initial capacity utilization is kept at 70%, which eventually goes up to 90% in the fifth year. A Denim Garment Stitching Unit with an installed capacity to produce 1,000 pieces per day needs an investment estimated at Rs. 14.150 million. The project is financed through 50% debt and 50% equity. Projected IRR, Net Present Value and Payback of this project are 71.11%, Rs. 165.680 million and 3.71 years respectively. The legal business status of this project is proposed as ‘Sole Proprietorship’.


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22.. IINNTTRROODDUUCCTTIIOONN TTOO SSMMEEDDAA

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 sectors including, fruits and vegetables, marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical instruments, transport and dairy. 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.

33.. PPUURRPPOOSSEE OOFF TTHHEE DDOOCCUUMMEENNTT The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs to facilitate investment and provide an overview about Garment Stitching Unit. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document covers various aspects of the business concept development, start-up, production, marketing, and finance and business management.

This particular pre-feasibility is regarding “Garment Stitching Unit” which comes under “Textile” sector.


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44.. CCRRUUCCIIAALL FFAACCTTOORRSS AANNDD SSTTEEPPSS IINN DDEECCIISSIIOONN MMAAKKIINNGG

44..11.. SSttrreennggtthhss

• There is a “ready made” market for this product. • Relatively low labour costs • Ample available work force. • Well-situated industrial estate with all major facilities available.

44..22.. WWeeaakknneesssseess

• The requirement of credit and/or delay of payments from customer side might cause disturbance in the cash cycles.

• Very small base of available skilled machinists. • Lack of trained technicians and line / middle management. • Uncertain investment climate

44..33.. OOppppoorrttuunniittiieess

• WAPDA/KESC will provide “off peak hour rates” and “bulk rates” for industrial consumers to lower the electricity cost of manufacturing.

• Manufacturers-cum-exporters are allowed to import samples of each kind or quality having value up to US$ 100 at zero duty rates.

• Two special export zones focusing on textile sector particularly in dyeing, processing and finishing sectors will be established at Karachi and in one of the industrial cities of Punjab.

44..44.. TThhrreeaattss

• Skilled operators in the denim garments are quite unorganized. Stitching expertise is not available at the best possible level. This restricts the industry to the basic garments and only limits the entry into the manufacturing of high quality garments.

• Cost of doing business may increase as the energy, raw material prices, wages and mark up rates may rise.

55.. PPRROOJJEECCTT PPRROOFFIILLEE

55..11.. OOppppoorrttuunniittyy RRaattiioonnaallee During the last decade, the usage of denim garments, especially denim jeans, has been on a rise in the international as well as the local markets. This has led to a rise in the demand of denim garments. The competitive edge of Pakistan in this field stems from the ready availability of cotton yarn required to weave denim fabric i.e.


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NE 7/1 to NE 14/11. During the past few years, the denim fabric manufacturing capacity has also been enhanced that has provided the opportunity to industry to strengthen. The export of denim garments from Pakistan has also been on a rise.

55..22.. PPrroojjeecctt BBrriieeff The proposed project presents an investment opportunity in manufacturing of denim jeans. The project profile has been prepared for a standard five pocket jeans trouser. The proposed stitching unit will be having the potential for its own manufacturing and supply for the local market as well as for the export market. However washing will be outsourced.

55..33.. PPrrooppoosseedd CCaappaacciittyy The proposed capacity of the unit is 1000 garments per day.

55..44.. TToottaall PPrroojjeecctt CCoosstt The cost of project has been estimated as Rs.14.150 million including machinery and office equipment.

TTaabbllee 55--11 PPrroojjeecctt IInnvveessttmmeenntt Capital Investment Rs. 5,981,220Working Capital Rs. 8,169,111Total Investment Rs. 14,150,331

The proposed pre-feasibility is based on the assumption of 50% debt and 50% equity. However this composition of debt and equity can be changed as per the requirement of the investor.

The project seems to be viable with the following returns on investment.

TTaabbllee 55--22 PPrroojjeecctt RReettuurrnnss

Internal rate of return (project) 71.11%Net Present Value @ 20% Rs. 165,680,748Payback period – based on cash inflows 3.71 years

55..55.. PPrrooppoosseedd BBuussiinneessss LLeeggaall SSttaattuuss The proposed legal structure of the business entity is either sole proprietorship or partnership. Although selection totally depends upon the choice of the entrepreneur but this financial feasibility is based on a Sole Proprietorship.

