smeda polo t-shirts stitching unit

Pre-Feasibility Study

GARMENTS STITCHING UNIT

(Polo T-shirt)

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: 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) 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]

March, 2012

Pre-Feasibility Study Garments Stitching Unit (Polo T-shirt)

PREF-03/March, 2012/3

1

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-03

Revision 3

Prepared by SMEDA-Punjab

Issue Date Mar 28, 2001

Revised on March, 2012

Issued By Library Officer

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



2

1 EXECUTIVE SUMMARY .................................................................................................... 3

2 INTRODUCTION TO SMEDA ............................................................................................ 4

3 PURPOSE OF THE DOCUMENT ....................................................................................... 4

4 PROJECT INTRODUCTION ............................................................................................... 5

4.1 PROJECT BRIEF .................................................................................................................. 5 4.2 OPPORTUNITY RATIONALE ................................................................................................ 5 4.3 PROPOSED CAPACITY: ....................................................................................................... 5 4.4 TOTAL PROJECT INVESTMENT: .......................................................................................... 5 4.5 PROPOSED BUSINESS LEGAL STATUS ................................................................................ 6 4.6 PROCESS FLOW CHART ...................................................................................................... 6

5 CURRENT INDUSTRY STRUCTURE ............................................................................... 6

6 MARKETING ......................................................................................................................... 8

6.1 GUIDELINES FOR GARMENTS EXPORT BUSINESS ............................................................... 8 6.2 TOTAL MARKET SIZE AND GROWTH ................................................................................. 9 6.3 WORLD EXPORTS OF POLO T-SHIRTS .............................................................................. 10

7 RAW MATERIAL ............................................................................................................... 10

8 HUMAN RESOURCE REQUIREMENTS ........................................................................ 11

9 MACHINERY & EQUIPMENT DETAILS ...................................................................... 12

9.1 MACHINERY LIST ............................................................................................................ 12 9.2 OTHER OPTIONS AVAILABLE FOR MACHINERY ............................................................... 12 9.3 FURNITURE & FIXTURE ................................................................................................... 12

10 LAND & BUILDING ....................................................................................................... 13

10.1 TOTAL LAND REQUIREMENT ........................................................................................... 13 10.2 RECOMMENDED MODE .................................................................................................... 13 10.3 SUITABLE LOCATIONS ..................................................................................................... 14 10.4 UTILITIES REQUIREMENTS ............................................................................................... 14

11 KEY SUCCESS FACTORS ............................................................................................. 14

12 THREATS FOR THE BUSINESS .................................................................................. 14

13 PROJECT COSTS & FINANCIAL ANALYSIS ........................................................... 16

13.1 TOTAL PROJECT COST AND RETURNS .............................................................................. 16 13.2 INCOME STATEMENT ....................................................................................................... 18 13.3 BALANCE SHEET ............................................................................................................. 19 13.4 CASH FLOW STATEMENT ................................................................................................. 20

14 ASSUMPTION .................................................................................................................. 21

15 ANNEXURE ...................................................................................................................... 23



3

11 EEXXEECCUUTTIIVVEE SSUUMMMMAARRYY

The local knitwear and apparel industries of Pakistan have, no doubt, made

tremendous strides over the last few decades. While there have been some periods

of slump in the past, for the past ten years the industry has been growing and

progressing quite steadily.

Pakistan's knitwear sector, which comprises 18,000 knitting machine, is the

leading growth sector in the entire textile chain with a growth potential estimated

at around 12% a year over the next five years, which would allow it to fetch more

than US$5bn in foreign exchange by 2014.1

The objective of the pre-feasibility study is to provide details about the investment

opportunity in a stitching unit for knitted garments. Mainly the production of this

unit will be for export purpose, and hence will contribute in the earning of foreign

exchange for the country. There is a vast range of knitted products like knitted T-

shirts, blouses, trousers and shorts etc. However, this unit is designed on basic

Polo T-shirt. Initially, for some time period, this unit will operate on CMT2

(commercial basis), but ultimately, this would be an export-oriented unit.

Therefore, all the calculations and financial workings have been done while

treating this as an export based project. This project will also have the potential

for horizontal as well as vertical integration.

The estimated cost of the project is Rs. 20.896 million. The project shall be

financed through 50% equity and 50% by Bank Loan. The project will be run by

qualified & experienced professionals. Projected IRR, NPV and Payback of the

proposed project are 34%, Rs. 33.089 million and 4.21 years respectively.

1 Pakistan Textile Journal

2 CMT: Cutting, Manufacturing and Trimming



4

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 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.

33 PPuurrppoossee ooff tthhee DDooccuummeenntt

The objective of this proposed Pre-feasibility Study is primarily to facilitate

potential entrepreneurs with the investment information and provide an overview

about the "Garments Stitching Unit (Polo T-shirt)". The project pre-feasibility

study 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, 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 Textile

related 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.



