production process of bags

Pre-Feasibility Study

LLEEAATTHHEERR GGOOOODDSS MMAANNUUFFAACCTTUURRIINNGG UUNNIITT (Ladies Hand Bags, Brief Cases, Belts, Wallets)

Small and Medium Enterprise Development Authority

Government of Pakistan www.smeda.org.pk

HEAD OFFICE Waheed Trade Complex, 1st Floor , 36-Commercial Zone, Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore

Tel: (042) 111-111-456, Fax: (042) 5896619, 5899756 [email protected]

REGIONAL OFFICE PUNJAB

REGIONAL OFFICE SINDH

REGIONAL OFFICE NWFP

REGIONAL OFFICE BALOCHISTAN

Waheed Trade Complex, 1st Floor, 36-Commercial Zone,

Phase III, Sector XX, Khayaban-e-Iqbal, DHA Lahore.

Tel: (042) 111-111-456 Fax: (042) 5896619, 5899756

[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) 9213046-47


Bungalow No. 15-A Chaman Housing Scheme

Airport Road, Quetta. Tel: (081) 831623, 831702


September, 2002

Pre-Feasibility Study Leather Hand bags, Briefcases, Belts & Wallets

PREF-61/September, 2002/1

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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. Therefore, the content of this

memorandum should not be relied upon for making any decision, investment or otherwise.

The prospective user of this memorandum is encouraged to carry out his/her own due

diligence and gather any information he/she considers necessary for making an informed

decision.

The content of the information memorandum does not bind SMEDA in any legal or other

form.

DOCUMENT CONTROL

Document No. PREF-61

Revision 1

Prepared by SMEDA-Punjab

Approved by GM Punjab

Issue Date September, 2002

Issued by Library Officer



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11 IInnttrroodduuccttiioonn

11..11 PPrroojjeecctt BBrriieeff The objective of this pre-feasibility study is to provide information regarding manufacturing of leather goods. The leather goods include items like ladies purses, ladies handbags, travel bags, waist belts, wallets, briefcases, etc.

This project has the capability of diversifying the product mix and enlarging the product length by producing other related products with the same infrastructure facilities. Passport holder, visiting card holder, mobile cover, optical glasses cover, phone index cover, key chains, camera cases, bandoleers, and hand gloves are some of the products that can be manufactured in this unit.

11..22 OOppppoorrttuunniittyy RRaattiioonnaallee Leather goods industry of Pakistan enjoys active demand in the foreign as well as domestic markets. Besides being a potential source of foreign exchange earnings, it provides an important means of diversification within leather industry by allowing conversion of domestically produced leather into higher value added leather goods.

Pakistan has an established manufacturing base for leather garments, leather gloves, leather goods and leather footwear. This sector is an important foreign exchange earner. The exports of this sector’s were $ 734.4 million during the year 2000-01.

This industry also provides employment opportunities for skilled and semi skilled labor, which is easily available in areas, where the clusters of this industry exist. The development of this industry not only offers attractive return on capital but is also advantageous to the economy as its exports maximize value addition to raw hide and skins.

The manufacturing bases for leather and leather products are shifting towards developing countries, primarily due to the high labor costs involved and the polluting nature of the industry. Pakistan has an edge of having vast resources of the raw material viz. hides and skins. The livestock raised in Pakistan includes cattle, buffaloes, sheep and goats, which provide a wide range of hides and skin resources. There were 7.4 million hides and 36.2 million skins available in 1999-00 with an average annual growth of 2.92% and 1.47% respectively. It is a traditional industry in Pakistan, with wide availability of skilled manpower, and personalized knowledge of raw materials and prices. The industry tends to be labor intensive. The low cost labor in Pakistan provides a cost advantage over other East Asian and developed countries. Government has also offered a variety of incentives to encourage the leather-related exports, which include:

Duty free imports of hide and skins Duty drawback on exports of leather goods. No duty no draw back facility under duty and tax remission system (the DTRE

system allows exporters to make duty free import of accessories or make sale tax free purchases form the local market on a permit issued by export collectorate)

Technical and marketing assistance for the private sector to promote the exports. Participation in international fairs and exhibitions at subsidized rates through EPB. Total duty exemption on import of machinery plant and equipment



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Sales tax on exports at zero-rated.

11..33 PPrrooppoosseedd CCaappaacciittyy The economic size of this pre-feasibility report is based on a unit with 12 stitching machines. The 12 stitching machines have a capacity to produce a product mix of 3,000 ladies handbags, 9,000 Wallets, 15,000 belts, and 3,000 briefcases per annum.

11..44 TToottaall PPrroojjeecctt CCoosstt The total initial cost of the project is approximately Rs 1.8 million.