1 yarn count


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55..66.. PPrrooppoosseedd LLooccaattiioonn The proposed locations for a garment manufacturing unit will be

• Lahore • Karachi • Faisalabad • Hyderabad • Sialkot • Gujranwala

55..77.. KKeeyy SSuucccceessss FFaaccttoorrss The total commercial viability of this proposed stitching unit depends on the regular orders for the purchase of the finished product. This requires aggressive marketing efforts at the entrepreneur's end.

Following are other key points that are important for the successful operation of the proposed stitching unit.

• Surety of high consistent quality • Surety of on time delivery • Competitive rates • Cost efficiency • Better services to the customer. • Better communication development with customers

66.. CCUURRRREENNTT IINNDDUUSSTTRRYY AANNAALLYYSSIISS

66..11.. EExxppoorrtt MMaarrkkeett Pakistan’s export of denim jeans is increasing over the years. Pakistan’s denim exports increased rapidly in the last years, due to a series of advantages including a falling currency, cotton fibre and yarn availability, modern equipment and strong incentives from the government. The country has progressively built a wealthy denim industry, allowing progressive denim apparel production and direct denim fabric exports to other Asian countries and to Turkey.

Turkey and Bangladesh are the major countries importing Pakistani denim products. Other major export markets are Italy, Syria and Egypt. Total Export of Pakistan in the year 2009 was USD 55.748 million, which shows approximately a 100% increase as compared to the export of USD 25.776 million in 2008

Major partners are given in the table below:


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TTaabbllee 66--11:: PPaakkiissttaann’’ss EExxppoorrttss iinn tthhee yyeeaarr 22000088 aanndd 2200009922

2008 2009 Export Partners Export Value (USD) Export Partners Export Value (USD)World 25,776,377 World 55,748,551 Turkey 17,298,943 Turkey 32,421,589 Bangladesh 2,470,708 Bangladesh 8,007,672 Syria 2,261,119 Italy 3,120,928 UAE 586,008 Syria 2,112,099 Belgium 400,932 Egypt 1,848,727 Iran 386,009 Colombia 881,696 Italy 314,115 UAE 738,513 Sri Lanka 269,393 Sri Lanka 711,244 Lebanon 235,019 Peru 662,473 Mexico 196,199 Greece 597,849

A comparative picture of the world’s top importers and exporters and their trade value is given in the figures below.

FFiigguurree 66--11 TToopp IImmppoorrtteerrss

World's Top Importers

17%

11%

11%

10%8%

43%

TurkeyChinaChina, Hong Kong SARColombiaMexicoOthers

2 http://comtrade.un.org


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TTaabbllee 66--22:: TTrraaddee VVaalluuee ffoorr TToopp IImmppoorrtteerrss

Country Trade Value (USD) Turkey 179,156,828 China 117,011,111 China, Hong Kong SAR 115,373,606 Colombia 102,077,109 Mexico 87,067,153 Others 449,304,425 Total Import 1,049,990,232

FFiigguurree 66--11 TToopp EExxppoorrtteerrss

World's Top Importers

47%

14%

9%

6%

4%

20%ChinaChina, Hong Kong SARTurkeyPakistanItalyOthers

TTaabbllee 66--33:: TTrraaddee VVaalluuee ffoorr TToopp EExxppoorrtteerrss

Country Trade Value (USD) China 683,592,128 China, Hong Kong SAR 211,100,320 Turkey 126,434,925 Pakistan 81,524,928 Italy 64,217,277 Others 290,755,006 Total Export 1,457,624,584


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77.. MMAARRKKEETT AANNAALLYYSSIISS Major concentration of the denim garment stitching industry is in Karachi and Lahore. Other important hubs are Sialkot, Faisalabad and Gujranwala.

The average production capacity of majority of small and medium sized jeans manufacturing units is about 1,000 jeans per day. However, large size manufacturers are producing as much as 30,000 jean trousers per day.