5

This particular Pre-feasibility is regarding setting up "Garments Stitching Unit

(Polo T-shirt)". This report is based on the information obtained from industry

sources as well as discussions made with businessmen and industry key players.

For financial model, since the forecast/projections relate to the future periods,

actual results are likely to differ because of the events and circumstances that

don’t occur as frequently as expected.

44 PPrroojjeecctt IInnttrroodduuccttiioonn

44..11 PPrroojjeecctt BBrriieeff

The subject pre-feasibility study provides details about the investment opportunity

in a stitching unit for knitted garments. Mainly the production of this unit will be

for export purpose, and hence will contribute in the earning of foreign exchange

for the country. There is a vast range of knitted products like knitted T-shirts,

blouses, trousers and shorts etc. However, this unit is designed on basic Polo T-

shirt. Initially, for some time period, this unit will operate on CMT3 (commercial

basis), but ultimately, this would be an export-oriented unit. Therefore, all the

calculations and financial workings have been done while treating this as an

export based project. This project will also have the potential for horizontal as

well as vertical integration.

44..22 OOppppoorrttuunniittyy RRaattiioonnaallee

Exports of knitted garments from Pakistan have been on a rise during the last few

years. The availability of suitable raw material, development of certain skill levels

and introduction of international brands with local garment manufacturers are

some of the favoring factors for further expansion of knit garments industry in the

country. Pakistan is fourth largest producer of Cotton after China, India and USA.

In addition to providing raw material to the local textile industry, the lint cotton is

an export item. During 2010-11, the crop was cultivated on an area of 2689

thousand hectares. The production is estimated at 11.5 million bales.4 Raw

material for Socks Manufacturing unit is easily available in local market so this

validates the opportunity to set up a new sock manufacturing unit to capture the

need of expanding market.

44..33 PPrrooppoosseedd CCaappaacciittyy::

1600 T-Shirts / Day (53 Stitching Machines)

44..44 TToottaall PPrroojjeecctt IInnvveessttmmeenntt::

The total cost of the project is estimated at Rs. 20.896 million.

3 CMT: Cutting, Manufacturing and Trimming

4 Economic Survey of Pakistan 2010-11 (Ch #2, Page # 17)



6

TTaabbllee 44--11:: PPrroojjeecctt IInnvveessttmmeenntt

Capital Investment Rs. 16,573,117

Working Capital Requirement Rs. 4,323,083

Total Investment Rs. 20,896,200

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.

TTaabbllee 44--22:: PPrroojjeecctt FFiinnaanncciinngg

Debt 50% Rs. 10,448,100

Equity 50% Rs. 10,448,100

Total project Investment Rs. 20,896,200

44..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 Sole Proprietorship.

44..66 PPrroocceessss ffllooww CChhaarrtt

The following figure shows the production process flow of Garments Stitching

Unit (Polo T-shirt).

FFiigguurree 44--11:: PPrroodduuccttiioonn PPrroocceessss FFllooww

Finished Fabric

ReceiptInspection Cutting Stitching Trimming

Washing

(Optional)

Final

Inspection

Pressing Packing

55 CCUURRRREENNTT IINNDDUUSSTTRRYY SSTTRRUUCCTTUURREE

The local knitwear and apparel industries of Pakistan have, no doubt, made

tremendous strides over the last few decades. While there have been some

periods of slump in the past, for the past ten years the industry has been

growing and progressing quite steadily. The major problem with our industry

is that it is still geared to make lower value added products as against other

countries in the same region who have very quickly progressed to produce

higher value added products. Countries like Sri Lanka, Bangladesh, Vietnam,

Indonesia and now even India have improved the quality of their products. In



7

Pakistan this has resulted in a concentration on low quality segments of the

textile products with very low margins.

At present there are about 18,000 knitting machines in this industry,

producing about 1.4 billion pieces. Out of this production, 60% comprises

jersey, knitted fabric, T-shirts, sweat shirts, polo shirts, jogging suits, track

suits and children outer wear5. Total exports of Pakistan for Polo T-Shirts

stood at 363 million US Dollars. Major partner Countries for exports are as

shown in the table below:

TTaabbllee 55--11:: PPaakkiissttaann’’ss EExxppoorrttss ooff PPoolloo TT--SShhiirrttss66

Partner Trade value in US $ (Millions) %age Change

2008 2009 2010 2009 2010

USA 275.20 216.58 273.06 -21% 26%

UK 32.33 25.07 40.68 -22% 62%

Spain 12.36 12.07 10.03 -2% -17%

Canada 5.12 4.34 7.92 -15% 82%

Belgium 3.91 5.22 7.09 34% 36%

Germany 6.31 3.90 6.26 -38% 61%

Italy 3.99 3.26 3.50 -18% 7%

France 1.28 1.45 2.36 14% 62%

Netherlands 3.75 3.21 1.95 -14% -39%

UAE 1.64 1.97 1.80 20% -8%

Rest of the World 9.49 8.01 9.20 -16% 15%

The industry is characterized by majority of the manufacturing units located in

few major cities. Major concentration of the industry is in Lahore and Karachi.