22 CCuurrrreenntt iinndduussttrryy ssttrruuccttuurree 22..11 IInndduussttrryy CClluusstteerr aanndd SSiizzee According to the Leather directory 1994, there were 134 leather goods manufacturing units in the organized sector with an installed capacity of 7.5 million pieces per annum. Exact data of the size of the industry is not available due to the fact that most of the production comes from cottage industry and it is difficult to get precise statistics of the size of the industry and their installed capacity. The leather goods industry generally operates on small and unorganized scale and these units normally lacks modern technology and has underdeveloped accessories. The clusters of these industries are mostly concentrated in Karachi, Sialkot and Lahore. Largest cluster is in Karachi that comprised of 86 units and accounted for 64% of the total units and 66% of total labor employed.

TTaabbllee 22--11 LLeeaatthheerr GGooooddss IInndduussttrriiaall SSttrruuccttuurree iinn PPaakkiissttaann

Cities Units Installed Capacity (Million Pcs.) Employment Karachi 86 2.63 1,707Sialkot 42 4.15 773Islamabad 4 0.26 50Gujrat 1 0.06 8Lahore 1 0.40 35Total 134 7.50 2,573



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33 PPrroodduuccttiioonn pprroocceessss ffllooww FFiigguurree 33--11 PPrroocceessss FFllooww DDiiaaggrraamm

Pattern/Frames of theProduct & Cutting of

leather

Skiving

Folding of edges

Sticking of differentparts

Stitching

Fixing of locks &Accessories

Finishing quality check& Packing

3.1.1 Pattern/frames of the product & cutting of leather

In this process, dyes/pattern are made according to the shape and design requirements of the product and leather is cut into pieces of different sizes and shapes with the help of these dyes/patterns and hydraulic cutting press. For briefcases, wooden and hardboard frames are readily available in the market in different standard sizes like:

16”x3”x11” 17”x4”x12” 18”x3”x12.5” 18”x5”x12”

3.1.2 Skiving

Skiving is a process of scuffing the edges of the leather pieces, so that the leather can stick more effectively.



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3.1.3 Folding of edges

Skived edges are folded and different parts are glued before stitching.

3.1.4 Stitching

Glued parts of the product are stitched and unnecessary parts of leather and threads are removed/picked in this process.

3.1.5 Fixing of locks and accessories

The locks and accessories are fixed, which are easily available in local market

3.1.6 Finishing quality check and packing

Finished product is checked for the assured standards and products are packed.

44 RRaaww mmaatteerriiaall TTaabbllee 44--11 LLiisstt ooff RRaaww MMaatteerriiaall

Description Buffalo Calf Leather Silk Lining Metal Corners Zip Adhesive Material Buttons Wooden frame (for briefcases) Lock set and other allied accessories (for briefcases) Inner lining (for briefcases )

Industry mainly uses locally produced leather; however imported leather is also used, when specifically required by the buyers/importers for high quality leather goods. Imported as well as local accessories like zips, locks, buttons, hooks, etc. are available in the market.

44..11 PPaacckkiinngg From commercial point of view, there are leather goods (such as most of the travel goods and handbags), which are sold over the counter without special packaging and those (e.g. wallets, engagements pads or diaries) which are mostly presented and sold in their own (gift) boxes or bags.

Normally, an exporter in Pakistan uses cardboard boxes/cartons of different sizes depending on the buyer’s specifications and size of the products as packaging material.



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55 PPrroodduuccttiioonn

55..11 PPrroodduucctt MMiixx The proposed unit can produce a variety of leather products with the same infrastructure but it has been proposed in this study that the unit will produce the following products initially in the percentages mentioned below:

TTaabbllee 55--11 PPrroodduucctt MMiixx DDeettaaiillss

Description Production Percentage Ladies Handbags 10%Wallets 30%Belts 50%Briefcases 10%Total Production 100%

55..22 PPrroodduuccttiioonn CCaappaacciittyy The production capacity of the project is based on 12 stitching machines, which have a capacity to produce a product mix of 3,000 ladies handbags, 9,000 Wallets, 15,000 belts, and 3,000 briefcases per annum at 100% capacity. Capacity utilization for the first year is 60%, with 5% annual growth in production capacity and the maximum capacity utilization for the project of 90%.

TTaabbllee 55--22 CCaappaacciittyy DDeettaaiillss

Description Maximum Production per Year 100% Utilization 1st Year (60%) Ladies Handbags 3,000 pieces 1,800 pieces Wallets 9,000 pieces 5,400 piecesBelts 15,000 pieces 9,000 piecesBriefcases 3,000 pieces 1,800 piecesTotal 30,000 pieces 18,000 pieces



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66 MMaarrkkeettiinngg The size of local market in Pakistan for leather goods is very small. In order to cater to this market segment, marketing expenses will considerably rise so, the primary target of this unit will be the export market. The leather goods for consumer’s amount to almost 90 % of total goods market, while 10% is for industrial leather goods.