77..11.. DDoommeessttiicc MMaarrkkeett Almost all the established manufacturers are catering solely to the export market. Only the B-Class products are sold in the domestic market. The size of the manufacturers, whose primary market is domestic, is quite small.

77..22.. TTaarrggeett CCuussttoommeerrss In case of direct exports, the customers are retail chain stores, direct distributors and wholesalers. The export can either be through buying houses and/or through direct customers.

TTaabbllee 77--11 MMaajjoorr PPllaayyeerrss

U. S. Apparel and Textile Pvt. Ltd. LahoreArtistic Milliners Ltd KarachiSiddiqsons Denim Mills Ltd KarachiPak Denim Ltd KarachiRAJBY Industries KarachiAli Murtaza Associates Pvt. Ltd. KarachiAzgard Nine Ltd. LahoreTalon Sports Pvt. Ltd. SialkotAl Karam Textile Mills Pvt. Ltd. KarachiMr. Denim Pvt. Ltd. LahoreAbdullah Apparels Pvt. Ltd. KarachiDigital Apparel Pvt. Ltd. KarachiJoe’s Fashion Export Pvt. Ltd. Karachi

88.. PPRROODDUUCCTTIIOONN PPRROOCCEESSSS FFLLOOWW The proposed business is stitching denim jeans. The process will involve purchasing of raw material from the market i.e. denim fabric, which will be put through the process. Washing of the fabric will be outsourced as washing in house requires a plant which is expensive and will greatly increase the project cost. Therefore, it is


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recommended that the proposed project should outsource washing. Washing cost per piece is taken as Rs. 30. The production process flow is given in figure 8-1.

FFiigguurree 88--11 PPrroocceessss FFllooww CChhaarrtt ffoorr DDeenniimm GGaarrmmeennttss SSttiittcchhiinngg UUnniitt::

Denim Fabric Raw Material

Inspection Cutting Stitching

Stone Washing (To be outsourced)

Threading Pressing Buttoning/ Riveting

Final Inspection/ Packing

88..11.. RRaaww MMaatteerriiaall The proposed business will be using the raw material listed in the Table 8-1.

TTaabbllee 88--11:: RRaaww MMaatteerriiaall

Raw Material Consumption/ Piece Rate (Rs.) Fabric (Metre) 1.30 200 / m Pocket Lining (Metre) 0.2 100 / m Stitching thread (Metre) 350 10 / piece Imported buttons 1 3 / unit 4.5 YG Zip 1 15 / unit Main label 1 5 / unit Care and size label 1 2 / unit Rewet per unit 6 9 / unit Packing cost 1 15 / piece

88..11..11.. PPaacckkiinngg CCoosstt Packing cost includes one poly bag and one small carton for the packing of each finished garment. Total cost of packing for one piece is taken as Rs. 15.


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99.. HHUUMMAANN RREESSOOUURRCCEE RREEQQUUIIRREEMMEENNTTSS For a garment-stitching unit of 32 stitching machines, following manpower is required:

TTaabbllee 99--11:: MMaannppoowweerr RReeqquuiirreedd

Production Staff Number Salary/Month Annual Salary Production Manager 1 50,000 600,000 Production Planning Officer 1 25,000 300,000 Pattern Master 1 25,000 300,000 Cutting Master 1 15,000 180,000 Cutting Helper 2 8,500 204,000 Final Table inspector 2 12,000 288,000 Finishing Supervisor 1 15,000 180,000 Rowing Inspector 1 12,000 144,000 Machine Operator 40 9,000 4,320,000 Helper (machine operator) 2 7,500 180,000 Clippers 2 7,500 180,000 Iron Presser 1 10,000 120,000 Packing Staff 2 7,500 180,000 Store keeper 1 10,000 120,000 Total 58 7,296,000

Administration Staff Number Salary/Month Annual Salary Chief executive 1 75,000 900,000 Finance & Admin. Manager 1 50,000 600,000 Accounts officer 2 15,000 360,000 Marketing Manager 1 40,000 480,000Merchandiser 1 25,000 300,000 Export Officer 1 25,000 300,000 Purchase Officer 1 20,000 240,000 Technician/Electrician 1 15,000 180,000 Security Guards 2 8,500 204,000 Total 11 3,564,000