Other hubs are Faisalabad, Gujranwala, and Sialkot.

5 Pakistan Textile Journal

6 Source: UN Comtrade



8

66 MMAARRKKEETTIINNGG

In view of the fact that main raw material and skilled manpower is available in

Pakistan, scope for garment exports from Pakistan is unlimited. Effective

marketing plays a very crucial role for making this business a success.

Export orders can be generated either through local or foreign buying houses

that have their presence in the country and source export orders for foreign

customers from local industry. The other way to get export orders is through

direct marketing in the international markets while initiating contacts with

potential customers directly and/or through participation in international trade

fairs, exhibitions etc. In the absence of export orders, other factories that have

excess export orders can also provide sub-contract work on CMT basis.

66..11 GGuuiiddeelliinneess ffoorr GGaarrmmeennttss EExxppoorrtt BBuussiinneessss

In order to enter into the export business of garments, following basic

guidelines can provide help to any new comer in this business:

a) Ensure best quality at all costs. This is a basic key for a successful

exporter in the garment exports.

b) Commitments with buyers regarding quality, price and shipment are

basic essentials to enter and grow in the export business. Pakistan has

lost much business and goodwill due to this factor alone. Therefore, for

any newcomer, commitments with the buyers should be met very

seriously.

c) Sourcing of export orders, through several apparel buying houses based

in Pakistan, can be a good startup point of marketing efforts. The prices

offered by these buying houses might be lower than those of direct

orders, but at least they can be good entry point and learning experience

for new exporters

d) Many garment factories are considering it worthwhile setting up their

overseas offices and warehouses in the potential markets. Overseas

office cannot only assist in sales, but also keep the garment factory

continuously informed about the latest design changes, buyers'

requirements and market trends. Warehouses of supplier(s) in the

customer's country make it convenient for the customer to make the

purchase decisions effectively as in this case customer gets the required

products on LDP (Landed Duty Paid) basis and without any hassle of

being involved in shipment and import procedures.

e) The professional marketing staff and owner(s) should regularly visit

international clothing fairs, shows and exhibitions. Such events provide



9

very promising opportunities to penetrate in the international markets,

meeting new customers and negotiating orders7.

f) In order to be successful in the market, it is very important to be active

and quick in response to the customers. Being flexible with buyers

regarding their requests and requirements can help to develop mutual

understandings with them. Many buyers themselves guide the

manufacturer in correct designing, fabric and accessories selection and

procurement, improvements in production and quality control etc.

g) Regular subscriptions with local and foreign textile trade and fashion

magazines will ensure the flow of latest marketing and trade information

to the exporter.

66..22 TToottaall MMaarrkkeett SSiizzee aanndd GGrroowwtthh

Total global trade value of T-shirts is more than $5 billion. USA is the largest

importing country with a share of 29% and a total value of $1.60 billion. USA

is a rapidly growing market with annual growth rates of 12% from last year.

Germany is the second largest importer in this category with imports of $ 449

million. However, German market has been stagnant during last many years

and has grown by only 6% from last year.

China is the third largest importer with total imports of $416 million. Other

major importers are given in the following table:

TTaabbllee 66--11:: IInntteerrnnaattiioonnaall IImmppoorrtt MMaarrkkeett SSttaattiissttiiccss88

Country Value (US $ Million ) %age change

2009 2010 2010

USA 1,425 1,597 12%

Germany 424 449 6%

China 353 416 18%

UK 320 388 21%

Italy 349 364 4%

France 337 324 -4%

Japan 260 273 5%

Spain 247 238 -4%

7 The calendar of such events can be obtained from TDAP.




10

66..33 WWoorrlldd EExxppoorrttss ooff PPoolloo TT--SShhiirrttss

The total export volume for exports of Polo T-shirts in the world has been

around 5 billion US Dollars in the year 2010.

TTaabbllee 66--22:: WWoorrlldd eexxppoorrttss ooff PPoolloo TT SShhiirrttss99

Country Value (US $ Million ) %age Change

2009 2010 2010

China 861 1064 24%

China, Hong Kong SAR 480 564 18%

Pakistan 285 363 27%

India 414 351 -15%

Germany 227 235 4%

Peru 183 230 26%

Italy 196 205 5%

Turkey 188 170 -10%

77 RRAAWW MMAATTEERRIIAALL

The main raw materials used in the manufacturing of Polo T-shirts are listed

below:

Printed or dyed knitted fabric (may be 100% Cotton or Polyester/Cotton in

different ratios)

Buttons

Threads

Labels

Zippers

Packing material




11

88 HHUUMMAANN RREESSOOUURRCCEE RREEQQUUIIRREEMMEENNTTSS

For a garment-stitching unit of 52 stitching machines, following manpower is

required:

TTaabbllee 88--11:: HHuummaann RReessoouurrccee RReeqquuiirreemmeennttss

Positions Required No.

of Staff

Monthly Salary

(Rs.)