America and Europe are the major markets for leather goods, and account for 85% of total imports of leather goods in the world.

66..11 GGlloobbaall TTrraaddee ooff LLeeaatthheerr GGooooddss Total global trade for leather goods was almost US$ 5.7 Billion in 1999. Historical Detail of leather goods export is given in the below table:

TTaabbllee 66--11 GGlloobbaall TTrraaddee ooff LLeeaatthheerr GGooooddss11 ((UUSS$$ MMiilllliioonnss)) Description 1995 1996 1997 1998 1999 World 5,911 6,006 5,905 5,732 5,653 Growth %age 2% -2% -3% -1%

66..22 MMaajjoorr WWoorrlldd EExxppoorrtteerrss Italy is the largest exporter of leather goods as a whole and exported 16.54% of the leather goods trade in 1999. Other exporters of leather include China and Korea, which accounted for about 43% of the total international market of leather.

Major world exporters of leather goods are Italy, China, France, Germany and Korea. The export details are given in the following table:

TTaabbllee 66--22 DDeettaaiillss ooff MMaajjoorr EExxppoorrtteerr CCoouunnttrriieess iinn UUSS DDoollllaarrss ((MMiilllliioonnss))22

Country % Share in 1999Italy 16.54%France 16.16%China 13.36%Korea 5.08%

66..33 MMaajjoorr WWoorrlldd IImmppoorrtteerrss USA is the biggest importer of leather goods and, in 1999, accounted for 26% of the total imports, an average amount of US$ 3,000 million. Hong Kong is second with nearly 17% of total imports. The details of the major importers are given in the below table:

1 Trade Analysis System, year 1999, UNSD 2 Trade Analysis System, year 1999, UNSD



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TTaabbllee 66--33 DDeettaaiillss ooff MMaajjoorr IImmppoorrtteerr CCoouunnttrriieess iinn UUSS $$ ((MMiilllliioonn))

Country % of Share in 99 USA 25.84%Hong Kong 17.12%Japan 15.93%Germany 6.39%

66..44 EEuurrooppeeaann MMaarrkkeett The European Union ranks amongst the leading markets for leather goods in the world. In 1997, EU demand for leather products was estimated to be US$ 7,000 million. Four countries dominate the EU leather goods market and their detail is given below:

TTaabbllee 66--44 DDeettaaiillss ooff MMaajjoorr IImmppoorrtteerr CCoouunnttrriieess iinn EEUU MMaarrkkeett

Country % of Total EU Market Germany 20%France 16%Italy 16%United Kingdom 10%Others 38%Total 100%

Demand for travelers requisites (suit cases, brief cases, document cases, travel bags, rucksacks and computer cases, and other office related cases) has increased vigorously as more people travel on holiday or business. The EU ranks among the leading importers of leather goods in the world. In 1997, the EU imported more than 25% of the world’s leather goods or 529 thousand tons with a value of US$ 5,094 million.

66..55 PPaakkiissttaann’’ss EExxppoorrttss ooff LLeeaatthheerr GGooooddss In 1999, Leather goods accounted for $9 million in foreign exchange earnings, which is nearly 2% of total leather exports of Pakistan. The leather goods market as a whole has shown a negative trend, in Pakistan, the leather goods market has decreased by an annual average of 3% in last five years. In the year 2000-2001, the exports of Pakistan have increased from $9 million to nearly $15 million, which is an increase by more then 66%.

TTaabbllee 66--55 PPaakkiissttaann LLeeaatthheerr EExxppoorrtt TTrreennddss iinn UUSS DDoollllaarrss ((MMiilllliioonn))

Years 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 Value 11.16 12.06 13.46 8.81 9.02 15 Growth % 8% 11.6% -34.5% 2.8% 66%



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66..66 PPaakkiissttaann’’ss TTrraaddiinngg PPaarrttnneerrss Some of the leading importers from Pakistan include USA, Germany and United Arab Emirates. The details of the major importers of Pakistani leather goods are given in the below table:

TTaabbllee 66--66 PPaakkiissttaann TTrraaddiinngg PPaarrttnneerrss ooff LLeeaatthheerr GGooooddss

Country 1998 % Share 1999 % Share USA 1.335 15.15% 1.656 18.37% Germany 1.079 12.24% 0.944 10.47% United Arab Emirates 1.673 18.99% 0.748 8.30% United Kingdom 0.408 4.63% 0.515 5.71%

Within the leather goods category, Pakistan produces both industrial and consumer leather goods. Leather industrial goods comprise of the bulk of Pakistan’s exports of leather goods.