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1100.. MMAACCHHIINNEERRYY AANNDD EEQQUUIIPPMMEENNTT DDEETTAAIILLSS

1100..11.. MMaacchhiinneerryy LLiisstt Following combination of stitching machines is required for manufacturing 1,000 denim jeans per day. Approximate prices for Japanese origin machinery are given below:

TTaabbllee 1100--11:: SSttiittcchhiinngg MMaacchhiinneerryy aanndd EEqquuiippmmeenntt

Machinery Quantity Unit cost (Rs.) Total cost (Rs.) Cutting Machine 2 108,500 217,000Lock Stitch (Single Needle) 15 28,500 427,500Lock Stitch (Double Needle) 3 133,000 399,000Safety Stitching Over lock 1 46,500 46,500Safety Stitching Over lock 1 50,000 50,000Feed Off Arm 2 40,500 81,000Bar Tracking 3 318,000 954,000Waist Belt Machine 1 136,000 136,000Eyelet Machine 1 1,055,000 1,055,000Button Stitching Machine 1 320,000 320,000Loop Making Machine 1 156,500 156,500Snap Fastener 1 50,000 50,000Total machinery cost 32 3,892,500

Other Equipment Steam Boiler 1 138,320 138,320Other tools Lumpsum 25,000 25,000Machine Installation and wiring 32 4,000 128,000Total other equipment cost 291,320Total Cost 4,183,820

1100..22.. FFuurrnniittuurree aanndd EEqquuiippmmeenntt LLiisstt Furniture and Equipment requirement for the Administration and Factory building is given in the table below:

TTaabbllee 1100--22:: FFuurrnniittuurree aanndd OOffffiiccee EEqquuiippmmeenntt

Furniture Quantity Cost/Unit (Rs.) Total Cost (Rs.) Table 9 10,000 90,000 Chairs 18 3,000 54,000 Shelves 6 10,000 60,000 Stools 13 800 10,400


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Machine Table 40 5,000 200,000 Lay Table 12 10,000 120,000 Total 98 534,400Equipment Computers 9 25,000 225,000 Printer 1 15,000 15,000 UPS 9 7,500 67,500 Networking 1 25,000 25,000 Air conditioner 4 40,000 160,000 Tele/Fax 1 15,000 15,000 Total 24 507,500Total Cost 1,041,900

1111.. LLAANNDD && BBUUIILLDDIINNGG

1111..11.. LLaanndd//BBuuiillddiinngg RReeqquuiirreemmeenntt Approximately, 4,900 square feet of total covered area is required to establish the proposed stitching unit with a management building. The allocation of the space requirement is as follows:

TTaabbllee 1111--11:: SSppaaccee RReeqquuiirreemmeennttss

Space Requirement Required area (sq. ft) Fabric & Accessories inventory Store 1,000Cutting Room 400Stitching Room 1,250Inspection Room 850Packing Room 750Finished Garment Store 850Total factory area 5,100Management Building 650Total Area Required (sq. ft.) 5,750

1111..22.. RReeccoommmmeennddeedd MMooddee

It is recommended that this project should be started in a rented building. As the initial capital cost of the project will be less. An appropriate premise is normally available in many commercial/industrial areas of under mentioned clusters.




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TTaabbllee 1111--22:: BBuuiillddiinngg RReenntt

Rent cost Monthly rent (Rs.) Annual rent (Rs.) Estimated Building rent 150,000 1,800,000

1111..33.. SSuuiittaabbllee LLooccaattiioonnss The clusters of stitching industry exist predominantly in Lahore, Karachi, Faisalabad and Sialkot. Most of the garment manufactures are based in these major cities, so it is recommended that such unit should be started in these cities. Basic raw material i.e. denim cloth, is also conveniently available in these cities.