Annual Salary

(Rs.)

CEO 1 60,000 720,000

Production Manager 1 50,000 600,000

Marketing Manager 1 50,000 600,000

Production Planning

Officer

1 25,000 300,000

Accounts Officer 1 20,000 240,000

Purchase Officer 1 20,000 240,000

Marketing Staff 2 20,000 480,000

Stitching Supervisor 1 15,000 180,000

Cutting Master 1 15,000 180,000

Technician/Electrician 1 15,000 180,000

Spot Washer 1 10,000 120,000

Machine Operator 52 9,000 5,616,000

Rowing Inspector 2 8,000 192,000

Sampling Stitcher 2 8,000 192,000

Finishing Supervisor 1 7,500 90,000

R/I Supervisor 1 7,500 90,000

Cutting Helper 2 7,500 180,000

Clippers 6 7,500 540,000

Stain Remover 1 7,500 90,000

Iron Presser 3 7,500 270,000

Rafugar 1 7,500 90,000

Packing Staff 3 7,500 270,000

Helper (Machine

Operator)

4 7,500 360,000

Final Table Inspector 7 7,500 630,000

Office Boys 2 7,000 168,000

Security guards 3 9,000 324,000

Total 102 12,942,000



12

99 MMAACCHHIINNEERRYY && EEQQUUIIPPMMEENNTT DDEETTAAIILLSS

99..11 MMaacchhiinneerryy LLiisstt

Following combination of stitching machines is required for manufacturing

1,600 knitted Polo T-shirts per day. Approx. prices for (JUKI) Japanese origin

machinery are given below:

TTaabbllee 99--11:: MMaacchhiinneerryy && EEqquuiippmmeennttss RReeqquuiirreedd

Stitching Machinery Machines

Required

Cost /

Machine

(Rs.)

Total Cost

(Rs.)

Cutting Machine 10" 1 63,000 63,000

Lock Stitch (Single Needle) 27 78,000 2,106,000

Safety Stitching Over lock (3

Thread) 12 47,000 564,000

Safety Stitching Over lock (4

Thread) 4 42,000 168,000

Flat Lock 7 100,000 700,000

Button Hole Machine 1 135,000 135,000

Button Stitching Machine 1 90,000 90,000

Steam Boiler 1 200,000 200,000

Factory Fixture 1 200,000 200,000

Generator Set – 60 kVA 1 800,000 800,000

Total 53 5,026,000

99..22 OOtthheerr OOppttiioonnss AAvvaaiillaabbllee ffoorr MMaacchhiinneerryy

Garments stitching machinery is available in quite a diversified range of

suppliers origins i.e. Japanese, Italian, Chinese, Korean, Taiwanese and Hong

Kong origin. However, there is a substantial difference between their prices.

European and Japanese machinery is 2 to 3 times more expensive as compared to

Chinese or Far Eastern machinery. Second hand machinery of different origins is

also available from the local market.

99..33 FFuurrnniittuurree && FFiixxttuurree

Furniture and fixture requirement is given in the table below:



13

TTaabbllee 99--22:: MMaacchhiinneerryy && EEqquuiippmmeennttss RReeqquuiirreedd

Items No. of Items Cost/Item (Rs.) Total Cost

(Rs.)

Computers with UPS 8 45,000 360,000

Printers 1 20,000 20,000

Fax Machine 1 10,000 10,000

Telephone Sets 2 1,500 3,000

Air Conditioners 4 45,000 180,000

Tube Lights, Fans,

etc 56,000

Office Furniture Set

(Aprox) 250,000

Total 879,000

1100 LLAANNDD && BBUUIILLDDIINNGG

1100..11 TToottaall LLaanndd RReeqquuiirreemmeenntt

For garments stitching unit with production of about 1,600 garments per day,

approx. 7,000 square feet covered area is required. The details are listed below:

TTaabbllee 1100--11:: CCoovveerreedd AArreeaa rreeqquuiirreemmeenntt

Building & Civil works

Space

Required in

Sq. ft

Construction

Cost (Rs. /Sq.

Ft.)

Total Cost (Rs.)

Management building 1,000 1,500 1,500,000

Cutting room 600 1,000 600,000

Sampling room 400 1,000 400,000

Stitching room 1,500 1,000 1,500,000

Inspection room 500 1,000 500,000

Packing room 500 1,000 500,000

Finished garment store 1,000 850 850,000

Fabrics and Accessories

inventory room

1,500 850

1,275,000

Total Infrastructure

Cost

7,000

7,125,000

1100..22 RReeccoommmmeennddeedd MMooddee

Building for the business can be acquired on rent but it is proposed that it should

be purchased or built as machinery will be installed.