TTaabbllee 66--77 PPaakkiissttaann EExxppoorrttss DDeettaaiillss ooff LLeeaatthheerr GGooooddss iinn UUSS DDoollllaarrss ((MMiilllliioonn))

Description (Category Wise) 1995 1996 1997 1998 1999 Industrial Goods 6.36 8.61 9.80 4.75 6.25 Consumer Goods 4.81 3.45 3.66 4.06 2.77



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77 MMaacchhiinneerryy && EEQQUUIIPPMMEENNTT TTaabbllee 77--11 MMaacchhiinneerryy DDeettaaiillss

Description Machines Required

Cost/Machine (Rs)

Total Cost (Rs)

Hydraulic Cutting Press (Ngaushing SL 999-5, Japan)

1 430,000 430,000

Cutting Machine 1 96,000 96,000Strap Cutting 1 20,000 20,000Skiving Machine 2 25,000 50,000Needle Lock stitch Machine 12 31,000 372,000Single Needle Block 1 41,000 41,000Single Needle Post-Bed Needle Feed 1 110,000 110,000Dyes for Hydraulic Cutting 60 200 12,000Total (Rs) 1,131,000

All the required stitching machinery is easily available in the market. The stitching machinery is available in quite a diversified range of suppliers & origins, i.e. Japanese, Italian, Chinese, Korean and Taiwanese origin. Other brands of stitching and other machines are also available i.e. Brothers, Singer, etc. Juki machines have been suggested due to their durability and easy availability of spare parts in the market.

TTaabbllee 77--22 OOtthheerr EEqquuiippmmeenntt DDeettaaiillss

Description Number Rate (Rs) Cost (Rs) Furniture & Fixtures 75,000 75,000Office Equipment Fax Machine 1 10,000 10,000Computer 1 30,000 30,000Printer 1 20,000 20,000Air conditioner 1 40,000 40,000 Total Cost 175,000



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88 HHuummaann rreessoouurrccee rreeqquuiirreemmeenntt This sector normally follows piecework system. Normally, there are 10-15 different process involved in leather goods manufacturing. The leather goods industry of Pakistan, especially export based, is dependent on job orders and thus, there is an aversion to employ workers on long term basis. So, the exporters prefer to employ labor under contract system. However, the units that have regular export orders prefer to employ permanent labor on piece rate system.

The detail of the human resource requirement for the proposed unit is given in the below table:

TTaabbllee 88--11 HHuummaann RReessoouurrccee RReeqquuiirreemmeenntt DDeettaaiill

Description Number Salary/month (Rs.) Annual salary (Rs)(1st Year)

Production Staff Production Supervisor/Manager 1 10,000 120,000Cutting Master 1 7,000 84,000Cutter 1 3,000 36,000Labor (Stitching & Skiving)3 927,000Quality Supervisor /Controller 1 6,000 72,000Helper 4 3,000 144,000Administrative Staff Owner 1 30,000 360,000Accounts officers 1 6,000 72,000Peon 1 2,000 24,000Security Guards 1 2,500 30,000Total 1,869,000

3 Paid on per piece basis. The staff is paid Rs. 150 per ladies bag, Rs 30 per wallet, Rs 15 per belt and Rs 200 for each briefcase manufactured.



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99 LLaanndd && BBuuiillddiinngg

99..11 TToottaall LLaanndd RReeqquuiirreemmeenntt The detail about the area requirement for the proposed leather goods manufacturing unit of 12 stitching machines is given below:

TTaabbllee 99--11 CCoovveerreedd AArreeaa RReeqquuiirreemmeenntt

Description Required Area (sq. ft). Stitching & Finishing Hall 1,400Inspection & Cutting Area 400Store 250Accounts & Admin. Office 300Owner's Office 150Total: 2,500

99..22 RReenntt DDeettaaiillss It is recommended that this project should be started in a rented building, as this will reduce the initial capital cost of the project. An appropriate premises is generally available in many commercial/industrial areas of the main clusters of leather industry. One year rent will be paid in advance.

TTaabbllee 99--22 RReenntt CCoosstt

Rent Cost Monthly Rent (Rs) Annual Rent (Rs) Building rent cost 15,000 180,000

99..33 SSuuiittaabbllee LLooccaattiioonnss The clusters of leather goods manufacturing industry exist predominantly in Karachi, Sialkot and Lahore. Most of the manufacturers are based in these major cities, so it is recommended that such unit should be started in these areas. The basic criteria for the selection of location within these clusters should be the accessibility of skilled manpower and easy accessibility of raw material. Also, basic utilities like electricity, water and public transport are a must for the establishment of such sort of unit.