1111..44.. UUttiilliittiieess RReeqquuiirreemmeennttss It is assumed that the following utilities will already be available at the proposed building to be rented out:

• Electricity • Water • Gas • Telephone • Fax

1122.. PPRROOJJEECCTT EECCOONNOOMMIICCSS

TTaabbllee 1122--11:: PPrroojjeecctt CCoossttss

Project Costs Total (Rs.)Machinery & equipment 4,183,820Furniture & fixtures/Equipment 1,041,900Pre-operating costs 755,500Total Capital Costs 5,981,220 Stocks- Raw Material 3,951,360Equipment spare part inventory 2,092Upfront for building rental 1,800,000Upfront insurance payment 261,286Cash 2,154,373Total Working Capital 8,169,111Total Investment in the Project 14,150,331

TTaabbllee 1122--22:: FFiinnaanncciinngg PPllaann Equity 50% 7,075,165Debt 50% 7,075,165Total 14,150,330


1133.. FFIINNAANNCCIIAALL AANNAALLYYSSIISS

1133..11.. PPrroojjeecctteedd IInnccoommee SSttaatteemmeenntt

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Sales 107,054,171 125,510,319 148,040,625 173,022,480 201,520,300 221,672,330 243,839,563 268,223,519 295,045,871 324,550,459Cost of goods soldRaw Material 79,027,200 88,905,600 99,574,272 111,087,547 129,384,320 142,322,752 156,555,027 172,210,529 189,431,582 208,374,741Washing Cost (OUTSOURCED) 6,174,000 6,945,750 7,779,240 8,678,715 9,648,689 10,131,123 10,637,679 11,169,563 11,728,041 12,314,443Freight Charges 790,272 889,056 995,743 1,110,875 1,293,843 1,423,228 1,565,550 1,722,105 1,894,316 2,083,747Payroll (Production Staff) 7,296,000 8,025,600 8,828,160 9,710,976 10,682,074 11,750,281 12,925,309 14,217,840 15,639,624 17,203,586Machine Maintenance 209,191 219,651 230,633 242,165 254,273 266,987 280,336 294,353 309,070 324,524Direct Electricity 1,641,543 1,805,697 1,986,267 2,184,893 2,403,383 2,643,721 2,908,093 3,198,902 3,518,793 3,870,672Total 95,138,206 106,791,354 119,394,315 133,015,171 153,666,581 168,538,091 184,871,994 202,813,293 222,521,427 244,171,714Gross Profit 11,915,965 18,718,965 28,646,310 40,007,308 47,853,719 53,134,239 58,967,569 65,410,226 72,524,445 80,378,745Operating ExpensesPayroll (Admin) 3,564,000 3,920,400 4,312,440 4,743,684 5,218,052 5,739,858 6,313,843 6,945,228 7,639,751 8,403,726Fixed electricity 882,000 970,200 1,067,220 1,173,942 1,291,336 1,420,470 1,562,517 1,718,768 1,890,645 2,079,710Insurance expense 261,286 235,157 209,029 182,900 156,772 130,643 104,514 78,386 52,257 26,129Office Expense (Stationary,Entertainment,etc) 712,800 784,080 862,488 948,737 1,043,610 1,147,972 1,262,769 1,389,046 1,527,950 1,680,745Administrative & Factory Overheads 802,906 972,705 1,188,026 1,440,845 1,745,216 2,000,875 2,299,139 2,647,847 3,056,372 3,535,935Other expenses 60,000 66,000 72,600 79,860 87,846 96,631 106,294 116,923 128,615 141,477Amortization (Pre-operational Expenses) 151,100 151,100 151,100 151,100 151,100Depreciation 522,572 522,572 522,572 522,572 522,572 522,572 522,572 522,572 522,572 522,572Total 6,956,664 7,622,214 8,385,475 9,243,640 10,216,505 11,059,020 12,171,648 13,418,770 14,818,162 16,390,293Operating Profit 4,959,301 11,096,751 20,260,835 30,763,669 37,637,214 42,075,219 46,795,920 51,991,457 57,706,282 63,988,452Non-operating ExpensesFinancial Charges on Long-term Loan 1,132,026 967,419 776,475 554,979 298,044 0 0 0 0 0Financial Charges on Short-Term Loan 0 1,013,997 678,673 0 0 0 0 0 0 0Building Rentel 1,800,000 1,980,000 2,178,000 2,395,800 2,635,380 2,898,918 3,188,810 3,507,691 3,858,460 4,244,306Total 2,932,026 3,961,416 3,633,148 2,950,779 2,933,424 2,898,918 3,188,810 3,507,691 3,858,460 4,244,306Profit Before Tax 2,027,274 7,135,335 16,627,687 27,812,890 34,703,790 39,176,301 43,607,111 48,483,766 53,847,823 59,744,146Tax 506,819 1,783,834 4,156,922 6,953,222 8,675,948 9,794,075 10,901,778 12,120,941 13,461,956 14,936,037Profit After Tax 1,520,456 5,351,501 12,470,765 20,859,667 26,027,843 29,382,226 32,705,333 36,362,824 40,385,867 44,808,110