14

1100..33 SSuuiittaabbllee LLooccaattiioonnss

The clusters of garments stitching industry exist predominantly in Lahore,

Karachi and Faisalabad. Most of the garment manufactures are based in these

major cities, so it is recommended that such unit should be started in these areas.

However, the basic criterion for the selection of location within these clusters

should be the accessibility of skilled manpower.

1100..44 UUttiilliittiieess RReeqquuiirreemmeennttss

Electricity

Telephone

Gas

Water

1111 KKEEYY SSUUCCCCEESSSS FFAACCTTOORRSS

The total commercial viability of this proposed stitching unit depends on the

regular supply of export orders, i.e. at least 300 days per year production. This

requires very aggressive marketing efforts at the entrepreneur's end and the

concerned management team.

Following are other key points that can be taken as the key success factors for any

export based stitching unit:

Assurance of high consistent quality

Surety of on time delivery

Competitive rates

Cost efficiency

Better services to the customer i.e. claim settlement etc.

Better communication with the customers

To run a garment manufacturing set-up is a full-time job, and requires

continuous hard work and attention. Anyone who is not prepared to put best

possible efforts, concentration and hard work, should not attempt to enter in

this business.

1122 TTHHRREEAATTSS FFOORR TTHHEE BBUUSSIINNEESSSS

The labor force at the lowest level i.e. skilled/semi skilled manpower, machine

operators are quite unorganized. Their job behavior and seriousness about the

completion of any assigned job is sometimes quite unpredictable.

Stitching expertise is not available at the very best possible level. This restricts the

industry only to the production of basic garments and it cannot enter in the

production of high quality or fashion garments.

In case of CMT based unit, the requirement of credit and/or delay of payments

from customer side might cause disturbance in the cash cycle.



15

Asia pacific markets are emerging as new players in the world knitwear trade.

Competition from China, Hong Kong, Vietnam, Korea is likely to increase in the

coming years. NAFTA (North American Free Trade Agreement) is also one of the

threats.



16

1133 PPRROOJJEECCTT CCOOSSTTSS && FFIINNAANNCCIIAALL AANNAALLYYSSIISS

1133..11 TToottaall PPrroojjeecctt CCoosstt aanndd RReettuurrnnss

Capital Investment Rs. in actuals

Land 1,244,444

Building/Infrastructure 7,125,000

Machinery & equipment 5,026,000

Furniture & fixtures 486,000

Office vehicles 725,535

Office equipment 393,000

Pre-operating costs 1,573,137

Total Capital Costs 16,573,116

Working Capital Rs. in actuals

Equipment spare part inventory 41,883

Raw material inventory 3,781,200

Cash 500,000

Total Working Capital 4,323,083

Total Investment 20,896,200

Initial Financing Rs. in actuals

Debt 50% 10,448,100

Equity 50% 10,448,100

Equity Project

Internal Rate of Return (IRR) 49% 34%

Payback Period (yrs) 3.69 4.21

Net Present Value (NPV) 22,692,860 33,089,210



18

1133..22 IInnccoommee SSttaatteemmeenntt

Calculations SMEDA

Income Statement

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

Revenue 68,014,947 83,561,221 101,056,851 114,671,455 123,271,814 132,517,200 142,455,990 153,140,189 164,625,703 176,972,631

Cost of sales

Cost of goods sold 1 45,374,400 54,449,280 64,318,212 71,286,018 74,850,319 78,592,835 82,522,477 86,648,600 90,981,030 95,530,082

Cost of goods sold 2 - - - - - - - - - -

Operation costs 1 (direct labor) 8,085,000 8,872,167 9,735,974 10,683,882 11,724,080 12,865,553 14,118,161 15,492,725 17,001,119 18,656,372

Operating costs 2 (machinery maintenance) 251,300 276,430 304,073 334,480 367,928 404,721 445,193 489,713 538,684 592,552

Operating costs 3 (direct electricity) 1,636,729 1,800,402 1,980,442 2,178,486 2,396,335 2,635,968 2,899,565 3,189,522 3,508,474 3,859,321

Total cost of sales 55,347,429 65,398,279 76,338,700 84,482,866 89,338,662 94,499,077 99,985,396 105,820,560 112,029,307 118,638,327

Gross Profit 12,667,518 18,162,942 24,718,151 30,188,588 33,933,152 38,018,123 42,470,594 47,319,629 52,596,396 58,334,304

General administration & selling expenses

Administration expense 3,942,000 4,325,799 4,746,965 6,382,579 7,003,996 7,685,915 8,434,226 9,255,394 10,156,513 11,145,365

Administration benefits expense 39,420 43,258 47,470 63,826 70,040 76,859 84,342 92,554 101,565 111,454