99..44 UUttiilliittiieess RReeqquuiirreemmeennttss

• Electricity • Telephone • Water



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1100 PPrroojjeecctt EEccoonnoommiiccss TTaabbllee 1100--11 PPrroojjeecctt CCoosstt//CCaappiittaall RReeqquuiirreemmeennttss

Project Costs Plant & Machinery 1,131,000Furniture & Fixtures 75,000Office Equipment 100,000Pre-Operating Costs4 30,000Total Fixed Cost 1,336,000 Minimum Cash on hand 50,000Raw Material Inventory 197,680Advance Building rent 180,000Pre paid Insurance 33,930Working Capital 461,610 Total Investment in Project 1,797,610

TTaabbllee 1100--22 FFiinnaanncciinngg PPllaann

Equity 50 % 898,805Debt 50 % 898,805Total Financing 1,797,610

TTaabbllee 1100--33 PPrroojjeecctt RReettuurrnnss Internal Rate of Return 62%Net Present Value (NPV) (Rs) 3,872,486Payback Period (Years) 2.41

4 These expenses are incurred before the unit is operational, e.g. salaries of key personal for 1 month, stationery, company formation expenses, legal and registration charge, etc.



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1111 KKeeyy ssuucccceessss ffaaccttoorrss The commercial viability of the leather goods manufacturing unit depends on the regular export orders, which means a very effective marketing of the product in the international market.

Following are some of the important factors for success of such a business:

• Producers should not restrict themselves to copying. They should be more innovative and develop their own designs, which can be adapted to the buyers’ specifications.

• When setting up export line for the first time, producers should not start with the most fashion-sensitive items like women’s handbags, which change style every six months or so. Producer could start, for example, with travel goods, small leather goods, lines that stay longer in fashion and therefore offer producers a greater chance of setting up a stable export business.

• Leather goods producer should concentrate on producing goods that can be made from leather that is easily available in the local market.

Real commercial power lies only in cooperation between an exporter and an importer. Becoming a team and working closely together is the best way and perhaps the only way to success. To achieve this, trading partners must listen to each other’s ideas and understand each other’s problems.

Some other factors which are important and have be ensured to make this business a success are as following:

♦ Assurance of high consistent quality. ♦ Surety of products delivery on time. ♦ Competitive Rates. ♦ Cost efficiency through better managerial techniques. ♦ Better services to customers, i.e. claim settlement, etc.

1122 TThhrreeaattss ffoorr tthhee bbuussiinneessss

1122..11 TThhrreeaattss

The level of technology being used is very low. This not only reduces the production capacity of the smaller manufacturers, but also affects the quality of their product, thereby affecting their competitive edge in the international markets. Some of the threats of the business are as following:

Underdeveloped accessories. Inefficient marketing. Lack of modern technology in SMEs and difficult access of credit for SMEs are the

major problem hindering growth of this industry. Economies of scale is a important factor, as most of units in Pakistan have small

capacity, which means higher cost, and this results in decreasing competitiveness in the international markets.



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1133 ffiinnaanncciiaall aannaallyyssiiss

1133..11 PPrroojjeecctteedd IInnccoommee SSttaatteemmeenntt

PROJECTED INCOME STATEMENT SMEDA

Const Year Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10

Sales 8,208,806 9,481,171 10,950,752 12,648,119 14,608,577 16,872,907 19,488,207 22,508,880 25,997,756 29,033,903

COST OF GOODS SOLDRaw Material 4,023,792 4,647,480 5,367,839 6,199,854 7,160,832 8,270,760 9,552,728 11,033,401 12,743,578 14,231,837Packaging Cost 88,200 101,871 117,661 135,898 156,963 181,292 209,392 241,848 279,334 311,956Payroll (Production Staff) 1,383,000 1,572,285 1,788,401 2,035,257 2,370,047 2,697,786 3,136,139 3,570,794 4,067,677 4,523,723Machine Maintenance 30,173 23,338 18,141 14,180 11,152 8,829 7,040 5,657 4,582 3,741Direct Electricity 203,040 223,344 245,678 270,246 297,271 326,998 359,698 395,668 435,234 478,758Stationary 82,088 94,812 109,508 126,481 146,086 168,729 194,882 225,089 259,978 290,339Freight Charges 164,176 189,623 219,015 252,962 292,172 337,458 389,764 450,178 519,955 580,678

Total 5,974,469 6,852,753 7,866,244 9,034,879 10,434,522 11,991,853 13,849,644 15,922,634 18,310,338 20,421,032

Gross Profit 2,234,337 2,628,418 3,084,509 3,613,240 4,174,056 4,881,054 5,638,564 6,586,245 7,687,418 8,612,871

OPERATING EXPENSEPayroll (Admin) 486,000 534,600 588,060 646,866 711,553 782,708 860,979 947,077 1,041,784 1,145,963Fixed electricity 41,040 45,144 49,658 54,624 60,087 66,095 72,705 79,975 87,973 96,770Insurance Expense 25,448 19,086 14,314 10,736 8,052 6,039 4,529 3,397 2,548 1,911Administrative & Factory Overheads 123,132 142,218 164,261 189,722 219,129 253,094 292,323 337,633 389,966 435,509Amortization (Pre-operational Expenses) 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000Depreciation 300,250 227,813 173,222 132,043 100,946 77,431 59,624 46,113 35,840 28,010Total 978,870 971,860 992,516 1,036,990 1,102,765 1,188,367 1,293,159 1,417,195 1,561,111 1,711,162