PROJECTED INCOME STATEMENT


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1133..22.. PPrroojjeecctteedd BBaallaannccee SShheeeett

Const. Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Current AssetsCash 2,154,373 2,154,373 2,154,373 6,040,009 22,300,710 43,901,477 71,166,496 101,488,037 135,173,827 172,560,094 225,474,392Stocks and Inventory 3,951,360 4,445,280 4,978,714 5,554,377 6,469,216 7,116,138 7,827,751 8,610,526 9,471,579 10,418,737 0Receivable 0 16,058,126 18,826,548 22,206,094 25,953,372 30,228,045 33,250,850 36,575,934 40,233,528 44,256,881 48,682,569Equipment and spare part inventory 2,092 2,197 2,306 2,422 2,543 2,670 2,803 2,944 3,091 3,245 3,408Pre-paid insurnace payment 261,286 235,157 209,029 182,900 156,772 130,643 104,514 78,386 52,257 26,129 0Pre-paid building rent 1,800,000 1,980,000 2,178,000 2,395,800 2,635,380 2,898,918 3,188,810 3,507,691 3,858,460 4,244,306 4,668,736Total 8,169,111 24,875,132 28,348,969 36,381,602 57,517,993 84,277,891 115,541,224 150,263,518 188,792,742 231,509,392 278,829,105Gross Fixed Assets 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 5,225,720 Less: Accumulated depreciation 0 522,572 1,045,144 1,567,716 2,090,288 2,612,860 3,135,432 3,658,004 4,180,576 4,703,148 5,225,720Net Fixed Assets 5,225,720 4,703,148 4,180,576 3,658,004 3,135,432 2,612,860 2,090,288 1,567,716 1,045,144 522,572 0Intangible AssetsPre-operational Expenses 755,500 604,400 453,300 302,200 151,100 0Total 755,500 604,400 453,300 302,200 151,100 0 0 0 0 0 0Total Assets 14,150,331 30,182,680 32,982,845 40,341,806 60,804,525 86,890,751 117,631,512 151,831,234 189,837,886 232,031,964 278,829,105Current LiabilitiesRunning Finance 0 7,242,833 4,847,668 0 0 0 0 0 0 0 0Accounts payable 8,297,856 9,335,088 10,455,299 11,664,192 13,585,354 14,943,889 16,438,278 18,082,106 19,890,316 21,879,348Total 0 15,540,689 14,182,756 10,455,299 11,664,192 13,585,354 14,943,889 16,438,278 18,082,106 19,890,316 21,879,348Long-term liabilitiesLong-term Loan 7,075,165 6,046,370 4,852,967 3,468,620 1,862,777 0 0 0 0 0 0Total 7,075,165 6,046,370 4,852,967 3,468,620 1,862,777 0 0 0 0 0 0EquityPaid-up Capital 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165 7,075,165Retained Earnings 0 1,520,456 6,871,957 19,342,722 40,202,389 66,230,232 95,612,458 128,317,791 164,680,615 205,066,482 249,874,592Total 7,075,165 8,595,621 13,947,122 26,417,887 47,277,555 73,305,397 102,687,623 135,392,956 171,755,780 212,141,647 256,949,757Total Liabilities And Equity 14,150,331 30,182,680 32,982,845 40,341,806 60,804,525 86,890,751 117,631,512 151,831,234 189,837,886 232,031,964 278,829,105