Electricity expense 633,078 696,386 766,025 842,627 926,890 1,019,579 1,121,537 1,233,690 1,357,059 1,492,765

Travelling expense 39,420 43,258 47,470 63,826 70,040 76,859 84,342 92,554 101,565 111,454

Communications expense (phone, fax, mail, internet, etc.) 118,260 129,774 142,409 191,477 210,120 230,577 253,027 277,662 304,695 334,361

Office vehicles running expense 36,277 39,904 43,895 48,284 53,113 58,424 64,266 70,693 77,762 85,539

Office expenses (stationary, entertainment, janitorial services, etc.) 39,420 43,258 47,470 63,826 70,040 76,859 84,342 92,554 101,565 111,454

Promotional expense 680,149 835,612 1,010,569 1,146,715 1,232,718 1,325,172 1,424,560 1,531,402 1,646,257 1,769,726

Professional fees (legal, audit, consultants, etc.) 340,075 417,806 505,284 573,357 616,359 662,586 712,280 765,701 823,129 884,863

Depreciation expense 1,078,254 1,078,254 1,078,254 1,078,254 1,099,427 1,099,427 1,099,427 1,099,427 1,125,163 1,125,163

Amortization of pre-operating costs 314,627 314,627 314,627 314,627 314,627 - - - - -

Subtotal 7,260,980 7,967,936 8,750,436 10,769,398 11,667,370 12,312,257 13,362,350 14,511,631 15,795,274 17,172,144

Operating Income 5,406,538 10,195,006 15,967,715 19,419,191 22,265,782 25,705,865 29,108,244 32,807,998 36,801,122 41,162,160

Gain / (loss) on sale of office equipment - - - 196,500 - - - 317,447 -

Earnings Before Interest & Taxes 5,406,538 10,195,006 15,967,715 19,615,691 22,265,782 25,705,865 29,108,244 33,125,445 36,801,122 41,162,160

Interest on short term debt 426,049 590,267 164,218 - - - - - - -

Interest expense on long term debt (Project Loan) 1,325,849 1,133,058 909,421 650,001 349,075 - - - - -

Interest expense on long term debt (Working Capital Loan) 302,433 197,436 74,351 - - - - - - -

Subtotal 2,054,332 1,920,761 1,147,990 650,001 349,075 - - - - -

Earnings Before Tax 3,352,207 8,274,244 14,819,725 18,965,689 21,916,708 25,705,865 29,108,244 33,125,445 36,801,122 41,162,160

Tax 838,052 2,068,561 3,704,931 4,741,422 5,479,177 6,426,466 7,277,061 8,281,361 9,200,281 10,290,540

NET PROFIT/(LOSS) AFTER TAX 2,514,155 6,205,683 11,114,794 14,224,267 16,437,531 19,279,399 21,831,183 24,844,084 27,600,842 30,871,620



19

1133..33 BBaallaannccee SShheeeett

Calculations SMEDA

Balance Sheet

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

Current assets

Cash & Bank 500,000 - - 4,160,943 13,280,501 24,905,048 40,854,515 58,880,891 78,792,211 101,541,640 136,959,253

Accounts receivable 8,385,404 9,343,736 11,380,566 13,298,320 14,667,736 15,767,816 16,950,402 18,221,682 19,588,308 21,057,432

Finished goods inventory 5,031,584 5,945,298 6,939,882 7,680,261 8,121,697 8,590,825 9,089,581 9,620,051 10,184,482 10,785,302

Equipment spare part inventory 41,883 48,375 55,873 64,534 74,537 86,090 99,434 114,846 132,647 153,207 -

Raw material inventory 3,781,200 4,673,563 5,686,266 6,491,346 7,020,391 7,592,553 8,211,346 8,880,571 9,604,337 10,387,091 -

Total Current Assets 4,323,083 18,138,927 21,031,174 29,037,271 41,354,010 55,373,123 73,523,936 93,916,291 116,370,928 141,854,729 168,801,987

Fixed assets

Land 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444 1,244,444

Building/Infrastructure 7,125,000 6,768,750 6,412,500 6,056,250 5,700,000 5,343,750 4,987,500 4,631,250 4,275,000 3,918,750 3,562,500

Machinery & equipment 5,026,000 4,523,400 4,020,800 3,518,200 3,015,600 2,513,000 2,010,400 1,507,800 1,005,200 502,600 -

Furniture & fixtures 486,000 437,400 388,800 340,200 291,600 243,000 194,400 145,800 97,200 48,600 -

Office vehicles 725,535 652,982 580,428 507,875 435,321 362,768 290,214 217,661 145,107 72,554 -

Office equipment 393,000 294,750 196,500 98,250 477,694 358,270 238,847 119,423 580,640 435,480 290,320

Total Fixed Assets 14,999,979 13,921,726 12,843,472 11,765,219 11,164,659 10,065,232 8,965,805 7,866,378 7,347,591 6,222,428 5,097,264