Operating Profit 1,255,468 1,656,558 2,091,993 2,576,249 3,071,290 3,692,687 4,345,405 5,169,051 6,126,307 6,901,709

NON-OPERATING EXPENSEFinancial Charges on Long-term Loan 153,696 121,339 88,982 56,625 24,268 - - - - - Building Rental 180,000 198,000 217,800 239,580 263,538 289,892 318,881 350,769 385,846 424,431L C Charges 24,626 28,444 32,852 37,944 43,826 50,619 58,465 67,527 77,993 87,102Total 358,322 347,782 339,634 334,149 331,631 340,511 377,346 418,296 463,839 511,532

PROFIT BEFORE TAX 897,146 1,308,776 1,752,359 2,242,100 2,739,659 3,352,177 3,968,059 4,750,755 5,662,468 6,390,176Tax 61,560 71,102 82,123 94,852 109,554 126,534 146,147 168,800 194,964 217,733PROFIT AFTER TAX 835,586 1,237,674 1,670,236 2,147,249 2,630,105 3,225,642 3,821,912 4,581,955 5,467,504 6,172,444Retained Earnings beginning of year 835,586 835,586 2,073,260 3,743,496 5,890,745 8,520,850 11,746,493 15,568,404 20,150,359 25,617,863Retained Earnings end of year 835,586 2,073,260 3,743,496 5,890,745 8,520,850 11,746,493 15,568,404 20,150,359 25,617,863 31,790,306



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1133..22 PPrroojjeecctteedd BBaallaannccee SShheeeett

PROJECTED BALANCE SHEETSMEDA


Current AssetsCash 50,000 133,076 1,243,419 2,702,596 4,564,706 6,841,180 9,826,737 13,341,856 17,547,390 22,587,637 29,139,314 Up-Front Insurance payment 33,930 25,448 19,086 14,314 10,736 8,052 6,039 4,529 3,397 2,548 1,911 Stocks and Inventory 197,680 228,320 263,710 304,585 351,795 406,323 469,303 542,045 626,063 699,177 - Receivable 1,231,200 1,422,036 1,642,452 1,897,032 2,191,071 2,530,688 2,922,944 3,376,000 3,899,281 4,354,658 Pre-paid building rent 180,000 198,000 217,800 239,580 263,538 289,892 318,881 350,769 385,846 424,431 466,874 Total 461,610 1,816,043 3,166,050 4,903,526 7,087,807 9,736,518 13,151,648 17,162,144 21,938,696 27,613,073 33,962,756

Gross Fixed Assets 1,306,000 1,306,000 1,005,750 777,938 604,716 472,673 371,727 294,296 234,672 188,559 152,719 Less: Accumulated depreciation 300,250 227,813 173,222 132,043 100,946 77,431 59,624 46,113 35,840 28,010 Net Fixed Assets 1,306,000 1,005,750 777,938 604,716 472,673 371,727 294,296 234,672 188,559 152,719 124,709

Intangible AssetsPre-operational Expenses 30,000 27,000 24,000 21,000 18,000 15,000 12,000 9,000 6,000 3,000 - Total 30,000 27,000 24,000 21,000 18,000 15,000 12,000 9,000 6,000 3,000 -

Total Assets 1,797,610 2,848,793 3,967,987 5,529,242 7,578,480 10,123,245 13,457,944 17,405,816 22,133,255 27,768,793 34,087,466

Current LiabilitiesAccounts payable 395,359 456,640 527,419 609,169 703,590 812,647 938,607 1,084,091 1,252,125 1,398,354

Total 395,359 456,640 527,419 609,169 703,590 812,647 938,607 1,084,091 1,252,125 1,398,354

Long-term liabilitiesLong-term Loan 898,805 719,044 539,283 359,522 179,761 - - - - - - Total 898,805 719,044 539,283 359,522 179,761 - - - - - -

EquityPaid-up Capital 898,805 898,805 898,805 898,805 898,805 898,805 898,805 898,805 898,805 898,805 898,805 Retained Earnings - 835,586 2,073,260 3,743,496 5,890,745 8,520,850 11,746,493 15,568,404 20,150,359 25,617,863 31,790,306 Total 898,805 1,734,390 2,972,065 4,642,301 6,789,550 9,419,655 12,645,297 16,467,209 21,049,164 26,516,668 32,689,111

Total Liabilities And Equity 1,797,610 2,848,793 3,967,987 5,529,242 7,578,480 10,123,245 13,457,944 17,405,816 22,133,255 27,768,793 34,087,466