PROJECTED BALANCE SHEET


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Rs `000'Const. Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Operating activitiesNet profit 1,520,456 5,351,501 12,470,765 20,859,667 26,027,843 29,382,226 32,705,333 36,362,824 40,385,867 44,808,110Amortization (Pre-operational Expenses) 151,100 151,100 151,100 151,100 151,100 0 0 0 0 0Depreciation 522,572 522,572 522,572 522,572 522,572 522,572 522,572 522,572 522,572 522,572Up-front insurance payment (261,286) 26,129 26,129 26,129 26,129 26,129 26,129 26,129 26,129 26,129 26,129Equipment and spare part inventory (2,092) (105) (110) (115) (121) (127) (133) (140) (147) (155) (162)Accounts receivable (16,058,126) (2,768,422) (3,379,546) (3,747,278) (4,274,673) (3,022,805) (3,325,085) (3,657,593) (4,023,353) (4,425,688)Stocks-RM (3,951,360) (493,920) (533,434) (575,664) (914,839) (646,922) (711,614) (782,775) (861,053) (947,158) 10,418,737Accounts payable 8,297,856 1,037,232 1,120,211 1,208,894 1,921,161 1,358,535 1,494,389 1,643,828 1,808,211 1,989,032Cash provided by operations (4,214,738) (6,034,038) 3,786,568 10,335,451 18,106,124 23,727,082 27,554,910 30,640,422 34,036,560 37,772,113 53,338,729Financing acivitiesLong term debt principal repayment (1,028,795) (1,193,403) (1,384,347) (1,605,843) (1,862,777) 0 0 0 0 0Add: buliding rent expense 1,800,000 1,980,000 2,178,000 2,395,800 2,635,380 2,898,918 3,188,810 3,507,691 3,858,460 4,244,306Building rent payment (1,800,000) (1,980,000) (2,178,000) (2,395,800) (2,635,380) (2,898,918) (3,188,810) (3,507,691) (3,858,460) (4,244,306) (4,668,736)Adition to debt 7,075,165Issuance of share 7,075,165Running Finance Repayment (7,242,833) (4,847,668) 0 0 0 0 0 0 0Cash provided by/ (used for) financin 12,350,331 (1,208,795) (8,634,236) (6,449,815) (1,845,423) (2,126,315) (289,892) (318,881) (350,769) (385,846) (424,431)Total 8,135,593 (7,242,833) (4,847,668) 3,885,637 16,260,701 21,600,767 27,265,018 30,321,541 33,685,791 37,386,267 52,914,298Investing activitiesCapital expenditure (5,981,220)Cash (used for)/ provided by invetsin (5,981,220)Cash balance brought forward 0 2,154,373 2,154,373 2,154,373 6,040,009 22,300,710 43,901,477 71,166,496 101,488,037 135,173,827 172,560,094Net Cash 2,154,373 (5,088,461) (2,693,295) 6,040,009 22,300,710 43,901,477 71,166,496 101,488,037 135,173,827 172,560,094 225,474,392

PROJECTED CASH FLOW STATEMENT

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1133..33.. PPrroojjeecctteedd CCaasshh FFllooww SSttaatteemmeenntt


1144.. KKEEYY AASSSSUUMMPPTTIIOONNSS

TTaabbllee 1144--11 MMaacchhiinneerryy AAssssuummppttiioonnss Number of Machines Installed 32 Installed capacity 100% Initial year capacity utilization 70% Maximum capacity utilization 90% Capacity utilization growth rate 5% Defective garment rate (of total finished garments) 2% Total Production per day 1000

TTaabbllee 1144--22 OOppeerraattiinngg AAssssuummppttiioonnss Shifts operational per day 1Hours operational per shift 8Days operational per year 300

TTaabbllee 1144--33 EEccoonnoommyy--RReellaatteedd AAssssuummppttiioonnss Electricity growth rate 10%Wage growth rate 10%USD Conversion rate Rs. 85

TTaabbllee 1144--44 CCaasshh FFllooww AAssssuummppttiioonnss Accounts Receivable cycle (in days) 45Accounts payable cycle (in days) 30Raw material inventory (in days) 15Equipment spare part inventory (in days) 30

TTaabbllee 1144--55 RRaaww MMaatteerriiaall AAssssuummppttiioonnss Raw material cost growth rate (Year 1-4) 5%Raw material cost growth rate (Year 5-10) 10%Washing cost Rs. 30Washing cost growth rate 5%

TTaabbllee 1144--66 RReevveennuuee AAssssuummppttiioonnss Sales Price per unit USD 6.2Defected garment sales price Rs. 150Sales Price growth rate 10%