Intangible assets

Pre-operation costs 1,573,137 1,258,510 943,882 629,255 314,627 - - - - - -

Total Intangible Assets 1,573,137 1,258,510 943,882 629,255 314,627 - - - - - -

TOTAL ASSETS 20,896,200 33,319,163 34,818,528 41,431,744 52,833,296 65,438,355 82,489,741 101,782,669 123,718,520 148,077,157 173,899,251

Current liabilities

Accounts payable 6,207,243 7,454,940 8,775,390 9,704,642 10,220,165 10,764,041 11,337,915 11,943,530 12,582,741 11,850,736

Short term debt - 4,946,273 1,906,508 - - - - - - - -

Other liabilities

Total Current Liabilities - 11,153,516 9,361,448 8,775,390 9,704,642 10,220,165 10,764,041 11,337,915 11,943,530 12,582,741 11,850,736

Other liabilities

Deferred tax 569,723 (232,308) (1,688,886) (3,560,062) (5,726,339) (8,498,229) (11,610,357) (15,124,205) (19,005,621) (23,323,141)

Long term debt (Project Loan) 8,286,558 7,081,615 5,683,881 4,062,509 2,181,718 - - - - - -

Long term debt (Working Capital Loan) 2,161,542 1,552,054 837,569 - - - - - - - -

Total Long Term Liabilities 10,448,100 9,203,392 6,289,142 2,373,622 (1,378,344) (5,726,339) (8,498,229) (11,610,357) (15,124,205) (19,005,621) (23,323,141)

Shareholders' equity

Paid-up capital 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100 10,448,100

Retained earnings 2,514,155 8,719,838 19,834,632 34,058,899 50,496,430 69,775,829 91,607,012 116,451,095 144,051,937 174,923,557

Total Equity 10,448,100 12,962,255 19,167,938 30,282,732 44,506,999 60,944,529 80,223,928 102,055,111 126,899,195 154,500,037 185,371,657

TOTAL CAPITAL AND LIABILITIES 20,896,200 33,319,163 34,818,528 41,431,744 52,833,296 65,438,355 82,489,741 101,782,669 123,718,520 148,077,157 173,899,251

Liabilities & Shareholders' Equity

Assets



20

1133..44 CCaasshh FFllooww SSttaatteemmeenntt

Calculations SMEDA

Cash Flow Statement

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

Operating activities

Net profit 2,514,155 6,205,683 11,114,794 14,224,267 16,437,531 19,279,399 21,831,183 24,844,084 27,600,842 30,871,620

Add: depreciation expense 1,078,254 1,078,254 1,078,254 1,078,254 1,099,427 1,099,427 1,099,427 1,099,427 1,125,163 1,125,163

amortization of pre-operating costs 314,627 314,627 314,627 314,627 314,627 - - - - -

amortization of training costs - - - - - - - - - -

Deferred income tax 569,723 (802,031) (1,456,579) (1,871,175) (2,166,277) (2,771,890) (3,112,128) (3,513,848) (3,881,416) (4,317,520)

Accounts receivable (8,385,404) (958,332) (2,036,830) (1,917,754) (1,369,416) (1,100,080) (1,182,586) (1,271,280) (1,366,626) (1,469,123)

Finished goods inventory (5,031,584) (913,714) (994,584) (740,379) (441,436) (469,129) (498,756) (530,469) (564,432) (600,820)

Equipment inventory (41,883) (6,492) (7,498) (8,660) (10,003) (11,553) (13,344) (15,412) (17,801) (20,560) 153,207

Raw material inventory (3,781,200) (892,363) (1,012,703) (805,080) (529,045) (572,162) (618,793) (669,225) (723,767) (782,753) 10,387,091

Accounts payable 6,207,243 1,247,697 1,320,450 929,251 515,523 543,877 573,873 605,615 639,211 (732,006)

Other liabilities - - - - - - - - - -

Cash provided by operations (3,823,083) (3,631,842) 5,151,984 8,526,391 11,478,044 13,806,264 15,949,467 18,026,376 20,491,960 22,749,429 35,417,613

Financing activities

Project Loan - principal repayment (1,204,943) (1,397,734) (1,621,372) (1,880,791) (2,181,718) - - - - -

Working Capital Loan - principal repayment (609,488) (714,485) (837,569) - - - - - - -

Short term debt principal repayment - (4,946,273) (1,906,508) - - - - - - -

Additions to Project Loan 8,286,558 - - - - - - - - - -

Additions to Working Capital Loan 2,161,542 - - - - - - - - - -

Issuance of shares 10,448,100 - - - - - - - - - -

Cash provided by / (used for) financing activities 20,896,200 (1,814,431) (7,058,492) (4,365,449) (1,880,791) (2,181,718) - - - - -

Investing activities

Capital expenditure (16,573,116) - - - (477,694) - - - (580,640) - -

Cash (used for) / provided by investing activities (16,573,116) - - - (477,694) - - - (580,640) - -