17

1133..33 PPrroojjeecctteedd CCaasshh ffllooww SSttaatteemmeenntt

PROJECTED CASH FLOW SMEDA


Net profit 835,586 1,237,674 1,670,236 2,147,249 2,630,105 3,225,642 3,821,912 4,581,955 5,467,504 6,172,444 Amortization (Pre operational expense) 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 Depreciation 300,250 227,813 173,222 132,043 100,946 77,431 59,624 46,113 35,840 28,010 Account Recievables (1,231,200) (190,836) (220,416) (254,580) (294,040) (339,616) (392,257) (453,056) (523,280) (455,377) Up front Insurance Payment (33,930) 8,483 6,362 4,771 3,579 2,684 2,013 1,510 1,132 849 637 Raw Material Inventory (197,680) (30,640) (35,390) (40,875) (47,211) (54,528) (62,980) (72,742) (84,017) (73,115) 699,177 Account Recievables 395,359 61,281 70,779 81,750 94,421 109,056 125,960 145,484 168,034 146,229

Cash Provided by Operations (231,610) 280,837 1,309,904 1,660,718 2,065,829 2,482,588 3,014,547 3,547,007 4,240,611 5,078,832 6,594,120

Financing activitiesLong term debt principal repayment (179,761) (179,761) (179,761) (179,761) (179,761) - - - - - Addition of Long Term Loan 898,805Add: building rent expense 180,000 198,000 217,800 239,580 263,538 289,892 318,881 350,769 385,846 424,431 Building rent payment (180,000) (198,000) (217,800) (239,580) (263,538) (289,892) (318,881) (350,769) (385,846) (424,431) (466,874)Issuance of share 898,805Cash provided by/ (used for) financing activities 1,617,610 (197,761) (199,561) (201,541) (203,719) (206,115) (28,989) (31,888) (35,077) (38,585) (42,443)

Total 1,386,000 83,076 1,110,343 1,459,177 1,862,110 2,276,473 2,985,558 3,515,119 4,205,534 5,040,248 6,551,677

Investing activitiesCapital expenditure (1,336,000) Cash (used for)/ provided by investing activities (1,336,000) - - - - - - - - - - Net Cash 50,000 83,076 1,110,343 1,459,177 1,862,110 2,276,473 2,985,558 3,515,119 4,205,534 5,040,248 6,551,677 Cash balance brought forward 50,000 50,000 133,076 1,243,419 2,702,596 4,564,706 6,841,180 9,826,737 13,341,856 17,547,390 22,587,637 Cash carried forward 50,000 133,076 1,243,419 2,702,596 4,564,706 6,841,180 9,826,737 13,341,856 17,547,390 22,587,637 29,139,314



18

1133..44 RRaattiioo AAnnaallyyssiiss

Ratio Analysis SMEDA

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Profitability ratiosGross profit margin on sales 27.2% 27.7% 28.2% 28.6% 28.6% 28.9% 28.9% 29.3% 29.6% 29.7%Operating Profit on Sales 15.29% 17.47% 19.10% 20.37% 21.02% 21.89% 22.30% 22.96% 23.56% 23.77%Net profit margin on sales 10.18% 13.05% 15.25% 16.98% 18.00% 19.12% 19.61% 20.36% 21.03% 21.26% ROA 29.33% 31.19% 30.21% 28.33% 25.98% 23.97% 21.96% 20.70% 19.69% 18.11%ROE 68.14% 55.62% 46.03% 39.23% 33.80% 30.38% 27.26% 25.33% 23.81% 21.59%

Liquidity ratiosCurrent ratio 4.66 6.99 9.34 11.66 13.86 16.20 18.29 20.24 22.06 24.29 Quick ratio (Acid Test) 4.08 6.41 8.76 11.09 13.28 15.62 17.72 19.66 21.50 24.29

Asset management ratios

Days sales outstanding 22 42 42 42 42 42 42 42 42 43 Fixed assets turnover ratio 8.16 12.19 18.11 26.76 39.30 57.33 83.04 119.37 170.23 232.81 Total assets turnover ratio 2.88 2.39 1.98 1.67 1.44 1.25 1.12 1.02 0.94 0.85

Debt management ratiosDebt ratio 25% 14% 7% 2% - - - - - - Times interest earned 8.17 13.65 23.51 45.50 126.56 - - - - -

Pre-Feasibility Study Leather Hand bags, Briefcases, Wallets & Belts

PREF-61/Sepetember, 2002/1

19

1144 KKeeyy AAssssuummppttiioonnss TTaabbllee 1144--11 OOppeerraattiinngg AAssssuummppttiioonnss Hours operational per day 8 Days operational per month 25 Days operational per year 300