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TTaabbllee 1144--77 EExxppeennssee AAssssuummppttiioonnss

Administrative overhead (% of Sales) 1%Office expenses (stationery, entertainment etc) 20% of admin expenseFreight expense 1% of raw materialMachine maintenance (per month) 5% of machinery costMachine maintenance growth rate 5%Pre-paid building Rent (months) 12Pre-paid insurance (months) 12Admin and Factory overhead 0.75% of revenueInsurance rate (% of net fixed assets) 5%Spare part inventory 0.05% of machine costRent growth rate 10%Tax rate3 25%

TTaabbllee 1144--55 FFiinnaanncciiaall AAssssuummppttiioonnss

Project life (years) 10Debt 50%Equity 50%Interest rate on long-term debt 16%Interest rate on short term debt 14%Debt tenure (years) 5Debt payments per year 1Discount rate (weighted avg. cost of capital for NPV) 20%

3 Tax rate is fixed through out the project since the income falls in 25% tax deduction slab


21


AANNNNEEXXUURREE 11:: RRAAWW MMAATTEERRIIAALL && MMAACCHHIINNEERRYY SSUUPPPPLLIIEERRSS 1. Denim Fabric Suppliers i) US Apparel Pvt. Ltd.

Address: 26 M Gulberg III, Lahore

Contact No.: 042-5340034 042-5832528

ii) Azguard Nine Ltd.

Address: Ismail Aiwan-e-Sci Ferozpur, Lahore

Contact No.: 111-786-645

iii) Naveena Denim

Address: B21 Block 7/8 Banglore TW PECHS, Karachi

Contact No.: 021-4310630, 021-4310632

iv) Siddiqsons Denim Mills Limited

Address: D-53, Textile Ave, S.I.T.E, Karachi

Contact No.: 021-2577480, 021-2569591

2. Pocket Fabric Suppliers i) Crescent Textile Mills

Address: 40-A Off Zafar Ali Road,

Gulberg V, Lahore

Tel: +92-42-111-245-245

Fax: +92-42-111-222-245

Email: [email protected]

ii) Master Textile

Address: 82-C-1, Gulberg III, Lahore.

Tel: (92-42) 5392344-48

Fax: (92-42) 5392343

3. Label Suppliers i) Kohinoor Labels

Address: Street No. 2 Islam Nagar, Jail Road, Faisalabad

Phone: 041-32627544, 32631114

ii) Leather Connection

Address: Alam-Porvair City,Rohi Nala Bhoptian Chowk

9 KM Raiwind Rd Lahore


22


Phone: 042-35321406, 35321401

Fax: 042-35321407


4. Zip & Button Suppliers i) YKK Pakistan Pvt. Ltd.

Contact no.: 042-5792020-2, 021-35085677

5. Thread Suppliers i) Shah Alam market – Lahore

ii) J. & P. Coats Pakisan (Pvt.) Ltd.

Address: 4 - Nizam Block, Main Wahdat Road, Lahore.

UAN: 111-115-115

6. Machinery Suppliers i) Almurtaza Garments Machinery Co.

Address: 433- F, Johar Town,

Lahore.

Ph: 042- 5316171- 73.

Fax: 042- 5316174.

Cell: 0334- 4244202.

E. Mail: [email protected]

ii) Rex Machinery Pvt. Ltd.

Address: Rex Market, 6, Allama Iqbal Road

Lahore

Ph: 042-36375524-36369309



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AANNNNEEXXUURREE 22:: IINNCCOOMMEE TTAAXX DDEEDDUUCCTTIIOONN SSLLAABBSS

Income Slabs Tax Rate 0.00% 100,000 – 110,000 0.50% 110,000 – 125,000 1.00% 125,000 – 150,000 2.00% 150,000 – 175,000 3.00% 175,000 – 200,000 4.00% 200,000 – 300,000 5.00% 300,000 – 400,000 7.50% 400,000 – 500,000 10.00% 500,000 – 600,000 12.50% 600,000 – 800,000 15.00% 800,000 – 1,000,000 17.50% 1,000,000 – 1,300,000 21.00% 1,300,000 and above 25.00%


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smeda denim jeans stitching unit

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