NET CASH 500,000 (5,446,273) (1,906,508) 4,160,943 9,119,558 11,624,547 15,949,467 18,026,376 19,911,320 22,749,429 35,417,613



21

1144 AASSSSUUMMPPTTIIOONN

TTaabbllee 1144--11:: PPrroodduuccttiioonn AAssssuummppttiioonnss

Number of Machines (cutting, stitching, buttoning) 53

Initial Year Capacity Utilization 70%

Capacity Utilization growth rate 10%

Capacity Utilization 95%

Total Production per day (garments) 1,600

Defective garment (% of total finished garments) 2%

Annual Production Capacity at 100% (garments) 528,000

Production of defective garments – Year 1 7,392

TTaabbllee 1144--22:: OOppeerraattiinngg AAssssuummppttiioonnss

Hours operational per day 8

Days operational per year 330

Maximum capacity utilization 100%

TTaabbllee 1144--33:: EEccoonnoommyy--RReellaatteedd AAssssuummppttiioonnss

Electricity growth rate 10%

Wage growth rate 10%

Exchange rate Rs. 90.5/US$

TTaabbllee 1144--44:: CCaasshh FFllooww AAssssuummppttiioonnss

Accounts Receivable cycle (in days) 45

Accounts payable cycle (in days) 45

Raw material inventory (in days) 30

Equipment spare part inventory (in days) 60

Finished Goods Inventory (in days) 30

TTaabbllee 1144--55:: RReevveennuuee AAssssuummppttiioonnss

Production of the unit for the first year 369,600

Sale price per garment in year 1 ($) 2.25

Export Sales Share 100%

Sale price of defective garments (Rs/garment) 55

Sale price growth rate 7.50%



22

TTaabbllee 1144--66:: EExxppeennssee AAssssuummppttiioonnss

Raw Material Cost per Garment Rs. 136.66

Cost of Goods sold growth rate 5%

Machine maintenance 5% of Machinery cost

Administration Benefit expense 1.0% of Admin Expense

Traveling Expense 1.0% of Admin Expense

Communication Expense 3.0% of Admin Expense

Office Vehicle running Expense 5.0% of Vehicle Cost

Office Expense 1.0% of Admin Expense

Promotional Expense 1.0% of Revenue

Professional Fee 0.5% of Revenue

Depreciation Rate on

Machinery and Equipment 10%

Office Equipment 25%

Furniture and Fixture 10%

Office Vehicles 10%

TTaabbllee 1144--77:: FFiinnaanncciiaall AAssssuummppttiioonnss

Project life (years) 10

Debt 50%

Equity 50%

Interest rate on long-term debt 16%

Interest rate on short term debt 16%

Debt tenure 5

Debt payments per year 12



23

1155 AANNNNEEXXUURREE

TTaabbllee 1155--11:: RRaaww MMaatteerriiaall && MMaacchhiinneerryy SSuupppplliieerr

Raw Material Suppliers Machinery Suppliers

TTOOWWNN CCRRIIEERR IINNTTEERRNNAATTIIOONNAALL

Labels, Stickers, packaging material

P-3, Fazal Centre Malik Road. Opp

Banking Court Faisalabad, Pakistan.

Tel: +92 - 41 - 2631555

Fax: +92 - 41 – 2622395

Email: [email protected]

MMUUNNIIRR EENNTTEERRPPRRIISSEESS

607-Main Gate, Jinnah Colony

Faisalabad, Pakistan.

Phone#: (+92)-(41) – 2624133, 5 .

Fax #: (+92)-(41) - 2624188

Contact : Munir-ul-Zafar

AABBUUZZEERR PPRRIINNTTEERR

Ali Market 1st Floor, Near Gawalmandi

Police Station, Lahore

Pakistan

Tel: +92 - 42-37222567, 37212145

Fax: +92 - 42-37212146


NNOOOORRAANNII IINNDDUUSSTTRRIIEESS ((PPVVTT)) LLTTDD

Address: 143-Regency Arcade, First

Floor The Mall, Mills

Samundri Road, Faisalabad, Pakistan

Phone +92-41-2618432, 8541456,

8544683

Fax +92-41-2618079, 8545692

CCOORRRRUUBBOOAARRDD IINNDDUUSSTTRRIIEESS

Junction Lakhuder & Shadipura Stop

Bund Road Lahore

Pakistan

Tel: +92 - 42- 6851675, 6545398


AALL MMUURRTTAAZZAA MMAACCHHIINNEERRYY CCOO.. ((PPVVTT..))

LLTTDD.. 63/1-C, Model Town, Jail Road

Faisalabad, Pakistan

Phone#: (+92)-(41) -2636830

Fax #: (+92)-(41) 2644967

mailto:[email protected]

mailto:[email protected]

smeda polo t-shirts stitching unit

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