TTaabbllee 1144--22 PPrroodduuccttiioonn AAssssuummppttiioonnss Annual production capacity 30,000 pieces Capacity utilization (1st Year) 60% Capacity growth rate (yearly) 5% Maximum Capacity utilization 90% First Year production utilization 18,000 pieces

TTaabbllee 1144--33 EEccoonnoommyy AAssssuummppttiioonnss

Electricity growth rate 10% Wages growth rate 10% Office equipment growth 5%

TTaabbllee 1144--44 CCaasshh FFllooww AAssssuummppttiioonnss Accounts Receivable cycle (in days) 45 Accounts Payable cycle (in days) 30 Raw material inventory (in days) 15 Cash at the start of Operations (Rs) 50,000

TTaabbllee 1144--55 DDeepprreecciiaattiioonn AAssssuummppttiioonnss Machinery & Equipment depreciation rate 25% Reducing Balance Method Furniture & Fixtures 10% Reducing Balance Method

TTaabbllee 1144--66 RReevveennuuee AAssssuummppttiioonnss

Weighted average sale prices Ladies Bags (Rs) 1,000 Per piece Wallets (Rs) 270 Per piece Belts (Rs) 150 Per piece Briefcases (Rs) 2,000 Per piece Wastage Leather sale Rate 1% of Leather Sale price Sale price growth rate 10% Wastage Price Growth Rate 1% Dollar conversation rate $1= Rs 60



20

TTaabbllee 1144--77 RRaaww MMaatteerriiaall AAssssuummppttiioonnss

Description Rate Usage per piece Leather Price (Rs) 60 per sq. ft Zip for Purses (per zip) (Rs) 10 3 zips per Purse Buttons for Purses (Rs) 5 Per product Buckle for belts (Rs) 15 Per Product Wooden Box (Rs) 150 Per Briefcase Lock Set. (Rs) 400 Per Briefcase Inner Linings (Rs) 32 Per Briefcase Adhesive material & Other 0.8% of leather Cost Leather Wastage Rate 3% Total Leather input Raw material price growth rate 10%

TTaabbllee 1144--88 EExxppeennssee AAssssuummppttiioonnss

Administrative overhead (% of sales) 1.5% of Revenue Office Expenses (stationery, entertainment, etc.) 1% of Revenue Freight charges 2% of Revenue Machine Maintenance cost 3% of Fixed Assets Insurance rate (Annual) 3% Rent growth rate 10% Pre-paid building rent (months) 12 LC Charges 0.3% of Revenue Tax Rate 0.75% of Revenue

TTaabbllee 1144--99 FFiinnaanncciiaall AAssssuummppttiioonnss

Project life (Years) 10 Equity 50% Debt 50% Interest rate on Long term Debt 18% Debt repayments (Installment per year) 2 Debt Tenure (Year) 5 Discount rate for calculation of NPV 25%



21

TTaabbllee 1144--1100 MMaatteerriiaall CCoosstt ooff LLaaddiieess BBaagg

Description Quantity Per Unit Total Cost in (Rs) Leather consumption 4.5 sq. ft Rs 60 per sq. ft 270Zip 3 Rs 10 per Zip 30Parachute Lining Rs 15 per piece 15Button 1 Rs 5 per Button 5Adhesive material 0.8% of leather consumption 2.16Total material cost 322.16

TTaabbllee 1144--1111 MMaatteerriiaall CCoosstt ooff WWaalllleett

Description Quantity Per Unit Total Cost in (Rs) Leather consumption 1.75 sq. ft Rs 60 per sq. ft 105Parachute Lining Rs 8 per piece 8Adhesive material 0.8% of leather consumption 0.84Packaging cost 1 Rs 3 3Total material cost 116.84

TTaabbllee 1144--1122 MMaatteerriiaall CCoosstt ooff BBeelltt

Description Quantity Per Unit Total Cost in (Rs) Leather consumption 0.625 sq. ft Rs 60 per sq. ft 37.5Buckle 1 Rs 15 15Adhesive material 0.8% of leather consumption 0.3Packaging cost Rs 3 3Total material cost 55.8

TTaabbllee 1144--1133 MMaatteerriiaall CCoosstt ooff BBrriieeffccaassee

Description Quantity Per Unit Total Cost in (Rs) Leather consumption 12 sq. ft Rs 60 per sq. ft 720Wooden box 150 150Lock set 400 400Inner lining 32 32Adhesive material 0.8% of leather consumption 5.76Packaging cost Rs 20 20Total material cost 1,327.76

TTaabbllee 1144--1144 DDiirreecctt LLaabboorr CCoossttss

Ladies Bag 150 per piece Briefcase 200 per piece Belt 15 per piece Wallet 30 per piece

production process of bags

Documents

information memorandum

information heshe

presented information

contained information

belts wallets pref

manufacturing of leather

document control document

dha lahore tel